Find the monthly closing prices for the most recent 4 years for Abercrombie and Fitch (ANF) from the Excel Analytics section of Market Insight (www.mhhe.com/edumarketinsight). Also collect the closing level of the S&P 500 Index over the same period.
Calculate the 4-month mobbing average of both the stock and the S&P 500 over time. For each series, use Excel to plot the moving average against the actual level of the stock price or index. Examine the instances where the moving average and price series cross. Is the stock more or less likely to increase when the price crosses through the moving average? Does it matter whether the price crosses the moving average from above or below? How reliable would an investment rule based on moving averages be? Perform your analysis for both the stock price and the S&P 500.
Calculate and plot the relative strength of the stock compared to the S&P 500 over the sample period. Find all instances in which relative strength of the stock increases by more than 10 percentage points (e.g., an increase in the relative strength index from .93 to 1.03) and all those instances in which relative strength of the stock decreases by more than 10 percentage points. Is the stock more or less likely to outperform the S&P in the following 2 months when relative strength has increased or to underperform when relative strength has decreased? In other words, does relative strength continue? How reliable would an investment rule based on relative strength be?
Go to the Market Insight database (www.mhhe.com/edumarketinsight) and click on the Company tab. Enter ticker symbol WMT for Wal-Mart stores and click on GO.
Select the Charting by Profit link on the menu. When the chart first appears you will need to reenter the WMT symbol in the box at the top left corner and click on GO. Click on the plus sign next to Technical Studies, then click on the plus sign next to Moving Averages. Double click on Simple Moving Averages to see the Wal-Mart chart with a simple moving average. Do you see any patterns that might lead to a successful trading rule?
Click on the plus sign next to Support & Resistance. Next, double click on Projection Bands. What observations do you have about how often the price has passed outside of these bands and what tends to happen after the price crosses the band line?
At the top of the graph locate the selection box next to the stock symbol. The default setting is Bar. Change this to Candle to see a candle chart for Wal-Mart. Change the frequency (three boxes to the right of the stock symbol) from "D" (daily) to "W" (weekly) to get a better view of the candles. As you move the cursor along the plotted data look at the price information on top of the chart to see how the candle chart was plotted.
Explore some of the other graphs in the Technical Studies section. Do you have any favorites that you think might be particularly useful for making investment decisions?
