Section 10 - Chapter 1 - Equities - CMT Level 1 2025 Short Notes

Section 10 - Chapter 1 - Equities - Presented by Rohan Sharma - The CMT Coach - Chartered Market Technician CMT Level 1 Study Material - CMT Level 1 Chapter Wise Short Notes - CMT Level 1 Course Content - CMT Level 1 2025 Exam Syllabus

1. Chapter 1 Equities SECTION 10 - COMPARATIVE MARKET ANALYSIS Presented By : This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

2. Agenda Equities What Are Equities? Benefits for Investors Other Forms of Equity What Does a Technical Analyst Need? Segmenting the Market for Analysis This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

3. Equities Key Facts about Equity Securities 1. Definition: Equity securities represent ownership interest in a company, typically in the form of common or preferred stock. 2. Ownership Rights: Holders may have voting rights and share in company profits through dividends. 3. Risk & Return: Generally riskier than debt securities but offer potential for higher returns. 4. Market Trading: Traded on stock exchanges (e.g., NYSE, NASDAQ) or over-the-counter (OTC).

4. Equities Key Facts about Equity Securities 5. Types of Equity Securities: Common stock, preferred stock, convertible securities, and warrants. 6. Valuation: Market price determined by supply/demand, earnings, and investor sentiment. 7. Dividend Policy: Common stock dividends are variable; preferred stocks often have fixed dividends. 8. Regulatory Oversight: Governed by financial regulations (e.g., SEC in the U.S.).

5. Equities Interpretations & Implications of Equity Securities • For Investors: o A way to participate in a company's growth. o Higher risk but potential for substantial returns. o Diversification tool in an investment portfolio. • For Companies: o A method to raise capital without debt obligations. o Dilutes existing ownership and control. o May impact financial flexibility based on stock performance. • In Market Trends: o Bull markets drive up equity prices, leading to higher valuations. o Bear markets can lead to reduced investor confidence and lower stock prices.

6. Equities Comparison: Equity vs. Debt Securities Factor Equity Securities Debt Securities Ownership Yes No Voting Rights Yes (common stock) No Return Type Dividends + Capital Gains Fixed interest payments Risk Level Higher Lower Priority in Liquidation Last First (before equity holders) Investment Horizon Long-term Short to medium-term

7. Equities Comparison: Equities vs. Other Investments Factor Equities (Stocks) Bonds (Fixed-Income) Real Estate Mutual Funds/ETFs Return Potential High Moderate Moderate Varies Risk Level High Low to moderate Moderate Varies Liquidity High Moderate Low High Inflation Hedge Strong Weak Strong Moderate to strong Income Source Dividends + Capital Gains Interest payments Rental Income Mix of Dividends & Interest

8. Benefits of Investing in Equities Key Facts 1. Higher Return Potential – Equities historically provide higher long-term returns compared to fixed-income securities. 2. Ownership Stake – Investors own a portion of the company and may have voting rights (common stock). 3. Dividend Income – Some stocks provide regular dividend payments, offering a source of passive income. 4. Capital Appreciation – Stock prices can rise over time, leading to capital gains. 5. Liquidity – Stocks can be easily bought and sold on exchanges, offering flexibility. 6. Inflation Hedge – Equities tend to outperform inflation over the long run. 7. Diversification – Investing in different stocks helps spread risk. 8. Limited Liability – Investors are not personally responsible for a company’s debts or liabilities.

9. Equities Cheat Sheet: Equity Investment Benefits Benefit Description Key Consideration Capital Growth Stocks can increase in value over time. Market volatility can impact prices. Dividend Income Many companies distribute profits to shareholders. Not all companies pay dividends. Liquidity Stocks can be sold anytime in the market. Prices may fluctuate. Diversification Spreading investment across sectors reduces risk. Requires research to balance risk. Inflation Protection Stock prices tend to rise with inflation. Short-term volatility still exists. Ownership & Voting Common stockholders can vote in company matters. Small investors have limited influence.

10. Benefits of Investing in Equities Interpretations & Implications • For Long-Term Investors: o Equities are a great way to build wealth over time. o Volatility is a short-term concern but less impactful long-term. • For Income Seekers: o Dividend-paying stocks provide steady income. o Can complement other income sources like bonds. • For Risk-Averse Investors: o Diversification across industries or ETFs can reduce risks. o Blue-chip stocks may be a safer option. • For Market Traders: o Short-term trading can be profitable but requires expertise. o High volatility can lead to both gains and losses.

11. Warrants, Preferred Stocks, Convertible Bonds Key Facts 1. Warrants – Financial instruments that give the holder the right (but not the obligation) to buy a company's stock at a fixed price before expiration. 2. Preferred Stocks – Hybrid securities with fixed dividends, ranking above common stock but below debt in liquidation. 3. Convertible Bonds – Bonds that can be converted into a predetermined number of company shares, blending debt and equity features. 4. Risk & Return – Warrants are highly speculative, preferred stocks offer stable income, and convertible bonds provide flexibility with lower risk. 5. Usage in Financing – Companies issue these instruments to attract investors while managing equity dilution and debt levels.

12. Warrants, Preferred Stocks, Convertible Bonds Comparison: Warrants vs. Preferred Stocks vs. Convertible Bonds vs. Common Stocks Factor Common Stock Warrants Preferred Stock Convertible Bonds Ownership Rights Yes No Yes (but no voting) No Dividends Variable No Fixed No Risk Level High Very High Moderate Moderate Liquidity High Moderate Moderate Moderate Return Potential High Very High Moderate Moderate to High Priority in Liquidation Last After common stock Before common stock Before common stock

13. Warrants, Preferred Stocks, Convertible Bonds Cheat Sheet Feature Warrants Preferred Stocks Convertible Bonds Definition Option to buy stock at a set price Equity-like security with fixed dividends Bonds that can be converted into stock Risk Level High (value depends on stock price) Moderate (higher than bonds, lower than common stock) Moderate (lower than stocks, higher than regular bonds) Return Potential Very High (if stock price rises) Moderate (fixed dividends + price appreciation) Moderate to High (bond interest + conversion upside) Dividend Payout No Yes (fixed dividends) No (but earns bond interest) Voting Rights No Usually No No Liquidity Moderate to Low Moderate Moderate Priority in Liquidation Last (after common & preferred stock) Before common stock but after debt Before common stock but after secured debt Conversion Option No, only exercise option Sometimes convertible to common stock Yes, into a fixed number of shares Main Use Case Speculative trading & incentives Fixed income with equity upside Debt financing with equity conversion

14. Warrants, Preferred Stocks, Convertible Bonds Interpretations & Implications For Investors: • Warrants: Ideal for high-risk, high-reward traders who believe in a company’s growth. • Preferred Stocks: Suited for income-focused investors seeking stable dividends. • Convertible Bonds: Good for conservative investors looking for a mix of fixed income and equity upside. For Companies: • Warrants: Used as an incentive for investors and employees. • Preferred Stocks: Helps raise capital without diluting common shareholder control. • Convertible Bonds: Allows borrowing at lower interest rates while offering potential equity conversion.

15. Types of Data in Equities Important for a Technical Analyst 1. Price Data (Market Price Movements) 🔹 Open Price – The stock’s price at the start of a trading session. 🔹 High Price – The highest price a stock reaches during a given period. 🔹 Low Price – The lowest price a stock reaches during a given period. 🔹 Close Price – The last price of a stock at the end of a trading session (most important for analysis). 📌 Usage: Price data is fundamental for candlestick patterns, trend analysis, and chart formations. 2. Volume Data (Trading Activity) 🔹 Trading Volume – The number of shares traded in a specific period. 🔹 On-Balance Volume (OBV) – A cumulative measure of buying and selling pressure. 🔹 Volume Moving Average – The average trading volume over a specific period. 📌 Usage: High volume confirms trends, while divergence between volume and price can indicate reversals.

16. Types of Data in Equities Important for a Technical Analyst 3. Trend & Momentum Indicators 🔹 Moving Averages (SMA, EMA) – Used to smooth price data and identify trends. 🔹 Relative Strength Index (RSI) – Measures overbought or oversold conditions (0-100 scale). 🔹 Moving Average Convergence Divergence (MACD) – Shows trend direction and momentum shifts. 🔹 Average Directional Index (ADX) – Measures trend strength. 📌 Usage: Helps traders determine trend direction, momentum, and possible reversals 4. Volatility Indicators 🔹 Bollinger Bands – Measures price volatility using upper and lower bands around a moving average. 🔹 Average True Range (ATR) – Gauges market volatility based on price range. 🔹 Standard Deviation – Measures price dispersion over a period. 📌 Usage: Helps traders assess risk levels and detect breakout opportunities .

17. Types of Data in Equities Important for a Technical Analyst 5. Market Breadth & Sentiment Indicators 🔹 Advance-Decline Line (A/D Line) – Compares advancing vs. declining stocks in a market. 🔹 Put-Call Ratio – Measures market sentiment through options activity. 🔹 Fear & Greed Index – Gauges overall investor sentiment (bullish vs. bearish). 📌 Usage: Helps confirm market trends and detect potential reversals. 6. Chart Patterns & Candlestick Data 🔹 Support & Resistance Levels – Key price points where buying or selling pressure intensifies. 🔹 Head & Shoulders, Double Tops/Bottoms – Classic reversal patterns. 🔹 Doji , Engulfing, Hammer Candlesticks – Single candlestick signals for trend reversals or continuation. 📌 Usage: Identifies buy/sell signals based on historical price behavior.

18. Types of Data in Equities Important for a Technical Analyst 7. Derivative & Institutional Data 🔹 Options Activity (Open Interest, Implied Volatility) – Indicates market expectations. 🔹 Short Interest Ratio – Measures the percentage of shorted shares, signaling bearish or bullish sentiment. 🔹 Institutional Flow Data – Tracks hedge fund and big investor activities. 📌 Usage: Helps understand market positioning and sentiment from institutional investors. Summary: Key Data Types for Technical Analysts Data Type Examples Purpose Price Data Open, High, Low, Close Identifying trends & chart patterns Volume Data Trading Volume, OBV Confirming trends & breakouts Trend Indicators RSI, MACD, ADX Assessing momentum & strength Volatility Indicators Bollinger Bands, ATR Measuring price fluctuations Market Breadth A/D Line, Put-Call Ratio Understanding sentiment Chart Patterns Head & Shoulders, Doji Predicting future price movement Institutional Data Short Interest, Options Flow Gauging smart money moves

19. Segmenting the Market for Analysis 1. By Market Capitalization (Size-Based Segmentation) 🔹 Large-Cap Stocks (>$10 billion) – Established, stable, lower risk (e.g., Apple, Microsoft). 🔹 Mid-Cap Stocks ($2–$10 billion) – Growth potential with moderate risk (e.g., Shopify, Zoom). 🔹 Small-Cap Stocks ($300 million–$2 billion) – High growth, high risk (e.g., emerging companies). 🔹 Micro-Cap & Penny Stocks (<$300 million) – Highly speculative, low liquidity, high volatility. 📌 Usage: Helps investors balance risk and return in their portfolios. 2. By Industry & Sector (GICS / NAICS Classification) 🔹 Technology – Software, hardware, semiconductors (e.g., Apple, NVIDIA). 🔹 Healthcare – Pharmaceuticals, biotech, medical devices (e.g., Pfizer, Moderna ). 🔹 Financials – Banks, insurance, asset management (e.g., JPMorgan, Goldman Sachs). 🔹 Consumer Discretionary – Retail, luxury goods, travel (e.g., Amazon, Nike). 🔹 Energy – Oil, gas, renewables (e.g., ExxonMobil, NextEra Energy). 📌 Usage: Helps in sector rotation strategies and industry-specific investments.

20. Segmenting the Market for Analysis 3. By Investment Style (Growth vs. Value) 🔹 Growth Stocks – Companies with high earnings growth, often reinvesting profits (e.g., Tesla, Shopify). 🔹 Value Stocks – Undervalued companies with strong fundamentals and stable earnings (e.g., Coca-Cola, JPMorgan). 🔹 Dividend Stocks – Stocks with consistent dividend payouts, preferred by income investors (e.g., Johnson & Johnson, Procter & Gamble). 📌 Usage: Aligns with investor goals (growth vs. stability vs. income). 4. By Geographic Region 🔹 Domestic Stocks – Stocks from an investor’s home country (e.g., U.S. investors holding S&P 500 stocks). 🔹 International Developed Markets – Stocks from stable economies (e.g., European, Japanese stocks). 🔹 Emerging Markets – Stocks from fast-growing economies (e.g., India, Brazil, China). 🔹 Frontier Markets – Less developed economies, high risk & high reward (e.g., Vietnam, Nigeria). 📌 Usage: Helps diversify investments across global markets.

21. Segmenting the Market for Analysis 5. By Liquidity & Trading Volume 🔹 Highly Liquid Stocks – Large-cap stocks with high daily trading volume (e.g., Apple, Microsoft). 🔹 Moderately Liquid Stocks – Mid-cap and small-cap stocks with moderate trading activity. 🔹 Illiquid Stocks – Micro-cap stocks or stocks with low daily trading volume (e.g., OTC stocks, private equity). 📌 Usage: Helps traders identify opportunities based on liquidity needs and volatility. 6. By Risk & Volatility (Beta Segmentation) 🔹 High Beta Stocks (>1.0) – More volatile than the market, offering high risk & high reward (e.g., Tesla, AMD). 🔹 Low Beta Stocks (<1.0) – Less volatile, defensive stocks that perform well in downturns (e.g., utilities, consumer staples). 🔹 Defensive Stocks – Less sensitive to economic cycles, stable during recessions (e.g., healthcare, utilities). 🔹 Cyclical Stocks – Move with the economy, perform well in growth phases (e.g., industrials, travel). 📌 Usage: Helps in portfolio hedging and risk-adjusted stock selection.

22. Segmenting the Market for Analysis 7. By Market Participation & Ownership 🔹 Retail Investor Stocks – Stocks heavily traded by individual investors (e.g., meme stocks like GameStop). 🔹 Institutional Investor Stocks – Stocks mostly held by hedge funds, mutual funds, and pension funds (e.g., Berkshire Hathaway). 🔹 Insider Ownership – Stocks with high insider ownership, indicating strong management confidence. 📌 Usage: Analyzes market sentiment, liquidity trends, and institutional interest. Summary: Key Market Segmentation Approaches Segmentation Type Categories Usage in Analysis Market Cap Large, Mid, Small, Micro Portfolio diversification, risk management Industry/Sector Tech, Finance, Healthcare, etc. Sector rotation, economic trends Investment Style Growth, Value, Dividend Aligning with investor goals Geographic Region Domestic, Emerging, Frontier Global diversification Liquidity High, Medium, Low Trading strategies, volatility management Risk & Volatility High Beta, Low Beta, Defensive, Cyclical Portfolio hedging, market timing Market Participation Retail, Institutional, Insider Sentiment analysis, institutional flow tracking

23. Chapter 2 - Indexes NEXT SECTION 10 - COMPARATIVE MARKET ANALYSIS Presented By : This Content is Copyright Reserved Rights Copyright 2025@PTAIndia