The stock market fluctuates due to the daily tussle between the bulls and the bears.
US markets have been weak amid the fear of recession and global demand issues. The paper manufacturing company stocks have surged as paper demand triggered after the ban on plastic use. Similarly, the market may record many stock-specific reactions, especially during the earning declaration season.
Stock action in the market is based on various factors that affect stock prices. Such factors alter supply and demand, driving price fluctuations at any given moment in the market.
Interpreting the Stock Price Action
Although there is no sure way to tell how the stock price will behave, a few tools and analyses can give an indicative view of how the stock price moves. These are:
– Technical Analysis
– Fundamental Analysis
– Market Sentiment
When you open a Demat account with a broker, find out if they offer periodic research reports that help investors make sound decisions. With regular market insights, you can tap the opportunities as they arise. Let’s now have a closer look at interpreting the stock price action through various analyses:
Technical Analysis
Technical analysis is associated with identifying patterns in price movement and predicting the possible upcoming move. It helps you decide the entry and exit price for a trade and the suitable time to take a position. Technical analysis takes into consideration the historical price of a stock to indicate the support, resistance levels and possible entry and exit levels. The indicators are available in the Demat & Trading account which can help in technical analysis. The indicators should be viewed alongside the related factors that impact the markets:
– Trends: Stock prices in a trend tend to gather momentum with a steady increase or decrease in price. If there is a short-term uptrend, the stock price can rise to a higher level. Reverse trends also matter for a stock action.
–Inflation: nflation is a significant driver from a technical perspective. Low inflation results in high multiples in stock valuation.
– Liquidity: Liquidity is a pivotal factor that expresses if it is easy to sell shares in the market to get cash. More liquidity means there are a significant number of buyers and sellers in the market. It also reflects the attention that the stock gets from the investors. The stocks of blue-chip companies are generally highly liquid whereas those of small-cap companies are less liquid.
Fundamental Analysis
The company fundamentals drive the stock price in the long haul. Fundamental analysis involves scrutinizing the financial strength and value of a company, its management values, its earnings, assets and liabilities. It helps to evaluate a company’s strengths and measure its intrinsic value. A company with strong fundamentals can survive in adversities in an economy, like a recession or slowdown.
Investors watch the ratios like EPS (Earnings per share) and dividend per share. They give a view of the strength of the company.
Market Sentiments
Market sentiment is a behavioral science that shows the overall attitude of investors toward a particular financial security or the stock market. It means the psychology of market participants (often subjective and biased). It is determined through the price movement of a stock. Broadly, rising prices mean bullish market sentiment, while declining prices point to bearish market sentiment.
Market sentiment starts with the presumption that the market is inefficient at the time. Generally, it is collective, but individual perception also matters in the stock market.
Different market participants trade based on different aspects. While short-term traders may prioritize technical factors, long-term investors focus on the fundamentals of a company to invest in. Technical factors and market sentiment often dominate the short run.
Key Indicators Traders Look at For Stock Action
Some key indicators that suggest stock action on a trading day are as follows:
● The US Market
● Stocks showing a bullish bias
● Stocks signaling weakness ahead
● Most active stocks in value and volume terms
● Stocks showing buying interest and selling pressure
● Sentiment meter
● SGX Nifty levels
Thus, these are the key indicators that suggest stock action on a trading day and a few aspects that help investors and traders determine opportunities in the market. Invest your time in increasing your market knowledge and stay profitable for a long in the stock market.
Investments in securities markets are subject to market risks, read all the related documents carefully before investing.
