factors that affect the stock market

8/7/2019 Factors That Affect The Stock Market

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Factors That Affect The Stock Market - Trading the Rising ThreeMethod Continuation Pattern

The ability to analyze factors affecting stock market movement provides an additionaladvantage for being able to evaluate the direction of the markets. Those factors are not

hard to find. They are usually what are being reported on the financial news stations.Recently, Crude Oil has been an influence. Also, the decline of the US dollar hasbecome a factor.

The Candlestick signals provide the insights on how the outside influences will affect theDow and the NASDAQ. The US dollar has formed a few Doji's when the stochasticswere in the oversold condition. There may be an opportunity for a rally in the dollar overthe next few days. There appears to be some strength being shown after the Doji's. Ifthis is one of the factors that is affecting the stock market, having a better visual conceptof what one of the influences is doing makes for a better evaluation.

Crude Oil prices, after their decline from the $57 range down to the $46 range, providedstrength to the stock market indexes. As anticipated, with the stochastics in the oversoldcondition, Crude Oil prices bounced back up to the 50-day moving average after it hadbroken down through that level. Currently, the January futures contract of Crude Oil hasbeen hugging the 50-day moving average. It formed a Doji on Monday, right at the 50-day moving average. This now becomes an easy evaluation. A bullish day after the Dojiwould send prices up through the 50-day moving average, indicating that the 50-daymoving average is not acting as resistance. On the other hand, seeing the Crude Oilprices heading lower after the Doji would reveal that the 50-day moving average wasnow acting as resistance and it would be feasible to see new recent contract lows in the

near future.


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Taking these outside factors into account, it becomes easier to analyze which way themarket might go based upon the factors affecting stock market movement. Usethe candlestick signals to your advantage no matter which market you are analyzing.

RISING THREE METHOD

Description

The Rising Three Method is an easy pattern to see during uptrends. A long white candleforms. It is then followed by a series of small candles, each consecutively getting lower.The optimal number of pull-back days should be three. Two or four or five pull-backdays can also be observed. The important factor is that they do not close below the


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open of the big white candle. It is also preferred that the shadows do not go below thewhite candle. The final day of the formation should open up int he body of the last pull-back day and close higher than the first big white candle.

Criteria

1. An uptrend is in progress. A long white candle forms.2. A group of small-bodies candles follow, preferably black bodies.3. The close of any of the pull-back days does not close lower than the open of the

big white candle.4. The final day opens up into the body of the last pull-back day and proceeeds to

close above the close of the first big white candle day.

Pattern Psychology

The Rising Three Method is considered a rest in the trend or, in Japanese terms, a rest

from battle. The concept is that the first black candle day brings some doubt into the bullcamp. The next day does the same. By the thrid day, the bulls ar now convinced thatthe bears do not have the strength to push prices down anymore. The bulls get theircourage back and start stepping in. The pattern resembles the Western bull flag orpennant formation, however, the concept was originally developed in the 1700s. Inmodern terms, the market was just 'taking a breather".

Factors That Affect The Stock Market: The Only 2 Things That Drive TheMarketsBy Dr. Steve Sjuggerud, Advisory Panelist, Investment U

Thursday, June 20, 2002: Issue #148Theres such a glut of information these days: monthly investment magazines covering

the markets daily investment newspapers doing the same and minute-by-minute

coverage on CNBC. Theyre all trying to tell you whats driving the stock market, and

they all love to tell you where the market is going to go. And much of the time, theyre

wrong! Its enough to drive you crazy!

Im going to make your life a lot easier. Of all thefactors that affect the stock market,

only two things drive the markets. And you dont need to check in on CNBC, newspapers

or magazines to follow them. Just two things drive the markets; I call them The Two

Es.

The Two Es And How They Affect The Stock MarketThe first E you can probably guess. The second E you probably wouldnt guess right

away, but its equally important and its much less talked about. Since thats the case,

well spend a little more time on the second E today

The first E is earnings. Everyone talks about this E, and it is extremely important.

The big question here is: What is the stock price in relation to the companys earnings?

That tells you, in general, whether a stock is cheap or expensive. This is what we need to

know and the information is easy to find.


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In my research, Ive found that, throughout history, you dont make money in the stock

market when the price-to-earnings ratio of the 500 biggest companies in America is

above 17. Today, that number is gulp about 40. (You can follow this number at

http://www.spglobal.com/earnings.html; use the as reported number.)

What you need to realize here is that, unless stocks fall by over 50% or unless earnings

more than double you dont even need to check in with this number. You know thatstocks are expensive in relation to their earnings, and will be for a while. Just remember,

history tells us we dont make money in stocks when the price-to-earnings ratio of the

market is above 17. I wont say more here because so much is said and written on the

topic of earnings in the mainstream financial press already.

The Second Factor that Drives the Markets Is EMOTIONS

Emotions are a huge part of investing. Do you think it was earnings that drove the

Nasdaq from 1,500 to 5,000, and then back to 1,500, all in four years time? Did earnings

get 200%+ better? And then 70% worse? No. Was the Crash of 29, where stocks

ultimately fell by 89%, due to earnings? No. Emotions played a big part in both of those

examples.The 10 Stages Of The Stock Market

Human beings, with both rational and emotional urges, are the market players. And the

thing is, those emotional urges can (and do) often overtake the rational side.

Instead of explaining this at great length, its better if you just read my 10 Stages Of The

Stock Market below and figure out where we are right now. This 10 Stages model is a

tool for measuring the emotional state of the market today.

What are your friends and neighbors saying about the stock market? Ask them. Then

figure out which quote below best sums up all their emotions. By doing this, youll know

exactly where we are in the stock market. Of course, youll want to be a buyer

somewhere around the end of the bear market and the beginning of the bull market.Please read these 10 Stages, and think about where you think we are now. When you

do this, youll know where we are in this market.

y BULL MARKET, LATE STAGE: Darn it, other people not as smart as me are getting

rich, and Im just sitting here. Ive got to get in on that! (Late 1990s?)

y BULL MARKET, PEAK: Man, I am SMART. Ive made a ton of money in stocks.

And it couldnt have been any easier. Practicallyeverything I buy goes up! (Early

2000?)

y BEAR MARKET, BEGINNINGS: Its just a correction. Buying the dips has worked

like a charm in the past, and itll work again! (Late 2000?)

y BEAR MARKET, EARLY STAGE: They say to buy and hold, so thats what Ill do,

just keep on holding itll come back! (2001?)

y BEAR MARKET, MIDDLE STAGE: The correction HAS to be almost over by now.

Id sure hate to sell out right at the bottom, only to have the market roar back.

(Early 2002?)

y BEAR MARKET, LATE STAGE: Well, its too late to sell now. So Ill just keep

holding. Boy, I used to open my portfolio statement the second it came in the mail


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just to see my net worth going up, up, up! Now I dread opening my mailbox. (Late

2002?)

y BEAR MARKET, PEAK: Okay, I give up. Its time to start cleaning house and sell

these stocks. Boy I really shouldnt have put so much money into these things.

(Early 2003?)

y BULL MARKET, BEGINNINGS: Nobody EVER makes money investing. Ill never

put any money in the stock market ever again. (When???)

y BULL MARKET, EARLY STAGE: Wow, prices have been going up lately. I hadnt

even noticed Id given up. Those foolish buyers, theyll sure get whats coming to

them! Im going to get out now, while things are up! (When ???)

y BULL MARKET, MIDDLE STAGE: Hey, things are looking up. Maybe there is

something going on here Nah, once burned, twice shy! Im skeptical Ill keep

watching this suckers rally! (When???)

By reading these objectively, Id say were at about 5 right now, which means were in

the middle stage of the bear market. (The problem is, you never know how long onestage will last.) I hear everything from 4 to 6 regularly these days. What do you think?

(Incidentally, the absolute best time to buy is between stages 7 and 8.)

When you wish to invest in the stock market, then you should always make a goodsurvey of the whole market. As you know that you cannot predict the stock market, soin that case you need to know the functioning of the market. There are some majorfactors that affect stock price. So let us discuss about the different factors affecting

the stock price in this article.

Demand AND SUPPLY

One of the major factors affecting stock price is demand and supply. The trend of thestock market trading directly affects the price. When people are buying more stocks,then the price of that particular stock increases. On the other hand if people are sellingmore stocks, then the price of that stock falls. So, you should be very careful when

you decide to invest in the Indian stock market.

Market Cap

Never try to guess the worth of a company simply by comparing the price of thestock. You should always keep in mind that it is not the stock but the marketcapitalization of the company that determines the worth of the company. So marketcap is another factor that affects stock price.

News


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When you get positive news about a company then it can increase thebuying interest in the market. On the other hand, when there is a negative pressrelease, it can ruin the prospect of a stock. In this case you should remember that newsshould not matter much but the overall performance of the company matters more. So,news is another factor affecting stock price.

Earning/Price Ratio

Another important factor affecting stock price is the earning/price ratio. This givesyou a fair idea of a companys share price when it is compared to its earnings. Thestock becomes undervalued if the price of the share is much lower than the earnings ofa company. But if this is the case, then it has the potential to rise in the near future.The stock becomes overvalued if the price is much higher than the actual earning.

So, these are the major factors that affect stock price.

Invest In Share Market for Profit, What Else?

Share market for many is gamble and they find the stock jargons to be alien. But thereality is something far from that. Stocks are also a viable investment option that cangive the investors huge returns if the investment is done meticulously. There are somany factors that make the share market a chosen area of investment for millions ofinvestors.

Stocks can give multiple returns on investment that no other asset class can match. Ifyou can invest wisely in the potentially strong stocks, you are all set to gain hugelyfrom your investment.

There are so many options in stock market investment. You can choose to do intradaytrading or delivery trading and you can trade in cash segment or in derivativesegment. You also get a variety of choices in equity trading itself. You can invest ingrowth stocks to gain rapidly, or you can invest in dividend stocks for long term andenjoy the dividends that keep coming to you. In short share market investments have

plenty of options that you can choose according to your need and your budget.

With the advent of online trading, investing in the stock market and trading in thestock market has become easier for the individual stock investors. They can buy orsell stocks by themselves with just a click of the mouse and that too sitting at thecomfort of their home or office. In case of online stock trading, there is no brokerinvolved and there is no paper work either. The brokerage in online trading is also


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lower in comparison to the conventional stock trading. In short online share tradinghas made the share market investment a profitable proposition for the individualinvestors.

In this age of internet and media boom, information has become easy accessible.

Anyone can get detailed information on any business quite easily through internet.Companies publish quarterly and annual reports that are very much helpful to judgethe financial health and standing of the company.

There are so many institutions who offer analysis and tips on stock trading. Once youget registered with one of them, they will send you detailed analysis reports andsuggestions on buying and selling stocks that are very much helpful in making

profitable investments.

With the new regulations and monitoring authorities at place the operations at the

stock exchanges have become transparent and easy to do.

How To Do A Stock Analysis

Technical analysis is the method of predicting the stock price based on differentfactors. Stock analysts take note of the past market, price of the stock and volume ofthe traded stocks to do the stock analysis and thereby forecast the price of the stock. In

practice technical analysis is done on the basis of the different models and trading

patterns.

Analysts take note of various indicators such as relative strength index, regressions,moving averages, cycles regressions, inter-market and intra-market price correlationsto prepare charts that actually show the pattern of the price movement for a particularstock. On the basis of the chart and indentifying the price pattern stock analysts

predict the future movement of the stock. These financial indicators are actuallymathematical transformation of the stock price and trading volume. Apart from theseindicators some analysts also consider the market psyche while predicting the stock

prices.

There are different models and theories in practice for stock analysis.

Candle Stick Charting - The method of candlestick charts was first developed byHomma Munehisa in the 18th century. The candlestick chart is basically a bar stylechart that can be used to project and predict the price movement of the stock. Thecandlestick chart is basically the combination of the line chart and the bar chart and


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gives an overview of the opening price, closing price, high and low price in a day forover a period of time. This method of charting and technical analysis is very popularamong the investors and analysts because of the easy readability of the chart.

Dow Theory - Dow Theory was first developed by Charles H. Dow, who was the first

editor of the Wall Street Journal and co-founder of Dow Jones and Company. Thetheory is based on six basic tenets.

y There are three types of movements in the market.y Market trends typically have three phases.y Stock market discounts all newsy The market average must always confirm each othery Market trends needs to be confirmed by the volume of trading

y Trends can only be said to be ended only when definitive signals prove that.

Elliott wave principle - This theory was developed by Ralph Nelson Elliott in hisbook The Wave Principle (1938). According to this theory the psychology of theinvestors generally moves from optimism to pessimism and this swing creates the

price pattern that is projected by the three-wave structures of increasing degree or

size.

Apart from above technical methods there are lot many methods available to do stockanalysis ofIndian stock market and movement of stocks listed in NSE and BSE can

be estimated based on those indicators.

Bombay Stock Exchange

The Bombay Stock Exchange or BSE as it is most popularly known is the oldest stockexchange in Asia. In terms of listed companies (4, 800 by August 2007), the BombayStock Exchange is the biggest in the world. Being located at the Dalal Street inMumbai, the stock exchange enjoys the benefits of the financial capital of India. Thestock exchange was established in the year 1875 as "The Native Share & StockBrokers Association." Bombay Stock Exchange is the first stock exchange in India to

obtain permanent recognition from the Government of India under the SecuritiesContracts (Regulation) Act, 1956. The earlier the exchange was operated as theAssociation of Persons, it is now incorporated under the Companies Act, 1956. InOctober 2007 the market capitalization of the companies listed on the BSE was US$1.61 trillion that have made it the largest market in the South East Asia in terms of

market capitalization.


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The exchange is managed professionally under the direction of its Board of Directorsthat is made of eminent people from the industries and commerce and headed by theManaging director and CEO. The Board formulates all the strategies and keeps anover all control on the functioning of the exchange. The policy of the exchange has

been formed to ensure optimum integrality and transparency in the processes. The

Bombay stock exchange has nation presence in around 417 cities and towns in India.The exchange has been providing the investors an efficient market for trading inequity, debt instruments and derivatives.

The BSE SENSEX that is also called the "BSE 30 is made of thirty scripts. Theindex is followed extensively in Indian capital market and it is regarded as the indexof the Indian capital market. The Bombay Stock Exchange is the eminent stockexchange in India and the SENSEX of this exchange is recognized and followed allover the world. The exchange has played a pivotal role in shaping the capital marketin India. The companies that are listed in the BSE index have been changed only afew times and they account for about one-fifth of the total market capitalization of theBombay Stock Exchange. Though the SENSEX is the primary and the most widelyaccept index of BSE there are few indices as well, including BSE 500, BSE 100, BSE200, BSE PSU, BSE MIDCAP, BSE SMLCAP, BSE BANKEX, BSE Tech, BSEAuto, BSE Pharma, BSE FMCG, BSE Consumer Durables and BSE Metal.

Stock market strategies and Indian stock market

Stock markets are highly sensitive and so they are mercurial in nature. The stockmarket gets affected when there is any happening in the world whether it relates to

religion, politics, financeetc. So, it is very important that you deal with the stockmarket strategies very productively. The marketing strategies will allow traders tounderstand how to analyse the stocks and which stocks need to be purchased and what

would be an ideal time to sell the stocks to protect their invested money.

Follow technical and Fundamental analyst adviceWhen you are investing in stocks and you wish to make profit from the investmentsyou have made, then you should have some really good marketing strategies. Thereare some investors who are fully influenced by the buying and selling of the peoplethey know. Still we suggest that never anyone blindly but if some stock marketanalyst gives you some advise do follow it strictly and if you have any doubt do askhim reason for recommending the same and if you are satisfied, only than invest in it.

Have a clear understanding of the stock marketIf you do not have a clear understanding of the Indian stock market then you wouldnot be able to make a good strategy of the market. You should have a clear idea of the


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stocks available in the market. There are different types of stocks large cap, mid cap,penny stocks, small cap stocks, growth stocks, sector stocksetc. So you shouldmake a good strategy because all these types of stocks have their own characteristicsand you should know that all types of stocks are not suitable for all investors. Thereare also trading types where you can either invest in derivative trading, day

trading or you can also invest on long term basis in the stock market.

Stick to the fundamental rules of the market when you make yourstock marketstrategies. You should not be confused when the trend of the market changes. Make a

good research and you would definitely gain in the long run in the market.

Trading Psychology, How to be a successful trader in stock market

It is very important and useful to adopt the right method of trading and for this youneed a very good frame of mind. So, it is vital to adopt the right trading psychology.

Now let us have a look at what sort of psychological mind should you have in order togo for the right trading in the stock market. Remember that markets fluctuate day byday and you need to be quite prepared for it. It is all about learning the market andadopting the right methods that will lead you to success.

Do Not Get Caught By Positive Or Negative Emotion

You are quite aware that no trade is guaranteed and so you should never get caught byyour positive or negative emotion. Remember that it is not all about winning but it isabout trading well. If by chance your trade goes wrong, then it would torture you. Sonever give a chance for that. Always remember that you need a very good research ofthe financial market if you wish to succeed in the trade market. Unless you come toknow about the past records of a company, you will not be able to know the outcomeof your investment. So invest wisely and at the same time very carefully so that youdo not have cry for yourcash. It is your responsibility to take care of your earningsand your money. Always trade with a solid reason otherwise you would not be able to

beat the market.

It Is All About Judgment That You Make

Trading in the Indian stock market is all about the judgment that you make.Judgment does not only imply to market but also to you as well. Remember thatgreed and fear are the greatest enemies which will hamper your success. It is only


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because of this that we find so many losers that are trading in the market. They need a

lot of time to understand the market.

So, in order to trade in the market, you should adopt trading psychology so that youcan be mentally prepared to trade in the market.

SMILING MARKET CRIED RED ON BUDGET:Out 30 BSE Sensex stocks, 29 stocks closed negative. JP Associates was top loser onthe index; it was down over 8%. Reliance Infra, Reliance Communication, ICICIBank, Tata Steel and Reliance Industries were down between 5% and 7%.

TOP LOSERS ON SENSEX:

LTP%

CHANGEJP ASSPCIATES 69.55 -7.88

RELIANCE

INFRA 533.15 -6.35

ICICI BANK 409.2 -5.79RCOM 171.15 -5.78

TATA STEEL 184.05 -5.2RELIANCE IND 1319.05 -5.17

L&T 666.3 -4.96

SBI 1136 -4.86STERLITE IND 262.55 -4.7BHEL 1401.3 -4.47


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INDUSTRY GROWTH RATE IN LAST 10YEARS:

DEFICIT AT GLANCE AND THEIR IMPACT:

Increased borrowing from the government will make the corporate difficult to borrow.This also makes interest rate cut difficult unless and until central bank goes for

printing more money.Government increased deficit is good for now as corporate are shying from theinvestment but things could be difficult for the corporate as and when they return for

borrowing.

HIGHLIGHTS OF THE INTERIM UNION BUDGET2009-10:Revenue deficit for 2009-10 estimated at 4% and fiscal deficit at 5.5% of GDP.Rs 953231crore expenditure proposed for 2009-10.


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Rs 131317 crore allocated for flagship programmes.Defence gets Rs141703 crore in the interim budget.Indira Gandhi National Widow Pension and Indira Gandhi National DisabilityPension Schemes to be launches.Widows in the age group 18-40 to be given priority in admission to ITIs, women ITIs

and national/regional ITIs for women.NPA of public sector banks declines.60.12 lakh houses for weaker section constructed under Indira Awaas Yojana.Rs 100 crore for unique identification authority.Rs 65300 crore debt waiver and relief given to 3.6 crore farmers.Farm credit disbursement up 300% since 2003-04, touching Rs2.5 lakh crore in 2007-08.Rural infrastructure development fund corpus increased to Rs14000 crore in 2008-09.GDP growth of over 9% for three consecutive years.15 central universities established, six new IITs start functioning; two more this year.$32.4 billion FDI received in 2007-08.

STATEMENT OF ACCOUNT:

SOURCE OF FUND USES OF FUND

1.BORROWING AND OTHER LIABILITIES-29%

1.CENTRAL PLAN-18%

2.CORPORATE TAX-22% 2.INTEREST PAYMENT-20%

3.INCOME TAX-12% 3.DEFENCE-13%

4.CUSTOMS-10% 4.SUBSIDIES-9%

5.SERVICE TAX&OTHER TAXES-6% 5.OTHER NON PLAN EXPENDITURE-14%

6.EXCISE-10% 6.STATE SHARE OF TAX AND DUTIES-15%

7.NON-TAX REVENUE-10% 7.NON PLAN ASSISTANCE TO STATEAND UT GOVT-4%

8.NON-DEBT CAPITAL RECEIPT-1% 8.STATE AND UT PLAN ASSISTANCE-7%


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SOURCE OF FUND

USES OF FUND

IMPACT OF BUDGET ON DIFFERENT SECTORS:

The interim budget does not have any major announcement that affects the industry. Itwas straight statement account. Market had lots of expectation from the budget.Industry were expecting major support from the government in this recessionaryscenario. However there are certain positive things as govt increased expenditure ininfrastructure,defence and other expenditure will have indirect positive impact on the

industries.


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INFRASTRUCTURE:The government has taken steps to encourage the private investments in infrastructurevia PPP. The government has approved 37 infra projects worth Rs 70,000 crore

between August 08 & January 09. It has also allocated Rs 40900 crore for BharatNirman Scheme. The corpus Of Rural Infrastructure Development Fund was

increased to Rs 14000 crore in 2008-09. IIFCL has given permission to raise Rs10000 crore from market by March 09. It will be also given permission to raise Rs30000 crore more if required. The Centre has been given in-principle approval underPPP mode projects worth Rs 67700 crore.

POSITIVE IMPACT:

Nagarjuna Construction, Hindustan construction, IVRCL

DEFENCE: Government has increased allocation in defense at Rs141703crore for

FY2010.

POSITIVE IMPACT: BEML, L&T, Zen technology.

TEXTILE, GEM & JWELLERY: The government extends interest subvention forsome export loans. It extends 2% interest subsidy on pre & post shipment exportcredit. The Sunset clause for gems & jewellery, textiles, handicrafts will be extended.

POSITIVE IMPACT: ARVIND MILL, ALOK TEXTILE, TITAN, SURAJDIAMOND

CEMENT& STEEL: Cement and steel sector is expected to benefit from theincreased expenditure on infrastructure development.Steel sector will have marginal benefit from government measures such as bringing

HR coils under restricted and levy of import duty on flat product.

MARGINAL POSITIVE IMPACT

BANKING: Severe liquidity crunch will keep the banking counter underperformer.The relaxation in non-performing loan norms in real estate and corporate sectors maylead to weakening of asset quality and exert greater stress on the sector.

FERTILISER: Fertilizer stocks were impacted as fertilizer subsidy was declaredshort against expectation. Fertilizer secretary says, has allocated Rs 1, 00,700 crore asfertilizer subsidy as against required amount of Rs 1, 09,000 crore for FY09. It meanstotal shortfall of Rs 8300 crore in fertilizer subsidy. For total Rs 100700 crore, Rs80,700 crore allocated in cash and Rs 20,000 crore in bonds. They have already


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disbursed Rs 75441 crore in cash and Rs 14,000 crore in bonds to fertilizer

companies.

NEGATIVE IMPACT: NFL, RCF, NAGARJUNA FERTILISERS.

TRACTOR AND FARM EQUIPMENTS: Tractors and farm equipment item couldsee boost in the demand due to emphasis on agriculture and rural development. Poor

bank finance is the only concern.

POSITIVE IMPACT: M&M, JAIN IRRIGATION

CONCLUSION:We did not find anything exciting in the budget. The budget was lacking the

popularism as we were expecting sops for the battered industry. Government hasensured past plan to go in smoothly.

Defense outlay has increased; it was very well in line with our expectation after theMumbai attack.Government push for rural development is going to see a new growth area opening upfor the FMCG companies as their disposal income will increase .We are sure not justsure but 100% that next boom will definitely will be coming from agricultural sectors.So the companies working in the rural sector will definitely will be the prime

beneficiary in the coming years.

factors that affect the stock market

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