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MENTORING - Fundamentals - Market Fundamentals - Coggle Diagram
MENTORING - Fundamentals - Market Fundamentals
A stock's movement has three parts: (a) company fundamentals, (b) stock fundamentals; (c) market fundamentals.
A stock fundamentals are driven by its company fundamentals and stock fundamentals. We have learnt what company and stock fundamentals are.
What are market fundamentals? That means a stock market is an ecosystem in itself. Understanding market fundamentals means understanding the current dynamic of the market. That means what is moving it.
To understand what moves a market, we have to understand what the stock market is.
The market is a collection of various stocks. All the stocks are moving in one or both directions, either together or unrelated.
But mostly all stocks should ideally move in one direction depending on the market fundamentals.
However, each stock has its own stock fundamentals and company fundamentals. So all stocks will not move in one direction. But most stocks will.
To understand the direction of the market movement, financial market players have invented statistical indices to gauge the market direction.
So, to understand market fundamentals, we should understand indices. If you are able to crack the behaviour of an index, you can easily get a grip on the market direction.
A stock market index is a collection of stocks that come from various or same sector to give a barometric understanding of the market health.
An index has constituents. The index moves as the constituents move. The constituents do not track the index. In fact, the index tracks the constituents. Hence understanding market does not mean understanding index. It means understanding the constituents.
That is why we call this module market fundamentals and keep it under fundamentals section.
Each component in an index is weighted as per some variable. A stock market index is weighted as per each stocks market capitalisation.
A market also means a collection of various sectors. These sectors will also have sector indices. These sectors will have relevant stocks with their own index weightages. Again, each sector index will have a weightage in broad index, like Nifty.
Why Bank Nifty is so famous? Because it forms a major chunk of the Nifty. Hence it is also famous for traders and investors.
How do we gauge what these components are doing? The best way is to track the advances to declines ratio. This tells us the market direction clearly.
However we should see where heavyweights are before judging the direction. We should check if heavyweights are stacked higher or lower or neutral.
The ratio of advances to declines gives the number of stocks that are ticking up and ticking down at any moment in time.
We should not blindly depend on the AD ratio. We should see which side the heavyweights have taken.
How do we find the direction of stocks. We will use options and other tools like Market Profile and Orderflow to identify the stock direction.
ASSIGNMENT: Go to NSE website or google from NSE website for the following information: (a) all Nifty 50 stocks market capitalisation; (2) calcualte the weightages from that; (3) all sectors on the NSE; (4) all components of those sectors; (5) sector weights within Nifty; (6) constituent weights within Nifty 50 and all other sector indices.