Investment Advisory Opinions
Investment advisory opinions indicate whether investment advisors
are bullish or bearish about the future of stock prices. Technical
analysts who follow the predictions of investment advisors take a
contrarian (opposite) view. When most of the advisors are bullish,
technical analysts become bearish. Similarly, if the majority of advisors
become bearish, technical analysts see it as is a signal to buy.
Mutual Fund Cash Position
Mutual fund cash position in relation to the amount of total investments is used as an indicator of the direction of the markets. The amount of cash a mutual fund has in relation to the amount of its total investments is an indicator of the direction of the markets. By monitoring the cash positions of mutual funds, technical analysts can assess the potential purchasing power of mutual funds. Equity mutual funds hold between 5 and 25 percent of their assets in cash. When mutual funds are fully invested or hold little of their assets in cash, they have little purchasing power in the markets. However, when the funds hold larger percentages of their assets in cash (15 percent or higher), their potential purchasing power in the market is significant, which could trigger an upturn in the market when the cash is invested.
Relative Strength Ratio
The relative strength ratio is the price of a stock compared with
another stock, index, or the market. The relative strength ratio allows
you to compare the performance of one stock or market index relative
to another. For example, to compare the performance of Coca-
Cola Company with the performance of PepsiCo and determine
which is the better performer, you construct the ratio of relative
strength. The chart is constructed by plotting daily stock prices for a
specified period. What matters in determining the relative strength
is that the original investment is the same for both stocks. The
process is illustrated in Table 11-3.
Lack of Trading Plan