A key concept in technical analysis is the identification of support and resistance levels. A support level is a price or level below which a stock or the market as a whole is unlikely to go. A resistance level is a price or level above which a stock or the market as a whole is unlikely to rise. The idea behind these levels is straightforward. As a stock’s price (or the market as a whole) falls, it reaches a point where investors increasingly believe that it can fall no further - the point at it “bottoms out.” Essentially, buying by bargain-hungry investors (“bottom feeders”) picks up at that point, thereby “supporting” the price. A resistance level is the same thing in the opposite direction. As a stock (or the market) rises, it eventually “tops out” and investor selling picks up. This selling is often referred to as “profit taking.” Resistance and support areas are usually viewed as psychological barriers. As the DJIA approaches levels with three zeroes, such as 8,000, talk of “psychologically important” barriers picks up in the financial press. A “breakout” occurs when a stock (or the market) passes through either a support or a resistance level. A breakout ...  Read the rest of the entry...

Dow theory is a method of analyzing and interpreting stock market movements that dates back to the turn of the century. The theory is named after Charles Dow, a cofounder of the Dow Jones Company and an editor of the Dow Jones-owned newspaper, The Wall Street Journal. The essence of Dow theory is that there are, at all times, three forces at work in the stock market: (1) a primary direction or trend, (2) a secondary reaction or trend, and (3) daily fluctuations. According to the theory, the primary direction is either bullish (up) or bearish (down), and it reflects the long-run direction of the market. However, the market can, for limited periods of time, depart from its primary direction. These departures are called secondary reactions or trends and may last for several weeks or months. These are eliminated by corrections, which are reversions back to the primary direction. Daily fluctuations are essentially noise and are of no real importance. The basic purpose of the Dow theory is to signal changes in the primary direction. To do this, two stock market averages, the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA), are monitored. If one of these departs ...  Read the rest of the entry...

In December 2536, Borg publicly announced the completed acquisition of a 50 percent financial interest in Ferengi Traders. However, half the acquired shares do not carry voting rights, so the acquisition is treated as a simple investment on the balance sheet. The stated purpose of the acquisition was to expand sales outlets. Complementing the acquisition, Borg also announced plans for a marketing campaign to increase next year’s net sales to a targeted $120,000. As a Borg analyst, you must examine the potential impact of these actions. You immediately contact Borg management to inquire about the details of the acquisition and the marketing campaign. Armed with this additional information, you decide to construct pro forma financial statements for Borg Corporation for the year 2537. You also decide to formulate your analysis by considering two scenarios: an optimistic sales scenario and a pessimistic sales scenario. Under the optimistic scenario, the marketing campaign is successful and targeted Net Sales of $120,000 are realized with an assumed cost of goods sold of $90,000. Under the pessimistic scenario, only $100,000 of net sales are realized with a cost of goods sold of $80,000. Operating expenses will be $17,000 under both scenarios, reflecting the costs of ...  Read the rest of the entry...