GSBS6142 Derivatives and Risk Management

The market analysis

The primary reason as to why the FKLI price experienced a nosedive for the last two dates is that a strong negative sentiment prevailed across the Bursa market that is pertinent with the rumours regarding MC0 3.0. An ambience of fear grasped the investors and they started to pull their respective capitals out of the market. The effect of which is vivid in the share price movement of FKLI. However the spread in the FKLI share price started to deteriorate due to the lack of volatility in the market. The overall number of losers that is comparatively higher with respect to winners in the market also signifies that an upcoming downtrend will prevail in the FKLI share price. Recently, new cases of covid-19 started to spread like wildfire which also influenced the investors significantly to steer clear of the financial sector. All of these aforementioned reasons cumulatively played a pivotal role behind the price factor of 10th and 11th of May.

The fundamental analysis

The primary fundamental analysis behind the FKLI’s share price drop is the asymmetry of information that is available to the investors. Although the company's performance has nothing to do with the radical change of the FKLI’s price in the stock market. Investors have information that is asymmetrical in nature. Decisions based on that information have resulted in withdrawing capital from the share of FKLI, which eventually resulted in further tanking of the price (Ahmar, 2017).

The technical analysis

The two strong indicators that predicted the eventual fall of FKLI is the simple moving average and moving average convergence divergence. The time period of the simple moving average is 50 whereas MACD has a time period of 21 days. Both of these indicators have predicted the fall of the FKLI share price in the last 2 days. On 7th May, the price of FKLI started trading below the 50 period simple moving averages; whereas the histogram of the MACD is also representing a negative trend in the share price. Therefore, an inference can be drawn that the indicators have already predicted a strong downtrend in the last two mentioned dates (Chandar, 2019).

References:

Ahmar, A. (2017). Sutte Indicator: A technical indicator in stock market. International Journal of Economics and Financial Issues, 7(2).

Chandar, S. K. (2019). Stock market prediction using subtractive clustering for a neuro fuzzy hybrid approach. Cluster Computing, 22(6), 13159-13166.

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