Agec 420

1
Agec 420

• TradeSim
• Quiz 5 (review) and 6
• Fundamental Analysis
• Technical Analysis

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Markets

• Bot 1 MidAm Dec Corn _at_ 2.29¼, March 6
• Close ? /-
• Tue., Apr. 2 2.24 ½ -47.50
• CBOT http//www.cbot.com/
• Cattle http//futures.tradingcharts.com/chart/LC/
  42

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Fundamental Analysis

• The use of information about supply, demand and
  other economic factors to forecast price.

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Fundamental Analysis

• Typically involves
• a) gathering info on supply and demand
• USDA reports, weather, political factors,
  substitutes
• b) translating quantity information into a price
  prediction
• regression analysis

5
Fundamental Analysis

• Is it useful or worthwhile for the small hedger
  or speculator?
• Purcell, Chapters 3 --gt YES
• Malkiel, Chapters 5 and 7 --gt NO

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Fundamental Analysis - Livestock

• Long run
• use both Supply and Demand information
• Short run
• use only Supply information
• Cattle on Feed numbers
• Weights

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Technical Analysis

• The use of historical information on prices,
  price patterns, volume of trade etc to forecast
  future price movement
• Typically involves use of
• a) Charts
• b) Other mathematical constructs
• - eg moving averages

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Technical Analysis

• Is it worthwhile?
• Purcell, Chapters 4 and 5 --gt YES
• Malkiel, Chapters 5 and 6 --gt NO
• Example http//commoditytrader.net

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Efficient Market Theory

• Except for long-run trends, stock prices are
  difficult (perhaps impossible) to predict
• For futures prices
• there is no long run!

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3 Versions of the theory

• weak
• cannot predict future prices using past prices
• semi-strong
• cannot predict prices using all published
  information
• strong
• cannot predict .. using any information

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The Bar Chart

• Axes show price and time
• Vertical bars
• price range (day or week)
• top of the bar --gt highest price
• bottom --gt lowest price
• tick on RHS closing price

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Charts

• Two basic categories of chart patterns
• 1. Trends and trend reversals
• Rationale
• bandwagon effects,
• gradual release of information

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Charts

• Categories of chart patterns
• 2. Resistance and support planes and the
  associated topping and bottoming patterns
• Rationale investors memory
• sell when it gets back to the price they bought
  at
• buy when it gets down to where they wish they had
  bought

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Charts - the argument against..

• 1. Trends
• How do you know its a trend?
• Once you recognize it, youve missed it!
• 2. Other patterns
• If they had any value, anticipatory action would
  destroy them!

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Evaluation

• A very low --- E very high
• 1. Effectiveness as a teacher
• 2. Clarity of presentation
• 3. Ability to explain
• 4. Availability outside class

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Mid-term Evaluation

• A very low --- E very high
• 5. Amount you have learned
• 6. Pace (A too slow, E too fast)
• 7. Difficulty (Atoo easy, Etoo difficult)
• 8. Overall evaluation
• Put specific suggestions for improvement,
  complaints, etc on the back.