“Technical analysis” a study on selected stocks

“Technical Analysis” - A Study On Selected Stocks

INTRODUCTION

TECHNICAL ANALYSIS

Technical Analysis is important to form a view on the likely trend of the overall market,

and it is helpful to have some idea of how to go about selecting individual stocks.

Naturally, all investors would like their investments to appreciate rapidly in price, but

stocks, which may satisfy this wish, tend to accompanied by a substantially greater

amount of risk then many investors are normally willing to accept. However, it is

important to understand that investors can be very conscious when it comes to stock

ownership.

Technical analysis is the use of numerical series generated by market activity, such as

price and volume, to predict future price trends. The techniques applied to any market

with a comprehensive price history. Primarily, but not exclusively, technical analysis is

conducted by studying charts of past price movement. Many different methods and tools

are used in technical analysis, but they all rely on the assumption that price patterns and

trends exist in markets, and that they can be identified and exploited.

Technical analysis or charting is considered to be as a supplement to Fundamental

Analysis of securities. As an approach to investment analysis technical analysis is

radically different from fundamental analysis. While the fundamental analysts believe

that the market is 90% logical and 10% psychological, the technical analysis assumes

that its 90% psychological and 10% logical. Technical analysis can be applied to any

market with a comprehensive price history. The premises of technical analysis were

derived from empirical observations of financial markets over hundreds of years.

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Perhaps the oldest branch of technical analysis is the use of candlestick techniques by

Japanese traders at least as early as the 18th century, and still very popular today.

DOW THEORY ITS CORNERSTONE

New tools and theories have been produced and existing tools have been enhanced at a

rapid rate in recent decades, with an increasing emphasis on computer-assisted

techniques. Technical analysis is not concerned with why a price is moving but rather

whether it is moving in a particular direction or in a particular chart pattern. Technical

analysts believe that profits can be made by "trend following." In other words if a

particular stock price is steadily rising (trending upward) then a technical analyst will

look for opportunities to buy this stock. Until the technical analyst is convinced this

uptrend has reversed or ended, all else equal, he will continue to own this security.

Additionally, technical analysts look for various price patterns to form on a price chart

and will take positions in anticipation of the expected move following that pattern. The

various tools of technical analysis assist the technician in determining when trends have

formed, ended, etc. and when particular patterns are unfolding.

One of the forecasting tools very popular among practitioners is technical analysis.

Technical analysis is the examination of past price movements in order to forecast future

price movements. Technical analysis is open to interpretation. Many times two

technicians will look at the same chart and paint two different scenarios or see different

patterns. Both would be able to come up with logical support to justify their position.

In addition, even if stock prices completely followed a random walk, people would be

able to convince themselves that there are e patterns having a predictive value. It has

become more and more popular, as it offered an unlimited set of tools and signals and

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seemed to be an interesting method of market analysis. It has been proven that stock

prices most of the time approximately follow a random walk pattern. Psychologists have

described a number of ways in which people deal with randomness. Additionally, market

participants may be subject to herd behavior.

Technical analysis is applicable to stocks, indices, commodities, futures or any tradable

instrument where the price is influenced by the forces of supply and demand. Price refers

to any combination of the open, high, low, or close for a given security over a specific

time frame. The time frame can be based on intraday (1-minute, 5-minutes, 10-minutes,

15-minutes, 30-minutes or hourly), daily, weekly or monthly price data and last a few

hours or many years. In addition, some technical analysts include volume or open

interest figures with their study of price action.

Economists have traditionally been skeptical of the value of technical analysis, affirming

the theory of efficient markets that holds no strategy should allow investors and traders

to make unusual returns except by taking excessive risk.

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RESEARCH DESIGN AND METHODOLOGY

PROBLEM STATEMENT

The above study is undertaken to compare the selected technical analysis tools available

for forecasting. The study tries to capture the contradicting views of different tools used

in technical analysis. This study is aims to exploration of the topic “TECHNICAL

ANALYSIS.

Investment in the stock market and the process Portfolio management encompassing

many activities aimed at optimizing the investment of one’s funds. Five Phases can be

identified in this process:

1. Security analysis

2. Portfolio analysis

3. Portfolio selection

4. Portfolio revision

5. Portfolio evaluation

Each phase is an integral part of the whole process and the success of portfolio

management depends upon the efficiency in carrying out each of these phases.

The very first step consists of examining the risk –return characteristics of individual

securities. Security analysis is such a crucial activity because every investor has to

decide on the type, number and time timing of buying and selling of the shares.

Today, the thousands of securities available for an investor, he has to decide on;

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Which stock to invest?

What type of security to buy?

When to sell the securities?

Where to Invest?

How to Invest?

Whether hold, sell or buy securities?

All these questions need to be answered before the investment can take place and also

determining prospective benefits from the investment in a security. The risk associated

with that investment.

LITERATURE REVIEW

Cooter (1962) found that the stock prices move at random when studied at one week

interval. The data for his study was week-end prices of forty five stocks from New York

stock exchange. He tested randomness of share by means of a mean square successive

difference test. He concluded that there was not one random walk model. He concluded

that the share price trends could be predicted when studied at fourteen-week interval. But

in total the stock prices followed a random walk at weekly intervals.

Eugene F.Fama (1965) has answered the questions to what extend can the past history of

a common stock price can be used to make meaningful predictions concerning the future

prices of the stock? The theory of random walk on stock prices is studied with two

hypotheses. They are i) Successive price changes are independent and ii) The price

changes conform to some probability distribution. The data for this study consists of

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daily prices for each of the thirty stocks of the Dow –Jones industrial average. This study

concludes that there is strong and voluminous evidence in favor of random walk theory.

Ramaswami.K (1996) assessed the relationship among book values, earnings, dividend

and market price of share, impact of bonus issues, impact of security scam on equity

return .to that end, the author used daily share price of 30 companies included in the

construction of BSE sensitive index, daily data of BSESI and NYSE composite index,

annual data on BV per share market price per share, EPS and DPS and data on bonus

issue made ,during the period of study ,the researcher used correlation ,regression and

frequency distribution for interpreting data.

Sharma and Robert E. Kennedy (1977) tested the applicability of random walk

hypothesis to the stock market in developing country namely India and compare this to

that of stock markets in developed countries namely USA, and England. For this purpose

the price behavior of Bombay stock exchange is statistically examined both for

randomness and independence .The test the random walk hypothesis. The test covers 132

monthly observations for each stock market index of common stock listed in Bombay

exchange for eleven years from 1968-1973.The study indicates that price dependence

while statistically significant, is comparably small in the developing countries. Based on

the test, it is evident that the Bombay stock exchange stock obeys a random walk and is

equivalent to developed countries stock exchange.

Fernando Fernandez –Rodriguez, Simon Sosvilla –Rivero, Julian Andrada –Felix (1999)

assessed whether some simple forms of technical analysis can predict stock price

movement in the Madrid stock exchange, covering thirty-one-year period from Jan 1966

–Oct 1997.the results provide strong support for profitability of those technical trading

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rules. By making use of bootstrap techniques the author shows the returns obtained from

these trading rules are not consistent with several null models frequently used in finance.

C. L. Osler (2001) provides a microstructural explanation for the success of two familiar

predictions from technical analysis: (1) trends tend to be reversed at predictable support

and resistance levels, and (2) trends gain momentum once predictable support and

resistance levels are crossed. The explanation is based on a close examination of stop-

loss and take-profit orders at a large foreign exchange dealing bank. Take-profit orders

tend to reflect price trends and stop-loss Technical Analysis on Selected Stocks of

Energy Sector orders tend to intensify trends. The requested execution rates of these

orders are strongly clustered at round numbers, which are often used as support and

resistance levels. Significantly, there are marked differences between the clustering

patterns of stop-loss and take-profit orders, and between the patterns of stop-loss buy and

stop-loss sell orders. These differences explain the success of the two predictions.

Gupta, (2003) examined the perceptions about the main sources of his worries

concerning the stock market. A sample comprise of middle-class household’s spread

over 21 sates/union territories. The study reveals that the foremost cause of worry for

household investors is fraudulent company management and in the second place is too

much volatility and in the third place is too much price manipulation.

Ravindra and Wang (2006) examine the relationship of trading volume to stock indices

in Asian markets. Stock market indices from six developing markets in Asia are analyzed

over the 34 month period ending in October 2005. In the South Korean market, the

causality extends from the stock indices to trading volume while the causality is the

opposite in the Taiwanese market.

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OBJECTIVES OF THE STUDY

This study is aimed at undertaking technical analysis of selected companies included in

the CNX Nifty. I will also demonstrate how technical analysis can be of invaluable use

for the investors in marketing their investment decisions.

The following are the main objectives of this study.

To analyze tools of technical analysis can be used in forecasting stock prices.

To know the movements (upward or downward) of stock prices of selected

company stocks through Technical analysis.

To know how best we can utilize these analyses to meet the financial goals.

SCOPE OF THE STUDY

This study mainly focuses on investment decisions by predicting futures stock price

movements through the use of Technical analysis. This study is based on five companies

selected from those listed in National Stock Exchange and Bombay Stock Exchange,

belonging to Automobiles.

Following are the main scope of this study

To help the investor in making decisions based on report

Analysis of the shares of companies.

Studying the stock price movement of the security market.

Helps to identify trend reversals at an earlier stage to formulate the buying and

selling strategy.

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The stocks so selected are as follows.

Bajaj Auto limited

Hero Honda Motors limited

Maruti Udyog limited

TVS Motors Company limited

Tata Motors limited

Techniques of data analysis:

Technical tools used for the study are:

Chart patterns

Line charts

Japanese candlestick chart

Indicators of the study

Exponential Moving average (EMA) Rate of change Indicator (ROC)

Moving average, convergence and divergence.(MACD)

Relative strength index (RSI)

On-Balance Volume Aroon Up and Down Oscillators

Money flow Index (MFI) TRIX

Bollinger band width William’s percent rate (W%R)

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RESEARCH DESIGN

Research design is a plan of action to be carried out in connection with a research

project. The research design use in this study is explanatory and descriptive research. It

involves the collection of data from both the primary and secondary sources. The data so

collected was subjected to analysis by using the necessary tools that are relevant and

idealistic.

RESEARCH METHODOLOGY

For the study, 5 companies were selected from CNX Nifty. There are following steps in

methodology:

Use of technical tools i.e. Simple moving Average, Exponential Moving

Average, Relative Strength Index and Moving Average Convergence and

Divergence.

Identification of patterns and trends in the stock price movements.

Preparation of stock chart, Line chart, Bar chart and candle stick chart showing

the price and volume of the stocks over the period of time and Interpret charts.

Source of Data

Primary data were collected through direct interactions with the clients of Religare.

Other data used in this study are publicly available data collected from secondary source.

The major source of the data is the website of NSE India. Text books and Business

journals and periodicals and newspapers are also to collect some data and information.

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LIMITATIONS OF THE STUDY

The analysis is focused on five companies.

The study is only for academic purpose

Study restricted to a smaller sample size because of lack of time and resources.

The recommendations made may not be a perfect prediction of the future as

technical analysis is not an absolutely accurate practice.

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THEORETICAL BACKGROUND

OVERVIEW OF TECHNICAL ANALYSIS

A method of evaluating securities by analyzing statistics generated by market activity,

such as past prices and volume, Technical analysts do not attempt to measure a security’s

intrinsic value, but instead use charts to identify patterns that can suggest future activity.

Technical analysts believe that the historical performance of stocks and markets are

indications of future performance.

Technical Analysis has become increasingly popular over the past several years, as more

and more people believe that the historical performance of a stock is a strong indication

of future performance. People using fundamental analysis have always looked at the

past performance of companies by comparing fiscal data from previous quarters and

years to determine future growth. The difference lies in the technical analyst’s belief that

securities move according to very predictable trends and patterns. These trends continue

until something happens to change the trend, and until this change occurs, Price levels

are predictable.

Investors successfully trade securities using only their knowledge of the security’s chart,

without even understanding what the company does. Although technical analysis is a

terrific tool, most agree it is much more effective when used in combination with

fundamental analysis.

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DOW THEORY

The ideas of Charles Dow, the first editor of the Wall Street Journal, form the basis of

technical analysis today. Charles Dow created the Industrial Average, of top blue chip

stocks, and a second average of top railroad stocks (now the Transport Average). He

believed that the behavior of the averages reflected the hopes and fears of the entire

market. The behavior patterns that he observed apply to markets throughout the world.

Markets fluctuate in more than one time frame at the same time

The first is the daily variation due to local causes and the balance of buying

and selling at that particular time (Ripple).

The secondary movement covers a period ranging from days to weeks,

averaging probably between six to eight weeks (Wave).

The third move is the great swing covering anything from months to years,

averaging between 6 to 48 months. (Tide).

Bull markets are broad upward movements of the market that may last several

years, interrupted by secondary reactions. Bear markets are long declines

interrupted by secondary rallies. These movements are referred to as the

primary trend.

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Primary Phases of Movements

Secondary movements normally retrace from one-third to two thirds of the primary trend

since the previous secondary movement.

Daily fluctuations are important for short-term trading, but are unimportant in analysis of

broad market movements.

Primary Movements have Three Phases

1. Bull markets

o Bull markets commence with reviving confidence as business conditions

improve.

o Prices rise as the market responds to improved earnings Rampant speculation

dominates the market and price advances are based on hopes and expectations

rather than actual result.

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2. Bear markets

o Bear markets start with abandonment of the hopes and expectations that sustained

inflated prices.

o Prices decline in response to disappointing earnings.

o Distress selling follows as speculators attempt to close out their positions and

securities are sold without regard to their true value.

3. Ranging Markets

o A secondary reaction may take the form of a ‘line’, which may endure for several

weeks.

o Price fluctuates within a narrow range of about five percent.

o Breakouts from a range can occur in either direction.

o Advances above the upper limit of the line signal accumulation and higher prices;

o Declines below the lower limit indicate distribution and lower prices;

o Volume is used to confirm price breakouts.

Bull Trends

A bull trend is identified by a series of rallies where each rally exceeds the highest point

of the previous rally. The decline, between rallies, ends above the lowest point of the

previous decline.

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Successive higher highs and higher lows

The start of an uptrend is signaled when price makes a higher low (trough), followed by

a rally above the previous high (peak):

Start = higher Low + break above previous High.

The end is signaled by a lower high (peak), followed by a decline below the previous low

(trough):

End = lower High + break below previous Low.

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Bear Trends: A bear trend starts at the end of a bull trend: when a rally ends with a

lower peak and then retreats below the previous low. The end of a bear trend is identical

to the start of a bull trend. Each successive rally fails to penetrate the high point of the

previous rally. Each decline terminates at a lower point than the preceding decline.

Successive lower highs and lower lows

Large Corrections: A large correction occurs when price falls below the previous low

(during a bull trend) or where price rises above the previous high (in a bear trend).

A bull trend starts when price rallies above the previous high,

A bull trend ends when price declines below the previous low,

A bear trend starts at the end of a bull trend (and vice versa).

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HOW TECHNICAL ANALYSIS IS DONE

Technical analysis done by identifying the trend from past movements and then using it

as a tool to predict future price movements of the stock with the use of the tools of

technical analysis

ASSUMPTIONS OF TECHNICAL ANALYSIS

1. The Market Discounts Everything

A major criticism of technical analysis is that it only considers price movement, ignoring

the fundamental factors of the company. However, technical analysis assumes that, at

any given time, a stock's price reflects everything that has or could affect the company -

including fundamental factors. Technical analysts believe that the company's

fundamentals, along with broader economic factors and market psychology, are all

priced into the stock, removing the need to actually consider these factors separately.

This only leaves the analysis of price movement, which technical theory views as a

product of the supply and demand for a particular stock in the market.

2. Price Moves in Trends

In technical analysis, price movements are believed to follow trends. This means that

after a trend has been established, the future price movement is more likely to be in the

same direction as the trend than to be against it. Most technical trading strategies are

based on this assumption.

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3. History Tends To Repeat Itself

Another important idea in technical analysis is that history tends to repeat itself, mainly

in terms of price movement. The repetitive nature of price movements is attributed to

market psychology; in other words, market participants tend to provide a consistent

reaction to similar market stimuli over time. Technical analysis uses chart patterns to

analyze market movements and understand trends. Although many of these charts have

been used for more than 100 years, they are still believed to be relevant because they

illustrate patterns in price movements that often repeat themselves

CHART PATTERN

1 Candlestick charting: Candlestick charts have been around for hundreds of years.

They are often referred to as “Japanese candles” because the Japanese would use them to

analyze the price of rice contracts.

Similar to a bar chart, candlestick charts also display the open, close, daily high and daily

low. The difference is the use of color to show if the stock went up or down over the

day.

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The chart below is an example of a candlestick chart for AT&T (T). Green bars indicate

the stock price rose, red indicates a decline:

Figure: Candlestick charting

Investors seem to have a "love/hate" relationship with candlestick charts. People either

love them and use them frequently or they are completely turned off by them. There are

several patterns to look for with candlestick charts - here are a few of the popular ones

and what they mean.

. This is a bullish pattern - the stock opened at (or near) its low and closed near

its high

The opposite of the pattern above, this is a bearish pattern. It indicates that the

stock opened at (or near) its high and dropped substantially to close near its low.

Known as "the hammer", this is a bullish pattern only if it occurs after the stock

price has dropped for several days. A small body along with a large range identifies a

hammer. This pattern indicates that a reversal in the downtrend is in the works.

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2 Line Chart: The most basic of the four charts is the line chart because it represents

only the closing prices over a set period of time. The line is formed by connecting the

closing prices over the time frame. Line charts do not provide visual information of the

trading range for the individual points such as the high, low and opening prices.

However, the closing price is often considered to be the most important price in stock

data compared to the high and low for the day and this is why it is the only value used in

line charts.

Figure: Line Chart

3 Support and resistance: Support and resistance are price levels at which movement

should stop and reverse direction. Think of support/resistance (S/R) as levels that act as a

floor or a ceiling to future price movements.

Support - A price level below the current market price, at which buying interest should

be able to overcome selling pressure and thus keep the price from going any lower.

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Known as a "star”. For the most part, stars typically indicate a reversal and or

indecision. There is a possibility that after seeing a star there will be a

reversal or change in the current trend.


Resistance - A price level above the current market price, at which selling pressure

should be strong enough to overcome buying pressure and thus keep the price from

going any higher. One of two things can happen when a stock price approaches a

support/resistance level. On the one hand, it can act as a reversal point: in other words,

when a stock price drops to a support level, it will go back up. On the other hand, S/R

levels may reverse roles once they are penetrated.

For example - When the market price falls below a support level, that former support

level will then become a resistance level when the market later trades back up to that

level.

Figure: Support and resistance

This chart shows an excellent example of support and resistance levels for General

Electric (GE). Notice that once the stock price penetrated below the support level in

December, it became the resistance level. You also need to understand that S/R levels

vary in strength, leading to certain price levels being designated as major or minor S/R

levels. For example -- A five-year high on a bar chart would be a much more significant

and useful resistance level than a one-month resistance level.

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4 Cup and Handle: This is a pattern on a bar chart that can be as short as seven weeks

and as long as 65 weeks. The cup is in the shape of a "U". The handle has a slight

downward drift. The right-hand side of the pattern has low trading volume. As the stock

comes up to test the old highs, the stock will incur selling pressure by the people who

bought at or near the old high. This selling pressure will make the stock price trade

sideways with a tendency towards a downtrend for anywhere from four days to four

weeks, then it will take off.

This pattern looks like a pot with a handle. It is one of the easier patterns to detect; and

investors have made a lot of money using it.

Figure: Cup and Handle

5 Head and Shoulders: This is a chart formation resembling an "M" in which a stock's price:

o Rises to a peak and then declines, then

o Rises above the former peak and again declines, and then

o Rises again but not to the second peak and again declines.

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The first and third peaks are shoulders, and the second peak forms the head. This

pattern is considered a very bearish indicator.

Figure: Head and Shoulders

6 Double Bottom: This pattern resembles a "W" and occurs when a stock price drops to

a similar price level twice within a few weeks or months. You should buy when the price

passes the highest point in the handle. In a perfect double bottom, the second decline

should normally go slightly lower than the first decline to create a shakeout of jittery

investors. The middle point of the "W" should not go into new high ground. This is a

very bullish indicator.

Figure: Double Bottoms

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The belief is that, after two drops in the stock price, the jittery investors will be out and

the long-term investors will still be holding on.

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7 Double Tops: Double tops point out a weakness of the uptrend and warn for a change

of trend generally a selling crazy starts when this formation is indicates.

Figure: Double Tops

8 Falling wedges: Falling wedges are opposite of the rising wedges and pull back

reactions during the up trends. Sellers continue to believe the securities in their hand do

not want to sell so, volume decreases significantly. When the upper line is broken,

generally a rally starts. So this formation is a chance to buy security available prices in

an uptrend.

Figure: Falling wedges

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9 Symmetrical Triangles: All triangles formations are consolidation formations. In

symmetrical triangle direction of the trend is not known. It is only can be identified after

one of the line broken. Prices go up if upper line broken. And go down if lower line

broken. Volume is very important for triangle formations. Volume should decrease

during the formations.

Figure: Symmetrical Triangles

10 Descending triangles: It is a signal for down trend. Price target can be found

approximately by drawing a parallel line to descending line.

Figure: Descending triangles

11 Ascending Triangles: It is a signal for uptrend. By drawing a parallel line to

descending line, price target can be calculated approximately.

pg. 27


Figure: Ascending triangle

INDICATORS OF THE STUDY

Exponential Moving Average (EMA)

Are calculated by applying a percentage of today’s closing price to yesterday’s moving

average value. Use an exponential moving average to place more weight on recent

prices.

This moving average calculation uses a smoothing factor to place a higher weight on

recent data points and is regarded as much more efficient than the linear weighted

average. Having an understanding of the calculation is not generally required for most

traders because most charting packages do the calculation for you.

The most important thing to remember about the exponential moving average is that it is

more responsive to new information relative to the simple moving average.

This responsiveness is one of the key factors of why this is the moving average of choice

among many technical traders. As you can see in Figure 2, a 15-period EMA raises and

falls faster than a 15-period SMA. This slight difference doesn’t seem like much, but it is

an important factor to be aware of since it can affect returns.

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Figure: Exponential Moving Averages (EMA)

Moving Average Convergence Divergence (MACD)

Common, the “MACD” is a trend following, momentum indicator that shows the

relationship between two moving averages of prices. To Calculate the MACD subtract

the 26-day EMA from a 12-day EMA. A 9-day dotted EMA of the MACD called the

signal line is then plotted on top of the MACD. There are 3 common methods to

interpret the MACD:

Crossover – When the MACD falls below the signal line it is a signal to sell. Vice versa

when the MACD rises above the signal line.

Divergence – When the security diverges from the MACD it signals the end of the

current trend.

Overbought/Oversold – When the MACD rises dramatically (shorter moving average

pulling away from longer term moving average) it is a signal the security is overbought

and will soon return to normal levels.

Other less common moving averages include triangular, variable, and weighted moving

average. All of them being slight deviations from the++ ones above and are used to

detect different characteristics such as volatility, and weighting different time spans.pg. 29


One of the easiest indicators to understand, the moving average, shows the average value

of a security’s price over a period of time. To find the 50-day moving average, you

would add up the closing prices (but not always – explain later) from the past 50 days

and divide them by 50. Because prices are constantly changing, the moving average will

move as well. It should also be noted that moving averages are most as well. It should

also be noted that moving averages are most often used then compared or used in

conjunction with other indicators such as moving average convergence divergence

(MACD) and exponential moving (E M A).

The most commonly used moving averages are 20, 30, 50,100 and 200 days. Each

moving average provides a different interpretation on what the stock will do-there is not

one right time frame. The longer the time spans, the less sensitive the moving average

will be to daily price changes. Moving averages are used to emphasize the direction of a

trend and smooth out price and volume fluctuations that can confuse interpretation.

Here is a visual example using stock price

Figure: Moving Average Convergence Divergences (MACD)

pg. 30


Notice that back, in September the stock price dropped well below its 50-day average

(the green line) there has been a steady downward trend since then and no really strong

divergence until the end of December when it rose above its 50-days average and

continued to rise for several weeks.

Typically, when a stock price moves below its moving average it is a bad sign because

the stock is moving on a negative trend. The opposite is true for stock that exceed their

moving average-in this case, hold on for the ride.

BOLLINGER BANDS WIDTH

Developed by John Bollinger, Bollinger Bands are an indicator that allows users to

compare volatility and relative price levels over a period time. The indicator consists of

three bands designed to encompass the majority of a security's price action. The purpose

of Bollinger Bands is to provide a relative definition of high and low. By definition

prices are high at the upper band and low at the lower band. This definition can aid in

rigorous pattern recognition and is useful in comparing price action to the action of

indicators to arrive at systematic trading decisions.

Bollinger Bands consist of a set of three curves drawn in relation to securities prices. The

middle band is a measure of the intermediate-term trend, usually a simple moving

average that serves as the base for the upper and lower bands. The interval between the

upper and lower bands and the middle band is determined by volatility, typically the

standard deviation of the same data that were used for the average. The default

parameters, 20 periods and two standard deviations, may be adjusted to suit your

purposes:

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Middle Bollinger Band = 20-period simple moving average

Upper Bollinger Band = Middle Bollinger Band + 2 * 20-period standard deviation

Lower Bollinger Band = Middle Bollinger Band - 2 * 20-period standard deviation

Standard deviation is a statistical unit of measure that provides a good assessment of a

price plot's volatility. Using the standard deviation ensures that the bands will react

quickly to price movements and reflect periods of high and low volatility. Sharp price

increases (or decreases), and hence volatility, will lead to a widening of the bands.

Figure: Bollinger Bands Width

The center band is the 20-day simple moving average. The upper band is the 20-day

simple moving average plus 2 standard deviations. The lower band is the 20-day simple

moving average less 2 standard deviations.

On-Balance Volume

The on-balance volume (OBV) indicator is well-known technical indicators that reflect

movements in volume. It is also one of the simplest volume indicators to compute and

understand. Joe Granville introduced the On Balance Volume (OBV) indicator in his

1963 book, Granville's New Key to Stock Market Profits. This was one of the first and

pg. 32


most popular indicators to measure positive and negative volume flow. The concept

behind the indicator: volume precedes price. OBV is a simple indicator that adds a

period's volume when the close is up and subtracts the period's volume when the close is

down. A cumulative total of the volume additions and subtractions form the OBV line.

This line can then be compared with the price chart of the underlying security to look for

divergences or confirmation.

Calculation

As stated above, OBV is calculated by adding the day's volume to a running cumulative

total when the security's price closes up, and subtracts the volume when it closes down.

For example, if today the closing price is greater than yesterday's closing price, then the

new

OBV = Yesterday's OBV + Today's Volume

If today the closing price is less than yesterday's closing price, then the new

OBV = Yesterday's OBV - Today's Volume

If today the closing price is equal to yesterday's closing price, then the new

OBV = Yesterday's OBV

Use

The idea behind the OBV indicator is that changes in the OBV will precede price

changes. A rising volume can indicate the presence of smart money flowing into a

security. Then once the public follows suit, the security's price will likewise rise.

pg. 33


Like other indicators, the OBV indicator will take a direction. A rising (bullish) OBV

line indicates that the volume is heavier on up days. If the price is likewise rising, then

the OBV can serve as a confirmation of the price uptrend. In such a case, the rising price

is the result of an increased demand for the security, which is a requirement of a healthy

uptrend.

However, if prices are moving higher while the volume line is dropping, a negative

divergence is present. This divergence suggests that the uptrend is not healthy and should

be taken as a warning signal that the trend will not persist.

The numerical value of OBV is not important, but rather the direction of the line. A user

should concentrate on the OBV trend and its relationship with the security's price.

Figure: On-Balance Volumes

This chart shows how the OBV line can be used as confirmation of a price trend. The

peak in September was followed by lower price movements that corresponded with

volume spikes, thus implying that the downtrend was going to continue.

pg. 34


Aroon Oscillators

The Aroon indicator is a relatively new technical indicator that was created in 1995. The

Aroon is a trending indicator used to measure whether a security is in an uptrend or

downtrend and the magnitude of that trend. The indicator is also used to predict when a

new trend is beginning.

The indicator is comprised of two lines, an "Aroon up" line (blue line) and an "Aroon

down" line (red dotted line). The Aroon up line measures the amount of time it has been

since the highest price during the time period. The Aroon down line, on the other hand,

measures the amount of time since the lowest price during the time period. The number

of periods that are used in the calculation is dependent on the time frame that the user

wants to analyze.

Figure: Aroon Up And Down Oscillator

An expansion of the Aroon is the Aroon oscillator, which simply plots the difference

between the Aroon up and down lines by subtracting the two lines. This line is then

plotted between a range of -100 and 100. The centerline at zero in the oscillator is

considered to be a major signal line determining the trend. The higher the value of the

oscillator from the centerline point, the more upward strength there is in the security; the

lower the oscillator's value is from the centerline, the more downward pressure. A trend

pg. 35


reversal is signaled when the oscillator crosses through the centerline. For example,

when the oscillator goes from positive to negative, a downward trend is confirmed.

Divergence is also used in the oscillator to predict trend reversals. A reversal warning is

formed when the oscillator and the price trend are moving in an opposite direction.

The Aroon lines and Aroon oscillators are fairly simple concepts to understand but yield

powerful information about trends. This is another great indicator to add to any technical

trader's arsenal.

Money Flow Index

The Money Flow Index (MFI) is a momentum indicator that is similar to the Relative

Strength Index (RSI) in both interpretation and calculation. However, MFI is a more

rigid indicator in that it is volume-weighted, and is therefore a good measure of the

strength of money flowing in and out of a security. It compares "positive money flow" to

"negative money flow" to create an indicator that can be compared to price in order to

identify the strength or weakness of a trend. Like the RSI, the MFI is measured on a 0 -

100 scale and is often calculated using a 14 day period.

The "flow" of money is the product of price and volume and shows the demand for a

security and a certain price. The money flow is not the same as the Money Flow Index

but rather is a component of calculating it. So when calculating the money flow, we first

need to find the average price for a period. Since we are often looking at a 14-day period,

we will calculate the typical price for a day and use that to create a 14-day average.

Typical Price = (Day high + Day low + Day close) / 3

Money Flow = (Typical Price) X Volume

pg. 36


The MFI compares the ratio of "positive" money flow and "negative" money flow. If

typical price today is greater than yesterday, it is considered positive money. For a 14-

day average, the sum of all positive money for those 14 days is the positive money flow.

The MFI is based on the ratio of positive/negative money flow (Money Ratio).

Money Ratio = positive money flow / Negative money flow

Finally, the MFI can be calculated using this ratio:

Money Flow Index- 100-(100 / (1 + money ratio))

The fewer number of days used to calculate the MFI, the more volatile it will be.

The MFI can be interpreted much like the RSI in that it can signal divergences and

overbought/oversold conditions.

Positive and negative divergences between the stock and the MFI can be used as buy and

sell signals respectively, for they often indicate the imminent reversal of a trend. If the

stock price is falling, but positive money flow tends to be greater than negative money

flow, then there is more volume associated with daily price rises than with the price

drops. This suggests a weak downtrend that threatens to reverse as money flowing into

the security is "stronger" than money flowing out of it.

As with the RSI, the MFI can be used to determine if there is too much or too little

volume associated with a security. A stock is considered "overbought" if the MFI

indicator reaches 80 and above (a bearish reading). On the other end of the spectrum, a

bullish reading of 20 and below suggests a stock is "oversold".

pg. 37


Figure: Money Flow Index

Rate of change indicators (ROC)

It is a very popular oscillator which measures the rate of change of the current price as

compared to the price a certain number of days or weeks back. The ROC has to be used

along with price chart. The buying and selling signals indicated by the ROC should also

be confirmed by the price chart.

Figure: Rate of change

pg. 38


Relative strength index (RSI)

There are a few different tools that can be used to interpret the strength of a stock. One of

these is the Relative Strength Index (RSI), which is a comparison between the days that a

stock finishes up and the days it finishes down. This indicator is a big tool in momentum

trading.

The RSI is a reasonably simple model that anyone can use. It is calculated using the

following formula.

RSI = 100 - [100/(1 + RS)]

RS = (Avg. of n-day up closes)/(Avg. of n-day down closes)

n = days (most analysts use 9 - 15 day RSI)

The RSI ranges from 0 to 100. At around the 70 levels, a stock is considered overbought

and you should consider selling. In a bull market some believe that 80 is a better level to

indicate an overbought stock since stocks often trade at higher valuations during bull

markets. Likewise, if the RSI approaches 30, a stock is considered oversold and you

should consider buying. Again, make the adjustment to 20 in a bear market.

The smaller the number of days used, the more volatile the RSI is and the more often it

will hit extremes. A longer term RSI is more rolling, fluctuating a lot less. Different

sectors and industries have varying threshold levels when it comes to the RSI. Stocks in

some industries will go as high as 75-80 before dropping back, while others have a tough

time breaking past 70. A good rule is to watch the RSI over the long term (one year or

more) to determine at what level the historical RSI has traded and how the stock reacted

when it reached those levels.

pg. 39


The RSI is a great indicator that can help you make some serious money. Be aware that

big surges and drops in stocks will dramatically affect the RSI, resulting in false buy or

sell signals. Most investors agree that the RSI is most effective in "backing up" or

increasing confidence before making an investment decision - don't invest simply based

on the RSI numbers.

Figure: Relative Strength Index (RSI)

Above, we have an RSI chart for AT&T. The RSI is the green line, and its scale is the

numbers on the right hand side that go from 0 to 100. Notice the RSI was approaching

the 60-70 level in December and January, and then the stock (blue line) sold off. Also,

notice that when the RSI dropped to 25 around October the stock climbed up nearly 30%

in just a couple of weeks.

Using the moving averages, trend lines divergence, support and resistance lines along

with the RSI chart can be very useful. Rising bottoms on the RSI chart can produce the

same positive trend results as they would on the stock chart. Should the general trend of

the stock price tangent from the RSI, it might spark a warning that the stock is either

over- or under bought.

pg. 40


Momentum

The momentum is certainly the easiest one to compute. The momentum is the difference

between today's price and the one of n days before.

With: Pt today's price. Pt-n the price at the date t-n

The momentum is: MOt = Pt - Pt-n

TRIX (Triple exponential)

"Trix (or TRIX) is a technical analysis oscillator developed in the 1980s by Jack

Huston, editor of Technical Analysis of Stocks and Commodities magazine. It shows the

slope (i.e. derivative) of a triple-smoothed exponential moving average. The name Trix is

from "triple exponential

Trix is calculated with a given N-day period as follows:

o Smooth prices (often closing prices) using an N-day exponential moving average

o Smooth a third time, using a further N-day EMA

o Calculate the percentage difference between today's and yesterday's value in that

final smoothed series

Like any moving average, the triple EMA is just a smoothing of price data and therefore

is trend-following. A rising or falling line is an uptrend or downtrend and Trix shows the

slope of that line, so it's positive for a steady uptrend, negative for a downtrend, and a

crossing through zero is a trend-change, i.e. a peak or trough in the underlying average.

The triple-smoothed EMA is very different from a plain EMA. In a plain EMA the latest

few days dominate and the EMA follows recent prices quite closely; however, applying

pg. 41


it three times results in weightings spread much more broadly, and the weights for the

latest few days are in fact smaller than those of day’s further past. The following graph

shows the weightings for an N=10 triple EMA (most recent days at the left).

Graph shows the weightings for an N=10 triple EMA (most recent days at the left).

Figure: TRIX (Triple exponential)

Triple exponential moving average weightings, N=10 (percentage versus days ago)

Note that the distribution's mode will lie with pN-2's weight, i.e. in the graph above p8

carries the highest weighting. An N of 1 is invalid.

The easiest way to calculate the triple EMA based on successive values is just to apply

the EMA three times, creating single-, then double-, then triple-smoothed series. The

triple EMA can also be expressed directly in terms of the prices as below, with p0 today's

close, p1 yesterday's, etc, and with (as for a plain EMA).

pg. 42


The coefficients are the triangle numbers, n (n+1)/2. In theory, the sum is infinite, using

all past data, but as f is less than 1 the powers fn become smaller as the series progresses,

and they decrease faster than the coefficients increase, so beyond a certain point the

terms are negligible.

Williams %R

Developed by Larry Williams, Williams % R is a momentum indicator that works much

like the Stochastic Oscillator. It is especially popular for measuring overbought and

oversold levels. The scale ranges from 0 to -100 with readings from 0 to -20 considered

overbought, and readings from -80 to -100 considered oversold.

William %R, sometimes referred to as %R, shows the relationship of the close relative to

the high-low range over a set period of time. The nearer the close is to the top of the

range, the nearer to zero (higher) the indicator will be. The nearer the close is to the

bottom of the range, the nearer to -100 (lower) the indicator will be. If the close equals

the high of the high-low range, then the indicator will show 0 (the highest reading). If the

close equals the low of the high-low range, then the result will be -100 (the lowest

reading).

Calculation

%R = [(highest high over? periods - close) / (highest high over? periods - lowest low

over? periods)] * -100

Typically, Williams % R is calculated using 14 periods and can be used on intraday,

daily, weekly or monthly data. The time frame and number of periods will likely vary

according to desired sensitivity and the characteristics of the individual security.

pg. 43


Use

It is important to remember that overbought does not necessarily imply time to sell and

oversold does not necessarily imply time to buy. A security can be in a downtrend,

become oversold and remain oversold as the price continues to trend lower. Once a

security becomes overbought or oversold, traders should wait for a signal that a price

reversal has occurred. One method might be to wait for Williams %R to cross above or

below -50 for confirmation.

Price reversal confirmation can also be accomplished by using other indicators or aspects

of technical analysis in conjunction with Williams %R.

One method of using Williams %R might be to identify the underlying trend and then

look for trading opportunities in the direction of the trend. In an uptrend, traders may

look to oversold readings to establish long positions. In a downtrend, traders may look to

overbought readings to establish short positions.

Figure: Williams % R

pg. 44


The chart of Weyerhaeuser with a 14-day and 28-day Williams % R illustrates some key

points:

o 14-day %R appears quite choppy and prone to false signals.

o 28-day %R smoothed the data series and the signals became less frequent and

more reliable.

o When the 28-day %R moved to overbought or oversold levels, it typically

remained there for an extended period and the stock continued its trend.

o Some good entry signals were given with the 28-day %R by waiting for a move

above or below -50 for confirmation.

EVALUATION OF TECHNICAL ANALYSIS:

Technical analysis appears to be a highly controversial approach to security analysis. It

has its ardent votaries: it has its severe critics. The advocates of technical analysis offer

the following interrelated arguments in support of their position:

Under the influence of crowed psychology, trend persists for quite some time.

Tools of technical analysis that help in identifying these trends early are helpful

aids in investment decision making.

Shift in demand and supply are gradual rather than instantaneous. Technical

analysis helps in detecting these shifts rather early and hence provides clues to

future price movement.

Fundamental information about a company is absorbed and assimilated by the

market over a period. Hence, the price movement tends to continue in more or

less the same direction until the information is assimilated in the stock price.

pg. 45


Charts provide what has happened in the past and hence give a sense of volatility

that can be expected from the stock. Future, the information on trading volume

which is ordinarily provide at the bottom of a bar chart gives a fair idea of the

extent of the public interest in the stock

The detractors of technical analysis believe that the technical analysis is a useless

exercise. Their arguments run as follows:

Most technical analyst are not able to offer convincing explanation for the tools

employed by them

Empirical evidence in support of the random-walk hypothesis casts its shadow

over the usefulness of technical analysis.

By the time an uptrend or down may have been signaled by technical analysis, it

already have taken place.

Ultimately, technical analysis must be a self-defeating proposition as more and

more people employ the value of such analysis tends to decline.

pg. 46


COMPANY PROFILE

ABOUT RELIGARE ENTERPRISE LIMITED

Religare Enterprises Limited (REL) is a global

financial services group with a presence across Asia, Africa, Middle East, Europe and

the Americas. In India, REL’s largest market, the group offers a wide array of products

and services ranging from insurance, asset management, broking and lending solutions to

investment banking and wealth management. The group has also pioneered the concept

of investments in alternative asset classes such as arts and films. With 10,000 plus

employees across multiple geographies, REL serves over a million clients, including

corporates and institutions, high net worth families and individuals, and retail investors.

Industry

:

Finance -

General

BSE

Code :

532915 Book Closure

:

25/09/2009

Group : Religare NSE

Code :

RELIGARE Market Cap : Rs.5,340.49

Cr.

ISIN No : INE621H01010 Market

Lot

1 Face Value : Rs. 10.00

pg. 47


Religare Enterprises Limited (REL) is a diversified financial services group of India.

REL's businesses are broadly clubbed across three key verticals, the Retail, Institutional

and Wealth spectrums, catering to a diverse and wide base of clients.

pg. 48


The vision is to build Religare as a globally trusted brand in the financial services

domain and present it as the 'Investment Gateway of India'. All employees of the group

guided by an experienced and professional management team are committed to providing

financial care, backed by the core values of diligence and transparency.

REL offers a multitude of investment options and a diverse bouquet of financial services

with its pan India reach in 1837* locations across 498* cities and towns. REL also

currently operates from nine international locations following its acquisition of London's

brokerage & investment firm, Hichens, Harrison & Co. plc.

With a view to expand, diversify and introduce offerings benchmarked against global

best practices, Religare operates its Life Insurance business in partnership with the global

major - Aegon. For its wealth management business Religare has partnered with

Australia based financial services major-Macquarie. Religare has also partnered with

Vistaar Entertainment to launch India's first SEBI approved Film Fund offering a unique

alternative asset class of investments.

NAME

Religare is a Latin word that translates as 'to bind together'. This name has been chosen

to reflect the integrated nature of the financial services the company offers.

SYMBOL

The Religare name is paired with the symbol of a four-leaf clover. Traditionally, it is

considered good fortune to find a four-leaf clover as there is only one four-leaf clover for

every 10,000 three-leaf clovers found.

pg. 49


For us, each leaf of the clover has a special meaning. It is a symbol of Hope. Trust, Care.

Good Fortune.

For the world, it is the symbol of Religare.

The first leaf of the clover represents Hope. The aspirations to succeed.

The dream of becoming. Of new possibilities. It is the beginning of every

step and the foundation on which a person reaches for the stars.

The second leaf of the clover represents Trust. The ability to place one’s

own faith in another. To have a relationship as partners in a team. To

accomplish a given goal with the balance that brings satisfaction to all,

not in the binding, but in the bond that is built.

The third leaf of the clover represents Care. The secret ingredient that is

the cement in every relationship. The truth of feeling that underlines

sincerity and the triumph of diligence in every aspect. From it springs

true warmth of service and the ability to adapt to evolving environments

with consideration to all.

The fourth and final leaf of the clover represents Good Fortune.

Signifying that rare ability to meld opportunity and planning with

circumstance to generate those often looked for remunerative moments

of success.

Hope. Trust. Care. Good Fortune. All elements perfectly combine in the

emblematic and rare, four-leaf clover to visually symbolize the values

that bind together and form the core of the Religare vision.

pg. 50


pg. 51


Accent usage

The diacritical tilde mark (˜) over the letter A in the Religare typeface indicates a palatal

emphasis sound of the letter A.

PRODUCT PROFILE

Retail Spectrum

Life Insurance

Asset Management

Equity Trading

Commodities Trading

Online Investment Portal

Health Insurance

Insurance Solutions

Loans

Wealth Spectrum

Wealth Management

Private Equity Fund

Arts Initiative

Film Fund

pg. 52


Institutional Spectrum

Institutional Broking Services

Investment Banking

Insurance Advisory

pg. 53


DATA ANALYSIS AND INTERPRETATION

1. BAJAJ AUTO LIMITED

Bollinger band width:-

It indicates Bajaj auto ltd. For the period 1 May 2009 to 30 April 2010

Graph 1.1

As shown in the above Bollinger band which indicates the buying and selling signals

which is got by using 20 day simple moving average and 2 period standard deviation

lead the Bollinger band width to 121.7.

Here the price touches the upper band in the month of October 2009 and April 2010

indicating the security over bought implying the sell signal. It touches the lower band in

the month of July and in the month of November 2009.

pg. 54


Moving average convergence and divergence (MACD):-


Graph 1.2

At the end of September 2009 the Bajaj auto ltd stocks had a bull phase as shown. This

bull line crosses 0 in the month of Dec 2009 and Apr 2010 it indicates the selling signal

to the investors. It shows the buying signal in the month of July 2009 and Nov 2009.

Relative Strength index:-


Graph 1.3

pg. 55


When the RSI has crossed the 30 line from below to above and is rising, a buying

opportunity is indicated. When it has crossed the 70 line from above to below and is

falling, a sell signal is indicated. In the month of Sept 2009 and Dec 2009 shows the sell

signal. In the month of Nov 2009 and in the month of Feb 2010 it indicates the buying

signal.

Rate of change indicators:-


Graph 1.4

When the ROC line is above the zero line, the price is rising and when it is below the

zero line the price is falling. At the end of June, Aug and Nov 2009 we have the buy

signal and at the end of july 2009, oct 2009 and Apr 2010.

pg. 56


TRIX:-


Graph 1.5

The movement of slope in the trix line indicates the corresponding movement in price of

stock which can be observed from the above chart clearly. The chart indicates the buying

signal in the month of July 2009 and Sept 2009. It also indicates the sell signal in the

month of Aug 2009 and Sept 2009.

pg. 57


2. HERO HONDA


It indicates Hero Honda motors ltd. For the period 1 May 2009 to 30 April 2010

Graph 2.1



lead the Bollinger band width to 309.7

Here the price touches the upper band in the month of Aug 2009 and April 2010

indicating the security over bought implying the sell signal. It touches the lower band in

the month of Oct 2009 and in the month of Jan 2010 signaling buy.



pg. 58


Graph 2.2

Hero Honda motors ltd stocks had a bull phase in Sep 2009 and Mar 2010. This bull line

crosses 0 in the month of Sept 2009 and Mar 2010 it indicates the selling signal to the

investors. It shows the buying signal in the month of Aug 2009 and Apr 2010



Graph 2.3

pg. 59




falling, a sell signal is indicated. In the month of Aug 2009 and Mar 2010 shows the sell


signal.



Graph 2.4


zero line the price is falling. At the end of May, Aug and Nov 2009 we have the buy

signal and during Dec 2009 and Mar 2010 we have sell signal.

TRIX:-


pg. 60


Graph 2.5



signal in the month of Sept 2009 and Nov 2009. It also indicates the sell signal in the

month of Aug 2009 and Mar 2010.

pg. 61


3. MARUTI UDYOG LTD.


It indicates Maruti Udyog ltd. For the period 1 May 2009 to 30 April 2010

Graph 3.1




Here the price touches the upper band in the month of Aug 2009 indicating the security

over bought implying the sell signal. It touches the lower band in the month of July 2009

and Mar 2010



pg. 62


Graph 3.2

Hero Honda motors ltd stocks had a bull phase in Aug 2009 and Mar 2010. This bull line

crosses 0 in the month of Aug 2009 and Mar 2010 it indicates the selling signal to the

investors. It shows the buying signal in the month of Oct 2009 and Jan 2010.



Graph 3.3



pg. 63


falling, a sell signal is indicated. In the month of Aug 2009 and Oct 2009 shows the sell


signal.



Graph 3.4


zero line the price is falling. At the end of Aug 2009 and Oct 2009 we have the buy

signal and during the start of Aug 2009 and Sept 2009 we have sell signal.

TRIX:-


pg. 64


Graph 3.5



signal in the month of Nov 2009 and Feb 2010. It also indicates the sell signal in the

month of Aug 2009 and Mar 2010.

pg. 65


4. TVS MOTOR COMPANY


It indicates TVS Motor company ltd. For the period 1 May 2009 to 30 April 2010

Graph 4.1



lead the Bollinger band width to 17.74.

Here the price touches the upper band in the month of Aug 2009 and Jan 2010 indicating

the security over bought implying the sell signal. It touches the lower band in the month

of Sept 2009 and Dec 2009.



pg. 66


Graph 4.2

Hero Honda motors ltd stocks had a bull phase in Aug 2009 and Jan 2010. This bull line

crosses 0 in the month of Aug 2009 and Jan 2010 it indicates the selling signal to the

investors. It shows the buying signal in the month of July 2009 and Feb 2010.



Graph 4.3



falling, a sell signal is indicated. In the month of Aug 2009 and Jan 2010 shows the sell

pg. 67


signal. It indicates the buying signal in the month of Nov 2009 and in the end of Feb

2010.



Graph 4.4


zero line the price is falling. At the end of Aug 2009 we have the buy signal and during

the start of Aug 2009, Jan 2010 and Mar 2010 we have sell signal.

TRIX:-


pg. 68


Graph 4.5



signal in the month of Mar 2010. It also indicates the sell signal in the month of Aug

2009 and Jan 2010.

pg. 69


5. TATA MOTORS LTD.

Bollinger Band width:-

Figure depicts the Bollinger Band width indicator of Tata Motors, for the period may 1 st

2009 to April 30th 2010.

Graph 5.1




Here the price touches the upper band in the month of august 2009 and in the month of

March 2010 indicating the security over bought implying sell signal. And touches the

lower band in the month of June 2009 and February 2010 indicating it to be over sold

and a buy signal is indicated.


Figure the following chart depicts the MACD indicator of Tata motors, for the period

may 1st 2009 to April 30th 2010. The MACD is calculated by subtracting a 200 day

pg. 70


moving average of its price. The MACD’s trigger (the blue line) is a 200 days

exponential moving average of the MACD indicator.

Graph 5.2

From beginning of august 2009 to the end of January 2010 the Tata Motors’s stocks had

a bullish trend as show i9n the fig. in the month of July 2009 and in end of February the

fig shows there is bearish trend. In the month of April 2010 there is increase in the

market, the bullish phase picked up. The MACD line reaches highest point in the month

of October 2009.


Figure depicts the ROC indicator of Tata Motors, for the period may10st 2009 to April

30th 2010.

Graph 5.3

pg. 71



zero line, the price is falling. There are a lot of fluctuations in the ROC implying the

market is volatile. The greatest fall in the price is in the month of July 2009and the

highest peak in the price in the 1 year period is in the month of august 2009, ideally one

should buy a share that is oversold and sell a share that is overbought. Hence it was ideal

to buy the shares of Tata Motors ltd in July 2009 and February 2010 and sell it in the

august 2010 or middle of March 2010.

Relative strength index:-

Figure the following chart the RSI compares the magnitude of a stock’s recent gains to

the magnitude of its recent losses and turns that information into a number that ranges

from 0 to 100. It is considered that a security is overbought if it reached the 70 level,

meaning that the speculator should consider selling. Or conversely oversold at the 30

level.

Graph 5.4


opportunity is indicated. When it has crossed the 70line from above to below and is

pg. 72


falling, a sell signal is indicated. In this case it has crossed 70 indicating a selling

opportunity .and it has crossed the 30 line indicating a buying opportunity. But we can

clearly see that the Buying signal is more dominant than the Selling signal. Which lasted

the selling opportunity is seems to be in the month of July end 2009 and September 2009

to January end 2010.and also the Buying indicators seems several times between the

month of May 2009 to April 2010.

TRIX:-

It indicates Tata Motor company ltd. For the period 1 May 2009 to 30 April 2010

Graph: 4.9.5



signal in the month of Aug 2009 it also indicates the sell signal in the month of Aug

2009 and September 2009.

pg. 73


FINDINGS

The study focused on five companies that operate in five completely different industries.

Even though many different charting techniques are available, one method is not

necessarily better than the other. The data may be the same, but each method will

provide its own unique interpretation, with its own benefits and drawbacks. The choice

of charting methods, to use will depend on personal preferences and trading or investing

styles. Once you have chosen a particular charting methodology, it is probably best to

stick with it and learn how best to read the signals. Switching back and forth may cause

confusion and undermine the focus of your analysis.

BAJAJ AUTO LIMITED

TECHNICAL INDICATOR

BUY SIGNAL SELLING SIGNAL

Bollinger Bands Width

July, November October, April

MACD July, November December, AprilRSI November, February September, DecemberROC June, November July, OctoberTRIX July, September August, September

HERO HONDA MOTORS LTD.

TECHNICAL INDICATOR

BUY SIGNALSELLING SIGNAL


October, January August, April

MACD August, April September, MarchRSI November, February August, MarchROC August, November December, MarchTRIX September, November August, March

pg. 74


MARUTI UDYOG LTD.

TECHNICAL INDICATOR



July, March August

MACD October, January August, MarchRSI November, February August, OctoberROC August, October August, SeptemberTRIX November, February August, March

TVS MOTOR COMPANY

TECHNICAL INDICATOR

BUY SIGNAL SELLING SIGNAL


September, December

August, January

MACD July, February August, January

RSI November, February August, January

ROC August August, MarchTRIX November, February August, January

TATA MOTORS LTD.

TECHNICAL INDICATOR



June, February August, March

MACD July, February AprilRSI May, April July, SeptemberROC July, February August, MarchTRIX August September

pg. 75


SUGGESTIONS

Technical analysis will improve the investment decision.

Technical analysis is simple and more reliable then fundamental analysis because

the information required for technical analysis is free available as compared to

fundamental analysis

Investor should have knowledge regarding the market terms so that they can take

maximum return from maximum investment

In case a trader entering in a new industries first he has to select stock to buy in

new industries after making careful study prospects and charts of the stock

Even though technical analysis is enough for making decision In stock market,

simultaneous usage of both fundamental and technical analysis will reduce errors

in forecasting future prices

pg. 76


CONCLUSION

Technical analysis is a useful technique in guiding investment decisions. In light of our

study on five companies, we have seen how technical analysis can be used to predict the

possible futures swings of stock prices. After analyzing the companies, the following

conclusion was drawn.

According to RSI as the Gain increases, there is increase in the RSI value, which

indicates that there is increase in the share price. This states to the investor that it is a

strong sell signal. Whenever there is decrease in the share price value, RSI value

decreases which indicates the investor that it is a strong buy signal. In general, we can

conclude from the result that technical indicators can play useful role in the timing stock

market entry and exit. By applying technical indicators brokers or investors enjoy

substantial profit. Technical analysis cannot be answer for the questions faced by analyst.

It has to be in combination with fundamental analysis to have maximum effect.

It can be said that some tools of technical analysis are more useful than others. However,

none of them can be termed an analysts panacea. The stock price movements are

influenced by various fundamental factors and the economy as a whole. Even though

there are some universal principles and rules that can be applied, it must be remembered

that technical analysis is more an art form than a science. As an art form, it is subject to

interpretation. However, it is also flexible in its approach and each investor should use

only that which suits his or her style. Developing a style takes time, effort and

dedication, but the rewards can be significant.

Analysis can offer great insight but if used improperly, they can also produce false

signals. While trend lines have become a very popular aspect of technical analysis, they

pg. 77


are merely one tool for establishing, analyzing, and confirming a trend. Trend lines

should not be the final arbiter, but should serve merely as a warning that a change in

trend may be very useful. In some situation, this principle is violated. By studying four

sectors, it can be stated that technical analysis does not provide 100% accuracy to the

investor. As the stock prices are dynamic in nature, combination of Fundamental analysis

and technical analysis will increases the percentage of accuracy and thus giving an idea

to the investor to invest in that stock which will yield him good returns.

pg. 78


BIBLIOGRAPHY

BOOKS:

Prasanna Chandra, Investment Analysis & Portfolio Management. 3rd edition, 2008

Bodie & Kane, Securities Analysis & Portfolio Management. 6th edition, 2004

Donald E Fischer, Securities Analysis & Portfolio Management, 6th edition, 2001

JOURNALS, MAGAZINES AND NEWSPAPERS :

A. Economics Times

B. Business line

WEBSITES

www.nseindia.com

www.in.yahoo.finance.com

www.bseindia.com

www.icharts.com

www.stockcharts.com

pg. 79

http://www.stockcharts.com/

http://www.icharts.com/

http://www.bseindia.com/

http://www.in.yahoo.finance.com/

http://www.nseindia.com/

“Technical analysis” a study on selected stocks

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