A study of technical analysis in different sectors stocks

INTRODUCTION Today investing in financial securities such as shares, debentures, bonds, and other financial securities are considered to be the most profitable investment avenues when compare to other type of investments. However, this financial securities not only ensures higher return but also bears higher risk. Therefore, the combination of these two characteristics in the financial securities has created a challenging task for the investors. Hence with an object of getting success in the investment activity, the investors tries to predict the future behavior of the stocks by using some of the techniques among them the important are: A. FUNDAMENATAL ANALYSIS B. TECHNICAL ANALYSIS. A: Fundamental analysis: Fundamental analysis is one of the important techniques, which is used to study the future behavior of the stocks. It actually refers to analyses of present and future earning capacity of the stocks based on the analysis of economy, industry and company as a whole there by to determine the intrinsic values of the stocks. In other words, fundamental analysis is mainly concerned with the determination of intrinsic value of the stocks by analyzing the fundamental factors of economy, industry and company as a whole. The intrinsic value of the stocks represents the real worth or economic value, which is used by the fundamental analysts to identify the under priced and overpriced securities in the market. It means, if the intrinsic value of the stock is more than the market value, it considered as under priced and included in the portfolio. On the other hand, if the intrinsic value of a stock is less then the market value then it is considered as overpriced and excluded from the portfolio. Thus, fundamental analysis is mainly concerned with the determination of intrinsic value of stocks and based on that intrinsic value investment decisions are taken by the fundamental analysts. B: Technical analysis It is another important technique, which is used to predict the future performance of the stocks. It is mainly concerned with the study of historical price movements of the stocks and on its volume of trade in the market to predict the future trend movements of the stocks. However, it does not consider any fundamental factors of the company like earnings, dividends, growth rates etc. It means, technical analysts first predicts the future trend movements of the stocks by using historical data and then take buy decision if trend movement shows upward direction and sell decision if trend movement shows downward direction. In other words, technical analysis does not involve in determination of any intrinsic value of the stocks instead it studies the past price movements, volume and other chart patterns to predict the future performance of the stocks. Historical stock prices, volume of trade in the market, Charts, graphs etc, are the important inputs, which are required to perform technical analysis. Charting is the key activity in technical analysis and in fact there is no technical analysis with out charts. Thus technical analysis mainly concentrates on the study of historical price movements and on its volume to identity future trend movements and based on this trend movements investment decisions are taken by technical analysts. STATEMENT OF THE PROBLEM: Technical analysis (or Chartism) is the study of price movement and trend in markets in order to forecast future prices. Investment timing plays a crucial role for trading in stock market trading. The investors face difficulty while identifying the opportunities. So this analysis is directed towards the use of different tools of Technical Analysis. Which help the investor to identify and decide when to buy or sell. 1.1 OBJECTIVES OF THE STUDY. 1: To gain the practical knowledge of technical analysis. 2: To know how technical tools are used to predict the future behavior of the stocks. 3: To know how charting techniques are useful to take buy or sell decisions. 4:To know how an investor can take rational Investment decisions by the study of Market trends and movements. 5: To provide the investors with a technique with which they can make a decent profit by Trading in stocks. 1.2: SCOPE OF THE STUDY. 1: The study is related to technical analysis to predict the future behavior of the stocks. 2: The analysis has been done on 5 selected stocks of NIFTY. 3: The analysis involves using of limited technical tools out of various tools. 1.3:METHODOLOGY OF STUDY: 1.3.1:Sampling design: The samples selected are from the index of nifty of different industrial sectors. The samples of companies selected are: 1: Industrial sector: Fast moving consumer goods. Company: Indian Tobacco Company limited {ITC}. 2: Industrial sector: Information technology. Company: Tata Consultancy Services {TCS}. 3: Industrial sector: Telecommunication. Company: Reliance Communications {RCOM}. 1.3.2: Data source: Primary data source: Data collected from the Manager of Kotak Securities Ltd., Secondary data source: Data collected from websites, magazines, textbooks and newspapers. 1.4:LIMITATIONS OF THE STUDY: 1: Analysis involves using of limited technical tools. 2: The study is restricted only to five selected stocks of nifty. 3: The study depends more on secondary data rather then on primary data. 4: We can’t predict the prices of the stocks for long term. 5: This technical analysis can’t be applicable to newly listed companies script. COMPANY PROFILE Kotak Securities Limited, a subsidiary of Kotak Mahindra Bank, is the stock broking and distribution arm of the Kotak Mahindra Group. The company was set up in 1994. Kotak Securities is a corporate member of both The Bombay Stock Exchange and The National Stock Exchange of India Limited. Its operations include stock broking and distribution of various financial products — including private and secondary placement of debt and equity and mutual funds. Currently, Kotak Securities is one of the largest broking houses in India with wide geographical reach. Kotak Securities’ network spans over 321 cities with 877 outlets, with an employee workforce beyond 5100. The company is also a depository participant with National Securities Depository Limited(NSDL) And Central Depository Services Limited (CDSL), providing dual benefit services wherein the investors can avail the company’s brokerage services for executing the transactions and the depository services for settling them. Kotak Securities Ltd. Processes more than 4,00,000 trades a day which is much higher even than some of the renowned international brokers. The portfolio Management Service provides top class service, catering to the high end of the market. Portfolio Management from Kotak Securities comes as an answer to those who would like to grow exponentially on the crest of the stock market, with the backing of an expert. Unlike many other companies, Kotak Securities Ltd., has a Centralized Risk Management System and an in-house Research Team which allows it to offer the same levels of service to customers across all locations. Kotak Securities was awarded as the most customer responsive company in the Financial Institution sector by AVAYA Global Connect Award both in 2006 and 2007. Kotak Securities Ltd has been the first in providing many products and services which have now become industry standards. Some of them are: Facility of Margin Finance to the customers Investing in IPOs and Mutual Funds on the phone SMS alerts before execution of depository transactions Mobile application to track portfolios Auto Invest — A systematic investing plan in Equities and Mutual funds Provision of margin against securities automatically against shares in the customer’s Demat account. Kotak Securities’ Accolades include: Best Brokerage Firm in India by Asia money for 2009, 2008, 2007 & 2006. UTI MF – CNBC TV18 Financial Advisor Awards – Best Performing Equity Broker (National) for the year 2009. Finance Asia Award(2009) – Best Brokerage Firm In India. Best Performing Equity Broker in India — CNBC Financial Advisor Awards 2008. Avaya Customer Responsiveness Awards (2007 & 2006) in Financial Services Sector. The Leading Equity House in India in Thomson Extel Surveys Awards for the year 2007. Euro money Award (2007 & 2006) — Best Provider of Portfolio Management Equities. Euro money Award (2005)-Best Equities House In India. Finance Asia Award (2005)-Best Broker In India. Finance Asia Award (2004)- India’s best Equity House. Prime Ranking Award (2003-04)- Largest Distributor of IPO’s. Equity trading Trading accounts :With a Kotak Securities Ltd online trading account customer can buy and sell shares in an instant. Any time customer want, from anywhere you like. Kotak Securities Ltd online trading account comes with a depository participant account where customer can keep all shares, in safe custody with National Securities Depository. Customer can also link a Kotak Securities online trading account to an Internet companying account of your choice, so that you can move cash in and out of this account easily, without the bother of writing cheques all the time. Trading services: Trading is super fast, extremely safe and highly secure at Kotak Securities . Apart from providing the most advanced trading platform in the country, Kotak Securities also offers facilities like instant cash transfer, after-market order, limit against shares and four times exposure on margin. Trading products: For timely and accurate “Buy” and “Sell” recommendations, try our Super-Duper trading products. Transaction charges are reasonable at Kotak Securities Ltd 0.5% all inclusive for trades that result into delivery . 0.1% all-inclusive for intra-settlement trades . Trading account opening charges = Rs750 only . No transaction charges for depository participant (DP) account. Note: our non-trading DP clients are charged 0.02% and 0.04% of trade value for purchase and sale transactions respectively. DP account maintenance charges (Rs 99 per quarter) waived until October 31, 2002. Depository services Customer can open a Depository Participant (DP) account, either through a Kotak Securities branch or through a Kotak Securities franchisee. There is no fee for opening a DP account with Kotak Securities Ltd. However a nominal deposit (refundable) is charged towards services, which are adjusted against all future billings. Kotak Securities offers dematerialization/rematerialization services to individual and corporate investors. Dematerialization is the process by which a client can get physical certificates converted into electronic balances maintained in his account with the DP. Dematerialization is the process by which a client can get his electronic holdings converted into physical certificates. Kotak Securities Ltd also offers Pledge facility, which enables you to obtain loans against their dematerialized shares. So customer gets liquidity without having to sell their shares. Other investment products. “Mutual Fund” section provides exhaustive information on various mutual fund schemes. You can also download from our site forms of various mutual fund schemes including HDFC MF, JF MF, Pioneer ITI MF, Prudential ICICI MF, Templeton MF and Zurich India MF. Derivatives trading It also provides derivatives trading services through our ground network of share shops. With Kotak Securities Ltd you can invest in index and stock futures as well as stock and index options on the NSE. Keep track of the derivatives market with “Derivatives Info Kit” and find out which strike to buy/sell using Black & Scholars Option calculator. Content features at Kotak Securities Ltd online trading in equities is made easy with the help of jargon-free investment advice. If you experience our language, presentation style or content, you will find a common thread—the one that helps you make informed investment decisions and Simplifies investing in stocks. Track domestic and international stock indices with “Indices at a Glance”. Get real-time stock quotes, live NSE ticker, daily top 5 gainers/losers, volume toppers and more market statistics, all at Kotak Securities . Know about the market as it happens through “Live Markets”. Keep abreast of the latest news and developments not only in the stock market but also in the world outside with “Live News” brought to you by Reuters. We also have a tie-up with Capital Market News Service for “Archive News”. INDUSTRIAL PROFILE Indian Stock Market The working of stock exchanges in India started in 1875. BSE is the oldest stock market in India. The history of Indian stock trading starts with 318 persons taking membership in Native Share and Stock Brokers Association, which we now know by the name Bombay Stock Exchange or BSE in short. In 1965, BSE got permanent recognition from the Government of India. National Stock Exchange comes second to BSE in terms of popularity. BSE and NSE represent themselves as synonyms of Indian stock market. The history of Indian stock market is almost the same as the history of BSE. The 30 stock sensitive index or Sensex was first compiled in 1986. The Sensex is compiled based on the performance of the stocks of 30 financially sound benchmark companies. In 1990 the BSE crossed the 1000 mark for the first time. It crossed 2000, 3000 and 4000 figures in 1992. The reason for such huge surge in the stock market was the liberal financial policies announced by the then financial minister Dr. Man Mohan Singh. The up-beat mood of the market was suddenly lost with Harshad Mehta scam. It came to public knowledge that Mr. Mehta, also known as the big-bull of Indian stock market diverted huge funds from banks through fraudulent means. He played with 270 million shares of about 90 companies. Millions of small-scale investors became victims to the fraud as the Sensex fell flat shedding 570 points. To prevent such frauds, the Government formed The Securities and Exchange Board of India, through an Act in 1992. SEBI is the statutory body that controls and regulates the functioning of stock exchanges, brokers, sub-brokers, portfolio managers investment advisors etc. SEBI oblige several rigid measures to protect the interest of investors. Now with the inception of online trading and daily settlements the chances for a fraud is nil, says top officials of SEBI. Sensex crossed the 5000 mark in 1999 and the 6000 mark in 2000. The 7000 mark was crossed in June and the 8000 mark on September 8 in 2005. Many foreign institutional investors (FII) are investing in Indian stock markets on a very large scale. The liberal economic policies pursued by successive Governments attracted foreign institutional investors to a large scale. Experts now believe the sensex can soar past 14000 mark before 2010. The unpredictable behavior of the market gave it a tag – ‘a volatile market.’ The factors that affected the market in the past were good monsoon, Bharatiya Janatha Party’s rise to power etc. The result of a cricket match between India and Pakistan also affected the movements in Indian stock market. The National Democratic Alliance led by BJP, during 2004 public elections unsuccessfully tried to ride on the market sentiments to power. NDA was voted out of power and the sensex recorded the biggest fall in a day amidst fears that the Congress-Communist coalition would stall economic reforms. Later prime minister Man Mohan Singh’s assurance of ‘reforms with a human face’ cast off the fears and market reacted sharply to touch the highest ever mark of 8500. India, after United States hosts the largest number of listed companies. Global investors now ardently seek India as their preferred location for investment. Once viewed with skepticism, stock market now appeals to middle class Indians also. Many Indians working in foreign countries now divert their savings to stocks. This recent phenomenon is the result of opening up of online trading and diminished interest rates from banks. The stockbrokers based in India are opening offices in different countries mainly to cater the needs of Non Resident Indians. The time factor also works for the NRIs. They can buy or sell stock online after returning from their work The recent incidents that led to growing interest among Indian middle class are the initial public offers announced by Tata Consultancy Services, Maruti Udyog Limited, ONGC and big names like that. Good monsoons always raise the market sentiments. A good monsoon means improved agricultural produce and more spending capacity among rural folk. The bullish run of the stock market can be associated with a steady growth of around 6% in GDP, the growth of Indian companies to MNCs, large potential of growth in the fields of telecommunication, mass media, education, tourism and IT sectors backed by economic reforms ensure that Indian stock market continues its bull run. Trading Pattern of the Indian Stock Market Trading in Indian stock exchanges is limited to listed securities of public limited companies. They are broadly divided into two categories, namely, specified securities (forward list) and non-specified securities (cash list). Equity shares of dividend paying, growth-oriented companies with a paid-up capital of at least Rs.50 million and a market capitalization of at least Rs.100 million and having more than 20,000 shareholders are, normally, put in the specified group and the balance in non-specified group. Two types of transactions can be carried out on the Indian stock exchanges: ,[object Object]

Forward transactions "delivery and payment can be extended by further period of 14 days each so that the overall period does not exceed 90 days from the date of the contract". The latter is permitted only in the case of specified shares. The brokers who carry over the outstanding pay carry over charges (can tango or backwardation) which are usually determined by the rates of interest prevailing. A member broker in an Indian stock exchange can act as an agent, buy and sell securities for his clients on a commission basis and also can act as a trader or dealer as a principal, buy and sell securities on his own account and risk, in contrast with the practice prevailing on New York and London Stock Exchanges, where a member can act as a jobber or a broker only. The nature of trading on Indian Stock Exchanges are that of age old conventional style of face-to-face trading with bids and offers being made by open outcry. However, there is a great amount of effort to modernize the Indian stock exchanges in the very recent times. Trading products of kotak securities Ltd. For timely and accurate quot;
Buyquot;
and quot;
Sellquot;
recommendations, try our Super-Duper trading products. The wide range on offer includes – Equities Derivatives Currency trading. Future and option (F&O) Custody accounts. Mutual funds. Life insurance. General insurance. Loans against shares. IPO Portfolio Management service.(PMS) Property securities Margin funding STRENGTHS: ,[object Object]

Company continues to achieve cost efficiencies through the application of technology.

Kotak is a charter member of the financial planning standards board of India and is one of the largest brokers in the country.

It is listed on the BSE & NSE and its market capitalization is over Rs.777.6 crores

It is the first Indian stock broking company to commence domestic retail brokerage operations in any foreign country through its joint venture

Kotak renders quality equity trading services.

It is a highly innovative company and among much industry first to its credit prominent is the launch of internal trading in 2000.

It launched branches exclusively for women investors.

It brand is popular and the brand image can be capitalised.

It has well experienced staff and good infrastructure.

It follows corporate governance norms and adopts best management practices.

Wide number of products and services and also branches.

Good research team which give suggestion to buy different sectors. WEAKNESS: ,[object Object]

Unable to compete with the brokerage rates of their competitors.

Less number of branches in north India.Lack of efficient and effective strategies in attracting customers. Unable to market their products & services more efficiently

OPPORTUNITIES: The India financial market has a very high growth potential. The macroeconomic fundamental are sound to allow the economy to make rapid strides. Economic expansion will result in greater disposable incomes and larger number of investors. ,[object Object]

Target the rural and sub urban areas.

Growing India economy opens up huge market for stock broking companies.

Company believes that their culture helps to attract and retain the best talent.

Company is committed to achieve profitable progress consistently

The manifold increase in capital mobile station from the primary market.

Increase the resource mobilization by mutual funds

Phenomenal growth in secondary market volumes.

The stock broking industry has recently witnessed intense competition falling brokerage rates & the entry of several big player. Increased level of competition is a cause of concerns.

Competition from financial institution like banks investing firms etc.

Changes in India political economic conditions.

Changes in government polices and regulation.Dependency on international market3: LITERATURE REVIEW AN OVERVIEW OF TECHNICAL ANALYSIS Concept of Technical analysis : It is the process of identifying trend reversal at an earlier stage to formulate the buying and selling strategy. With the help of several indictors they analyze the relationship between price- volume and supply –demand for the overall market and the individual stock. Volume is favorable on the upswing it means the number of share traded is greater than before and on the downside the number of shares traded dwindles. If it is the other way round, trend reversal can be expected. Technical analysis is mainly concerned with the study of historical past price movements of the stocks and on its volume of trade in the market to predict the future behavior of the stocks. However, it does not consider any fundamental factors of the company like earnings, growth rates, dividends, financial ratios etc. The rational behind technical analysis is that the share price behavior repeats itself over a time and technical analysts attempt to derive methods to predict these repetitions. The basic concept behind technical analysis is that prices move in trends or waves, which may be upward or downward and the present trends are influenced by past trends and the projection of future trends is possible by an analysis of past price trends. Hence, technical analysts use this trend as an important tool for security analysis and mainly concentrate on trend movements. Technical analysis is applicable to all stocks, indices, commodities, futures or for any other tradable instruments where the prices are influenced by the forces of demand and supply. Price refers to any combination of the open, high, low, close for a given security over a specific period. The period 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. Technical analysis v/s fundamental analysis Technical analysis and fundamental analysis are the two main schools of thought in the financial markets. Technical analysts look on trend movements to predict the future behavior of the stocks where as Fundamental analysts look on fundamentals of the economy, industry and company as a whole to predict the future behavior of the stocks. Fundamental analysis is based on what “SHOULD” happen where as Technical analysis is based on what “DOES” happen. The following points explain the major differences between this two and it also states how technical and fundamental analysis are used together to analyze securities to gain better results. 1: Charts v/s financial statements. Technical analysts analyze securities by the use of charts and it states that there is no use of analyzing company's fundamentals since market discounts every thing and it believes, all the information’s about a stock can be found in its charts and there is no need to study any fundamentals of the economy, industry or company. On the other hand, Fundamental analysts analyze securities by the use of financial statements and by looking at the balance sheet, cash flow statement and income statement they determine intrinsic value for the stocks and based on that they identifies mispriced stocks in the market to take investment decisions. 2: Trading V/s Investing. In general, words, technical analysis is used for a trade where traders buy stocks with an expectation of selling it in future for higher prices. On the other hand, Fundamental analysis is used to make an investment where Investors buy stocks with an expectation of increase in the economic value of stocks. 3: Time Horizon Technical analysis can be used on a timeframe of weeks, days or even minutes and it is best suitable for short-term investment decisions or for speculation. Where as Fundamental analysis often looks at data over a number of years and it is more suitable for long-term investments decisions rather then for speculation. How do Technical and Fundamental Analysts make investment decisions? Technical analysts take investment decisions by examining the past market data to estimate future price trends. They first identify new trends and based on the possibility of new trend movements analysts take investment decisions. It means, if the future movement of the trend is in upward direction, then they take buy decision where as if the future trend movement is in downward direction, then they take sell decision. Fundamental analysts take investment decisions by examining the economy, industry and company as a whole to determine the intrinsic value of the stocks. Based on this intrinsic value fundamental analysts identifies overpriced and underpriced securities in the market to take investment decisions. It means they buy stock if it is under priced and sell stock if it is overpriced. Why Technical Analysts believe Technical Analysis is superior According to Efficient market hypothesis theory {EMH}, the future prices of the stocks are completely depending upon the information received by the market and there is no scope for fundamental or technical analyst to beat the market. It means if the market receives positive information relating to a particular stock or an industry then the prices of that particular stock move upwards. On the other hand, if the market receives negative information relating to a particular stock or an industry, then the prices of that particular stock move downwards. However, against EMH theory technical analyst argues that whatever the information received by the market can t be incorporated on the prices of the stocks with in a short period because there is a need of some time to influence the information’s on the prices of the stocks. It means, since there is a time gap between observing of information’s and incorporating this information’s on the prices of the stocks, the technical analyst make use of this time gap and can beat the market or can predict the future possibilities of trend movements. Hence, this gives an opportunity to technical analysts to earn excess returns by studying the chart patterns in price movements and trading accordingly. Secondly, Technical analysts argues that it is too difficult for fundamental analysts to pinpoint a specific time to take investment actions even if they have identified the under-valued or over-valued securities. Where as, Technical analysts take quick investment decisions as soon as the trend changes its direction or when trend moves to new equilibrium point. Finally, technical analysts argues that analysis of fundamentals and financial statement of a company is not sufficiently enough to take right investment decisions. So based on this grounds technical analysts believes that they are superior then fundamental analysts. Assumptions of technical analysis ,[object Object]

The market discounts everything. The price of the security quoted represents the hopes, fears and inside information received by the market players. Inside information regarding the issuing of bonus shares, and right issue may support the prices. The loss of earnings and information’s regarding the forthcoming labour problem may result in fall in price. These factors may cause a shift in demand and supply, changing the direction of trends.

The market always moves in trend. Except for minor deviations, the stock prices move in trends. The price may create definite patterns too. The trend may be either increasing or decreasing. The trend continues for sometime and then it reverses.

Any layman knows the fact that history repeats itself. It is true to the stock market also. In the rising market investors psychology have up beats and they purchase the shares in greater volumes, driving the prices higher. At the same time, in the down trend they may be very eager to get out of the market by selling them and thus plunging the same price further. The market technicians assume that past prices predict the future. DOW THEORY. What ever is generally being accepted today as technical analysis has its roots in the Dow Theory. The theory is so called because Charles h. Dow who was the editor of the wall street journal in U.S.A. Charles Dow formulated a hypothesis that the stock market does not move on a random basis formulated it but it is influenced by three distinct cyclical trends that guide its direction. Dow actually developed this theory to explain the movement of the indices exclusively on closing prices. However, the theory is also applicable to all individual scrips. The three important hypotheses of the theory are as follows: The first hypothesis states that the stock market indices are influenced by three distinct cyclical trends namely primary, intermediary and short-term trends. The second hypothesis states that market discounts every thing. This is one of the basic assumption on which technical analysis rests. As per this hypothesis, the market discounts the hopes, fears, muscle power, insider information, etc. In fact, according to Dow, natural calamities like earthquakes, fires, etc are also quickly discounted by the market. As per the third hypothesis, the theory is not infallible [accurate]. It is not a tool to beat the market, but a way to understand it better. In addition, Dow does not give the time frame or the likely price targets; he just talks of the broad upward and downward movement, which according to him is the most important movement for the investors. As per this theory, there are three types of trends that are in operation at any given point of time. These are the primary trend, intermediate trend and the short-term trend. Dow defined primary trend as a trend, which continues to be for more then one year and which never lose its existence with in a short period and even an individual or a group of investors can t influence on this trend. Secondly, intermediary trend is another trend, which continues to be for three to six months indicating corrections in the market of oversold and overbought market situations. That is why it is also called as corrections of the market. Lastly, short-term trend is a type of trend, which indicates the day-to-day fluctuations of the market and which can be influenced by an individual, or by a small group of investors. The short-term trend lasts for two to three days to an equal number of weeks. Following figure is an example of Primary and Secondary trends. Y Primary trend Secondary reactions Secondary reactions Secondary reactions O X In the above figure, line chart is an example for closing prices of market index. The primary trend of the market is upward but secondary trends are almost in downward direction indicating corrections of oversold and overbought market conditions. Actually secondary trend is nothing but corrections of the market. Among three movements in the market, the primary market is considered the most important movement since by identifying it; the investor can earn abnormal profits. ELLIOT WAVE THEORY There are many theories, which seek to explain the behavior of the stock market. One such theory, in technical analysis, is the wave theory formulated by RALPH ELLIOT, known as Elliot wave theory. Elliot formulated the theory in 1934 after analyzing seventy-five years of stock price movements and charts. From his studies, he concluded that the market movement was quite orderly and followed a pattern of waves. A wave is a movement of the market price from one change in the direction to the next change in the same direction. The waves are the result of buying and selling impulses emerging from demand and supply pressures on the market. Depending on the demand and supply pressures, waves are generated in the prices. The Elliot wave theory is based on the principle that action is followed by reaction. Although the wave theory is not perfect and there are many limitations in its practical use, it is accepted as one of the tools of technical analysis. The theory is used for predicting the future price changes and in deciding the timing of investment. Tools used in technical analysis Trend: Trend is one of the important technical tool, which is used in technical analysis. In financial terms trend refers to the general direction in which a security or market is headed. In any given chart, we can probably notice that prices do not tend to move in a straight line in any direction for longer period rather then, it moves in the series of high and low. In technical analysis, this high and low constitutes a trend. Importance of Trend: Trend analysis is very helpful because moving with trends, and not against them, will lead to profit for an investor. Therefore, it is very important to understand and identify trends so that we can trade rather than against them. Two important sayings in technical analysis are ‘Trend is your “friendquot;
and don't buck the trend” Types of Trends: Trends are of three types 1: Uptrend. 2: Downtrend. 3: Horizontal trend. 1: Uptrend: It is the one, which explains the price movement of a financial asset when the overall direction is upward. Following is an example for uptrend. The above figure shows how the successive peak {boom} and trough [depression} is located above the previous ones. For example, the peak at Point 4 is higher than the peak at Point 2. The uptrend will be deemed to be broken if the next low on the chart falls below Point 5. The main goal of technical analyst is to identify a strong uptrend and to earn profit until it reversals its direction. 2: Downtrend: It is the one, which explains the price movement of a financial asset when the overall direction is downward. Following is an example for downtrend. The above figure shows how successive peak and trough is lower than the previous one. For example, the low at Point 3 is lower than the low at Point 1. The downtrend will be deemed broken, once the price closes above the high at Point 4. Almost all traders tries to avoid downtrends since it influence more on the value of there investment adversely. Downtrend can last for minutes, days, weeks, months or even years. 3: Horizontal trends: This type of trends describes the horizontal price movements of a financial asset when the forces of demand and supply are nearly equal. Horizontal trend is also known as a sideways price trend. Trend lengths A trend of any direction can be classified as a long-term trend, intermediate trend or a short-term trend. Following is an example for trend lengths. 3.1trend lengths Long-term trend refers to a major trend, which is generally categorized as one lasting longer than a year. Intermediate trend refers to a trend, which is considered to last between one and three months. Short-term trend refers to a small trend, which is less than a month. A long-term trend is composed of several intermediate trends, which often move against the direction of the major trend. If the major trend is upward and there is a downward correction in price movement followed by a continuation of the uptrend, the correction is considered an intermediate trend. The short-term trends are components of both major and intermediate trends. Charts and its types. Chart is the basic tool and key component to perform technical analysis and in fact with out charts there is no technical analysis. In technical terms chart refers to a graphical representation of a series of prices over a set period and generally, chart refers to price chart. The Time Scale The time scale refers to the range of dates at the bottom of the chart, which can vary from decades to seconds. The most frequently used time scales are intraday, daily, weekly, monthly, quarterly and annually. The shorter the time frame, the more detailed the chart. Each data point can represent the closing price of the period or show the open, the high, the low and the close depending upon the chart used. The Price Scale The price scale is on the right-hand side of the chart. It shows a stock's current price and compares it to past data points. This may seem like a simple concept in that the price scale goes from lower prices to higher prices as you move along the scale from the bottom to the top. Notice how the data used to create the charts is the same, but the way the data is plotted and shown in the charts is different. Types of price charts; 1: LINE CHART OR CLOUSNG CHART 2: BAR CHART 3: JAPANESE CANDLESTICK CHART. 1: Line Chart Line chart is one of the basic charting in technical analysis, which represents the closing prices of the stocks. The line is formed by connecting the closing prices over the period. Line charts do not provide any visual information about a particular stock relating to high, low and opening prices. However, the closing price is often considered the most important price in stock data compared to the high and that is why, only closing values are used to draw line chart. Following is an example for line chart. 3.2:line chart example In the above chart, we can observe the line draw by using the closing points of nifty index over a definite period. By the use of this chart, an investor or an analysts can easily come to down the over all day-to-day fluctuations of the stock over a period. 2: Bar chart It is perhaps the most popular chart used by the technical analysts. In this chart, the highest price, the lowest price and the closing price of each day are plotted on a day-to-day basis. A bar is formed by joining the highest price and the lowest price of a particular day by a vertical line. The top of the bar represents the highest price of the day, the bottom of the bar represents the lowest price of the day and a small horizontal hash on the right of the bar is used to indicate the closing price of the day. Sometimes, the opening price of the day is marked as a hash on the left side of the bar. Following is an example for bar chart. 3.3: Bar chart example In the above chart, we can observe the bars drawn by using the open, high, low and closing points of nifty index over a period. By the use of this, an investor can come to know about the open, high, low and closing prices of stocks or an index for a definite period. 3: JAPANESE CANDLESTICK CHART The Japanese candlestick chart shows the highest price, the lowest price, the opening price and the closing price of stocks on day-to-day basis. A vertical bar joins the highest price and the lowest price of a day. The opening price and closing price of the day, which would fall between the highest and the lowest prices, would be represented by a rectangle so that the price bar chart looks like a candlestick. Thus, a candlestick represents each day’s activity. There are mainly three types of candlesticks, the white, and the black and the doji or neutral candlestick. A white or green candlestick is used to represent a situation where the closing price of the day is higher than opening prices. A black or red candlestick is used when the closing price of the day is lower than the opening prices. Thus, a white candlestick indicates a bullish trend while a black candlestick indicates a bearish trend. A doji candlestick is the one where the opening price and the closing price of the day are the same. 3.4: Following is an example for Japanese candlestick chart. -68580250190 Japanese candlestick chart 1: Green is an example of a bullish pattern and here the stock opened at (or near) low and closed near its high. 2: Red is an example of a bearish pattern and here the stock opened at (or near) high and dropped substantially to close near its low. 3: This is called a Hammer, which is a bullish pattern, and it only occurs after the stock price has dropped for several days. 267462083185 4: This is called a Star, typically indicating a reversal or indecision situation. 2674620139065 Chart patterns When the price charts are drawn close together for several days, certain patterns emerge. The technical analysts to identify trend reversal and to predict the future price movements of the stocks use these patterns. The chart patterns can be classified as, 1: Support and Resistance patterns 2: Reversal patterns 1: Support and Resistance Support and resistance are the two important chart patterns, which is often used by all technical analysts. But many traders who begin with technical analysis find this concept hard to believe and don't realize that this phenomenon occurs rather frequently. Support and resistance are the two important price levels at which many traders are willing to purchase the stock {in case of support} or willing to sell the stock {in case of resistance}. Support level is the price level where the sufficient buying pressures forces to close down the ongoing fall in the prices of the stocks where as Resistance level is the price level where the sufficient selling pressures forces to close down the ongoing rise in the prices of the stocks. It means the demand and supply forces operating in the market influence these two price levels. Support occurs when the share price moves downwards but bounces back or reverses direction every time when it reaches a particular level. On the other hand, Resistance occurs when the share price moves upwards but bounces back or reverse direction every time when it reaches a particular level. 3.5:Following figures clearly shows the nature of Support and Resistance price levels: Example of Support price level. 3.6:Example of Resistance price level. Note: If stock price violates the Support level Sell signal If stock price violates the Resistance level Buy signal. 2: Reversal patterns. Uptrend and downtrend are the two important price movements where they reverses there directions after a period. These reversals can be identified with the help of certain chart formations that typically occur during these trend reversals. Thus, reversal patterns are chart formations that tend to signal a change in direction of earlier trend. Following are the important reversal chart patterns in technical analysis. 1: Head and shoulders. The most popular reversal pattern is the head and shoulder formation, which usually occurs at the end of a long uptrend. Head and shoulders is a reversal chart pattern, signals that the security is likely to move against the previous trend. This chart pattern looks likes one head and two shoulders of a man and hence it is called as head and shoulders. This pattern is identified when the price action of a security meets the following characteristics 1. Rises to a peak and subsequently declines. 2. Then, the price rises above the former peak and again declines. 3. Finally, rises again, but not to the second peak, and declines once more. 3.7:Following figure is an example for Head and Shoulders chart pattern. 2: Inverse Head and shoulders. It is another important chart pattern, which is used by the technical analysts to predict the reversal of a current downtrend. This pattern is identified when the price action of a security meets the following characteristics 1. The price falls to a trough and then rises. 2. The price falls below the former trough and then rises again. 3. Finally, the price falls again, but not as far as the second trough. 3.8:Following figure is an example of Inverse Head and Shoulder formation. The inverse head and shoulder pattern is also one of the important reversal patterns indicating an oncoming bullish phase. when this type of pattern is formed and if the stock prices rises above the resistance of neckline, investors starts to take long position with an expatiation of making profit when prices of the stocks reaches peak. 3: Triangles. Triangles are the most popular and well-known continuation chart pattern used in technical analysis. Triangles are formed when there is lot of fluctuations in the market and its formation may occur during a bull phase or a bear phase. Triangles may be in the form of three types: A: Symmetrical triangles B: Ascending triangles C: Descending triangles A: Symmetrical triangle This type of triangles are made up of series of fluctuations and each fluctuation is smaller then the previous one. This is a period of indecision for the analysts because in future the trend may look neither the peak nor the bottom since at this point of time the demand and supply forces operating in the market goes together. It means, in this situation analysts cannot take any decisions since the trend may break away either way. 3.9: Following diagram is an example for symmetrical triangle. In the above figure, we can observe the series of fluctuations where by the trend may move in upward or downward direction after breaking of symmetrical triangle. B: Ascending triangle It is nothing but a signal of bullish pattern, which gives an indication of increase in the price of a security in future. 3.10: Following figure is an example for ascending triangle. In the above figure, we can observe that, how the price of a security is breaking resistance price level and moving in upward direction with an indication of bullish trend line. C: Descending triangle; It is nothing but a signal of bearish pattern, which gives an indication of decrease in the price of a security in future. 3.11:Following figure is an example of descending triangle. In the above the figure, we can observe that how the price of a security is breaking support price level and moving in the downward direction with an indication of bearish trend line. 4: Flags. This is another common chart pattern, which emerge before a fall or rise in the price of a security. These patterns show the market rectification of overbought or oversold situations. The time taken to form this chart pattern is quick which ranges from three to four days. If the pattern is longer then it takes three weeks to complete the pattern. 3.12:Following is an example for Flag chart pattern. 5: Tops and bottoms Tops and bottoms formation is interesting to watch but what is more important is the middle portion of it because the investor has to buy when uptrend starts and has to exit before the top is reached since trend reverse its direction after meeting certain level. Double top: This type of formation signals the end of one upward trend and the beginning of another downward trend. The double top bottom pattern look like the letter “M” which is formed when the stock price rises to a certain level, falls rapidly, again rises to the same height or more, and turns downwards. The double top indicates the onset of the bear market and results are influenced by the volume and trend. 3.13: Following is an example for double top chart pattern: In the above figure, we can observe the battle between the buyers and the sellers. It means, when sellers lose interest to sell more shares, then price moves upwards. On the other hand, when buyers lose interest to buy more shares, then price moves downwards. Double bottom: This type of formation signals the end of one downtrend and the beginning of another uptrend. The double top bottom pattern look like the letter “W” which is formed when the stock price falls to a certain level, rises rapidly, again falls to the same height or more, and turns upwards. Technical analysts view double bottom as a sigh for bull market. 3.14:Following is an example for double bottom chart pattern. Technical indicators: Technical indicators refer to those tools, which are used to find the direction of the overall market since the overall market movement’s influence on individual share prices. In technical analysis, overall forecasting or analysis is considered as more effective than the individual forecasting. Below are the important mathematical indicators in technical analysis. Mathematical indicators. 1: Moving averages. Moving average is one of the important mathematical indictor, which is used to show the average price movements of a security over a period. Moving averages are used to highlight the direction of a trend and to smooth out the price and volume fluctuations of a security for better interpretations. Once the day-to-day fluctuations are removed, traders are in better position to take decisions easily. It should be noted that the period does not always need to be in days. Moving averages can also be calculated using minutes, hours, weeks, months, quarters, years etc. A day trader { intraday trading} looks 50-minutes moving average to get an idea of next hour price movement and other traders normally looks one day, weekly, monthly or yearly moving average charts to take investment decisions. It means to identify short term trends 10 day to 30-day moving averages are used, in case of medium term trends 50 day to 125-day moving averages are adopted and 200 days moving averages are used for identifying long-term trends. Types of moving average: 1: Simple moving average. 2: Exponential moving average. A: Simple moving average. {SMA} This is the most common method used to calculate the moving average of prices. It simply takes the sum of all past closing prices over the time and divides the result by the number of prices used in the calculation. . Following is an example of simple moving average. In the above chart, red line is an example of simple moving average for the period of 10 days. In the above chart, we can observe how 10 days simple moving average is reacting and moving very closer to price chart of nifty with out confusing with day-to-day fluctuations. One of the important features of this moving average is it gives equal weight age to all data, which is considered as one of the limitation of it by some technical analysts. Anyhow, still moving average is more popular in technical analysis. B: Exponential Moving Average. {EMA} 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 simple moving average. The important thing to remember is EMA is more responsive to new information when compare to simple moving average. This is the reason why all technical analysts prefer EMA rather then other moving averages. This can be calculated by using the flowing formula. EMA = [current closing price - previous close] * factor + previous close Where Factor = 2 / n+1 For example, close price is 35. Previous close is 33 and n = 10. Then factor = 2/10+1 = 0.33 EMA= 35-33*0.33+33 = 33.66. 2: Oscillators. Oscillators are the mathematical indicators calculated with the help of closing price data. They help to identify overbought and oversold conditions in the market and the possibility of trend reversals. Generally, oscillators are analyzed along with the price chart. Oscillators indicate trend reversals that have to be confirmed with the price movement of the scrip. Changes in the price should be correlated to changes in the supply and demand forces then only buy and sell signals can be generated. For short term trading, daily price oscillators are useful and it is calculated for all periods. Following are the three important technical indicators to identify buy and sell signals. 1: Relative strength index {RSI}. Relative strength index was developed by wells wilder. It is one of the powerful and popular indicators, which identifies overbought and oversold market conditions along with the signals of buying and selling opportunities in the market. It also shows the strength and weakness of a particular scrip or market. If the share price is falling and RSI is rising, a divergence is said to have occurred. Divergence indicates the turning point of the market. If the RSI is rising in the overbought zone, it would indicate the downfall of the price. If RSI falls in the overbought zone, it gives a clear signal or sells. The term overbought describes the price level at which momentum can no longer be maintained and the price has to go down. This condition occurs after a sharp rise in the price during a period of heavy buying. When the RSI is in the oversold region, it generates the buy signal. The term oversold is used to describe a security or market that has declined to an unreasonably low level. This condition is characterized by an increase in sales and excess of net declines. RSI for a stock is calculated by using the following formula: RSI = 100 - {100/1 + RS}. Where RS = Average gain per day / Average loss per day. For better understanding, it can be explained with an example: DAYSCLOSING PRICESGAIN PER DAYLOSS PER DAYDAYSCLOUSING PRICESGAIN PER DAYLOSS PER DAY1130--9140--21322-101422-3130-211139-341355-121412-51372-131454-6134-314143-271362-151432-81404-TOATL2510 14 Days average gain = 25 / 14 = 1.78, 14 Days average loss = 10 / 14 = 0.714. RS = 1.786 / .714 = 2.50. RSI = 100 – {100 / (1 +2.50) = 100 – (100/3.50) = 100 – 28.58 = 71.42. Following figure is an example of RSI chart. In the above chart RSI values rages from 0 to 100, where above 70 is considered as oversold market condition and below 30 is considered as overbought market condition. If RSI value crosses or if it goes near to 70 then it is an indication of bullish market where in future the prices of a stock falls. On the other hand, if RSI value crosses or goes near to 30 then it is an indication of bullish market where in future the prices of a stock rises. The most commonly used time period for the calculation of RSI is 14 and 9 days. If the time taken for calculation is more, the possibilities of getting wrong signals are reduced The term overbought describes the price level at which momentum can no longer be maintained and the price has to go down. This condition occurs after a sharp rise in price during a period of heavy buying. When the RSI is in the oversold region, it generates the buy signal. The term oversold is used to describe a security or market that has declined to an unreasonably low level. 2: Rate of change {ROC} It is another popular oscillator, which measures the rate of change of the current price as a change in the prices of certain number of days or weeks back. To calculate a 7-day rate of change, each day’s price is divided by the price, which prevailed 7 days ago, and then 1 is subtracted from this price ratio. ROC= current price / price ‘n’ period ago – 1 The values obtained in ROC may be positive, negative or zero. 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. Greater the changes in the prices, the greater will be the change in ROC. ROC could be used to define overbought and oversold markets. 3: Moving average convergence and divergence {MACD} MACD is an oscillator that measures the convergence [meeting] and divergence [deviation] between two exponential moving averages. A short-term exponential moving average and a long term exponential moving averages are calculated with the help of the closing price data. A 12-day and 48-day exponential moving averages constitute a popular combination. The difference between the short term EMA and the long term EMA represents MACD MACD = short-term moving average – long-term moving average. MACD values may be positive, negative or zero. If the MACD line crosses the zero line from above, the trend can be considered to have turned into bearish, signaling selling opportunity. ANALYSIS AND INTERPRETATION ,[object Object],Company profile: TCS is a leading provider of highly flexible financial management software that powers mid-sized businesses. Tata Consultancy Services Limited (TCS) is one of the Indian software services and consulting company and India’s largest provider of information technology and business process outsourcing services which came into existence in the year 1968. TCS is presently the top software services firm in Asia. Apart from IT sector, TATA GROUP was much diversified even in the areas of energy, telecommunications, financial services, manufacturing, chemicals, engineering, materials, government and healthcare. HeadquartersMumbai, India.IndustrySoftware Services.TypePublic Company.StatusOperating.Company Size1,49,654 employees.Revenue US$ 5.70 billion (2009).Founded1968.Websitehttp://www.tcs.com. Board of directors. 1: N Ratan. Tata : Chairman. 2: S. Ramadori : Chief executive officer and Managing director. 3: N. Chandrasekaran : Chief operating officer and Executive director. 4: S. Mahalingam : Chief Financial Officer and Executive Director. Objectives. 1: To establish the company as the best global organization for large-scale deployment of financial management software solutions on the Caches platform. 2: To establish a fully object-oriented component based application, which will enable us to deliver robust software quicker and more efficiently than any competitor. 3: To ensure that customers can operate their business software solutions on infrastructures those match their need. EXCHANGES LISTED: 1: BOMBAY STOCK EXCHANGE. 2: NATIONAL STOCK EXCHANGE 3: LONDON STOCK EXCHANGE. CURRENT FINANCIAL STATUS OF THE COMPANY. Sales : 18,290 {cr}. Operating profit margin : 30 % Net Income : US$ 1.25 billion (2009) Total Assets : US$4.36 billion (2009) Earning per share {Rs} : 48 Price earning ratio {times} : 12 . Share price for the year : Year high : 710, Year low : 414. 2: Indian Tobacco Company Ltd {ITC}. Company profile: ITC was set up in the year 1910 by the name of 'Imperial Tobacco Company of India Limited' but now the company is called as Indian Tobacco Company Ltd. products. ITC is a market leader in the businesses of Cigarettes, Hotels, Paperboards, Packaging and Agricultural Exports. It is gaining its market share very rapidly in the businesses of Packaged Foods & Confectionery, Branded Apparel and Greeting Cards & Stationery. ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is one of the country's biggest foreign exchange earners. TypePublic (BSE:ITC)Founded24-08-1910HeadquartersKolkata, IndiaKey people Yogesh Chander Deveshwar : Chairman. K. Vaidyanath : Director. Partho Chatterjee : CFO.IndustryTobacco, foods, hotels, stationery, greeting cardsProductsCigarettes, packaged food, hotels, apparelRevenue▲ $4.75 billion USD .Employees21,000.Websitewww.itcportal.com Board of directors: Chairman : T.C. Deveshwar. Executive Director : Anup singh and K.V. Vaidyanath. Non-Executive Directors : Anil Baijal, R.K.Kaul S.B.Mathur, D.K.Mehrotra, P.B.Ramanujam, and B.Vijayaraghavan. Objectives: 1: The primary focus of ITC's Social Development Initiatives is to create sustainable sources of farm and off-farm livelihoods and to improve the social infrastructure especially in areas where it influences women and children. In pursuit of these objectives, the following goals have been set for the next five years: 2: Web-enable 10 million farmers through 20,000 e-Choupals in 100,000 villages. Bring at least 50,000 hectares under soil and moisture conservation practices. 3: Transform at least 1,00,000 hectares of wastelands into productive and revenue-generating assets for the poor. 4: Create at least 10,000 women entrepreneurs with a sustainable source of supplementary incomes. EXCHANGES LISTED: 1: BOMBAY STOCK EXCHANGE 2: NATIONAL STOCK EXCHANGE 3: NEW YORK STOCK EXCHANGE. CURRENT FINANCIAL STATUS OF THE COMPANY: Sales : 13948 {cr} Operating profit margin : 36 % Net profit : 3120.1 {cr} Earning per share {Rs} : 8.5 Price earning ratio {times} : 22 Share price for the year : Year high: 254, Year low: 198. 3.Reliance communication [RCOM] Company profile: Reliance Communications is the flagship company of Anil Dhirubhai Ambani Group (ADAG) of companies. It is India’s leading integrated telecommunication company with over 77 million customers. This business encompasses a complete range of telecom services covering mobile and fixed line telephony. It includes broadband, national and international long distance services and data services along with an exhaustive range of value-added services and applications. Reliance Communications has a reliable, high capacity, integrated (both wireless and wire line) and convergent (voice, data and video) digital network. It is capable of delivering a range of services spanning the entire info comm. (information and communication) value chain, including infrastructure and services — for enterprises as well as individuals, applications, and consulting. Type Private [ BSE: RCOM ]Founded 28 December 2002 {On auspicious occasion of Dhirubhai’s 70th birthday}Headquarters Dhirubhai Ambani Knowledge City Navi Mumbai 400709, IndiaIndustry Telecommunication.Products Telecom services, broadband, mobiles, data services. Revenue 14,792 crores. Website www.rcom.co.in Board of directors. Chairman : Shri Anil D. Ambani Other Executive Officers : Prof. J Ramachandran, Shri S.P.Talwar Shri. Deepak Shourie, Shri A.K.Purwar. objectives. 1: “They will leverage there strengths to execute complex global-scale projects to facilitate leading-edge information and communication services affordable to all individual consumers and businesses in India. 2: They will offer unparalleled value to create customer delight and enhance business productivity. 3: They will also generate value for our capabilities beyond Indian borders and enable millions of India's knowledge workers to deliver their services globally EXCHANGES LISTED: 1: BOMBAY STOCK EXCHANGE 2: NATIONAL STOCK EXCHANGE 3: NEW YORK STOCK EXCHANGE Current financial status of the Company: Sales : 13,611 {cr} Operating profit margin : 35 % Net profit : 2,352.9 {cr} Earning per share {Rs} : 5.6 Price earning ratio {times}: 38 Share price for the year : Year high: 268, Year low: 173. TECHNICAL ANALYSIS : By Using Moving Average Method . MOVING AVERAGE OF TCS DATEClosing price 10 Day Moving Average15-10-2009582.45 16-10-2009599 17-10-2009608.65 20-10-2009621.4 21-10-2009633.45 22-10-2009627.5 23-10-2009641.15 26-10-2009644.55 27-10-2009641.4 28-10-2009642.4624.19529-10-2009632.7629.2230-10-2009626.2631.943/11/2009607.5631.8254/11/2009625.85632.275/11/2009623.9631.3156/11/2009620.65630.639/11/2009622.8628.79510/11/2009624.55626.79511/11/2009645.05627.1612/11/2009654.2628.3413-11-2009670.2632.0916-11-2009666636.0717-11-2009690.45644.36518-11-2009686.7650.4519-11-2009679.6656.0220-11-2009693.3663.28523-11-2009694.1670.41524-11-2009698.4677.825-11-2009703.6683.65526-11-2009688.1687.04527-11-2009671.6687.18530-11-2009687.2689.3051/12/2009687.8689.042/12/2009683.95688.7653/12/2009690.2689.8254/12/2009695.5690.0457/12/2009697.85690.428/12/2009698.4690.429/12/2009706.75690.73510/12/2009705.35692.4611/12/2009704.15695.71514-12-2009705.45697.5415-12-2009700.55698.81516-12-2009713.45701.76517-12-2009722.65705.0118-12-2009727.5708.2121-12-2009732.85711.7122-12-2009724.1714.2823-12-2009744.35718.0424-12-2009748.7722.37529-12-2009742.1726.1730-12-2009743729.92531-12-2009749.75734.8454/1/2010751.7738.675/1/2010750.9741.4956/1/2010733.8742.1257/1/2010714.65740.3058/1/2010700.5737.94511/1/2010714.25734.93512/1/2010749.1734.97513-01-2010788.25739.5914-01-2010782.2743.5115-01-2010791.8747.71518-01-2010799.6752.50519-01-2010780.6755.47520-01-2010778.65759.96 5.1: Moving Average of TCS Interpretation: Here, In this case , Moving Average is below the Actual line. So it indicates that it is a right time to sell the security. In this Graph, we can point out one common thing, i.e. moving Average of TCS Stock has been decreased. So, it is giving clear picture of future movement. This Graph provides a message to the investor that, it is a right time to sell the Stock of TCS. Here, Stock price is above its moving average, During the first week of January. It shows that current expectations are above the average . MOVING AVERAGE OF ITC DATECLOSING PRICE10 DAY MOVING AVERAGE1/18/2010250.4 1/15/2010252.9 1/14/2010248.4 1/13/2010249.2 1/12/2010250.15 1/11/2010256.45 1/8/2010256.75 1/7/2010256 1/6/2010257.95 1/5/2010256.05253.4251/4/2010254.3253.81512/31/2009251.35253.6612/30/2009250.1253.8312/29/2009255.8254.4912/24/2009255.35255.0112/23/2009254.5254.81512/22/2009246253.7412/21/2009244252.5412/18/2009246.2251.36512/17/2009249.1250.6712/16/2009250.5250.2912/15/2009249.9250.14512/14/2009251250.23512/11/2009251.6249.81512/9/2009256.8249.9612/8/2009258.6250.3712/7/2009254.5251.2212/4/2009257.6252.5812/3/2009255253.4612/2/2009257254.2512/1/2009258.45255.04511/30/2009257.75255.8311/27/2009257.2256.4511/26/2009261257.3911/25/2009268.95258.60511/24/2009262.95259.0411/23/2009269.4260.5311/20/2009260.55260.82511/19/2009255.5260.87511/18/2009258.7261.04511/17/2009255.3260.7311/16/2009255.5260.50511/13/2009254260.18511/12/2009252.85259.3711/11/2009258.05258.2811/10/2009256.45257.6311/9/2009258.55256.54511/6/2009249.4255.4311/5/2009251.35255.01511/4/2009255254.64511/3/2009244.5253.56510/30/2009256253.61510/29/2009260254.21510/28/2009260.25254.95510/27/2009259.5255.110/26/2009264.35255.8910/23/2009260256.03510/22/2009247.8255.87510/21/2009244.05255.14510/20/2009250.15254.6610/16/2009251.75255.38510/15/2009256.15255.4 5.2:Moving average of ITC Interpretation: Here, In this case, Moving Average is above the Actual line during in the middle of November . but in December the average falls below the closing price . So it indicates that it is a right time to sell the security. In this Graph, we can point out one common thing, i.e. Moving Average of ITC has been decreased. So, it is giving clear picture of future movement. This Graph provides a message to the investor that it is a right time to sell the Stock of ITC. MOVING AVERAGE OF RCOM DATE CLOSING PRICE10 DAY MOVING AVERAGE12/7/2009173.9 12/4/2009179.9 12/2/2009175 12/1/2009177.6 11/30/2009172.1 11/27/2009166.55 11/26/2009167.35 11/25/2009171.5 11/24/2009173.4 11/23/2009171.65172.89511/20/2009174.2172.92511/19/2009172.1172.14511/18/2009178172.44511/17/2009175.7172.25511/16/2009178.3172.87511/13/2009173.1173.5311/11/2009170.6173.85511/10/2009168173.50511/9/2009175173.66511/6/2009178174.311/5/2009178.4174.7211/4/2009169.1174.4211/3/2009164.5173.0710/30/2009175.2173.0210/29/2009188.45174.03510/28/2009202.7176.99510/27/2009207.5180.68510/26/2009220.95185.9810/23/2009229.45191.42510/22/2009233.5196.97510/21/2009231202.23510/20/2009230.9208.41510/16/2009233.85215.3510/15/2009229.6220.7910/14/2009231.9225.13510/12/2009248.35229.710/9/2009250.3233.9810/8/2009246236.48510/7/2009260.15239.55510/6/2009268243.00510/5/2009299249.80510/1/2009317.3258.4459/30/2009308.7265.939/29/2009300.05272.9759/25/2009301.65279.959/24/2009304.25285.549/23/2009298.2290.339/22/2009306296.339/18/2009305.25300.849/17/2009311.9305.239/16/2009308.5306.189/15/2009300.55304.5059/14/2009292.5302.8859/11/2009297.25302.6059/10/2009303.55302.795 5.3: Moving average of Reliance communication Interpretation: Here, In this case, Moving Average is above the Actual line in the month of October, So it indicates that it is a right time to buy the security. But afterwards there will be gradual decline in the price, so that the average falls below the actual. It indicates that it is a right time to sell the security. In the end of November the average is above the actual line. In this Graph, we can point out one common thing, i.e. Moving Average of Reliance communication has been increased. So, it is giving clear picture of future movement. This Graph provides a message to the investor that it is a right time to buy the Stock of Reliance communication. TECHNICAL ANALYSIS BY USING RSI RSI OF TCS DATECLOSING PRICEGAINLOSS 10DAY GAIN10 DAY LOSSRS RSI15-10-2009582.45 16-10-200959916.55 17-10-2009608.659.65 20-10-2009621.4 21-10-2009633.4512.05 22-10-2009627.5 5.95 23-10-2009641.1513.65 26-10-2009644.553.4 27-10-2009641.4 3.15 28-10-2009642.41 9.383333334.552.062367.34429-10-2009632.7 9.79.383333336.2666666671.497359.95730-10-2009626.2 6.57.956.3251.256955.6743/11/2009607.5 18.77.5258.80.855146.0954/11/2009625.8518.35 9.698.81.101152.4075/11/2009623.9 1.959.17.6583333331.188254.3016/11/2009620.65 3.259.17.2083333331.262455.8339/11/2009622.82.15 6.2257.2083333330.863646.39910/11/2009624.551.75 5.81257.2083333330.806444.63911/11/2009645.0520.5 8.758.021.09152.17712/11/2009654.29.15 10.387.61.365857.73113-11-2009670.216 11.31666677.0251.610961.69916-11-2009666 4.211.4347.0251.627661.94317-11-2009690.4524.45 13.19285713.1333333334.210580.80818-11-2009686.7 3.7512.33333333.28753.751678.95419-11-2009679.6 7.112.33333334.5752.695872.94220-11-2009693.313.7 12.52857145.0166666672.497471.40723-11-2009694.10.8 12.33571435.0166666672.458971.01424-11-2009698.44.3 12.75.0166666672.531671.68425-11-2009703.65.2 10.51428575.0166666672.095967.89526-11-2009688.1 15.510.74166677.63751.406458.44527-11-2009671.6 16.59.6911.76250.823845.35430-11-2009687.215.6 10.67510.71250.996549.9121/12/2009687.80.6 6.710.71250.625446.3542/12/2009683.95 3.856.710.73750.62438.4233/12/2009690.26.25 6.6357142911.950.555346.3544/12/2009695.55.3 5.4357142911.950.454931.2657/12/2009697.852.35 5.6571428611.950.473446.3548/12/2009698.40.55 5.1214285711.950.4286309/12/2009706.758.35 5.5714285711.950.466231.79810/12/2009705.35 1.45.571428577.250.768543.45411/12/2009704.15 1.25.571428572.152.591472.15514-12-2009705.451.3 3.528571432.151.641262.13815-12-2009700.55 4.94.016666672.83751.415658.60216-12-2009713.4512.9 5.285714292.52.114367.8917-12-2009722.659.2 5.707142862.52.282969.29818-12-2009727.54.85 5.642857142.52.257169.29821-12-2009732.855.35 6.071428572.52.428670.83322-12-2009724.1 8.756.991666674.06251.72163.24923-12-2009744.3520.25 8.9754.06252.209268.8424-12-2009748.74.35 8.314285714.951.679762.68229-12-2009742.1 6.68.314285716.751.231755.19230-12-2009743 8.128571436.751.204254.63331-12-2009749.75 7.11257.6750.926748.0984/1/2010751.7 5.57.6750.716641.7465/1/2010750.9 0.84.971428575.3833333330.923548.0116/1/2010733.8 17.14.991666678.31250.600537.527/1/2010714.65 19.154.999710.480.477132.2988/1/2010700.5 14.154.9211.560.425629.85411/1/2010714.25 0.8711.560.07536.999212/1/2010749.1 011.560013-01-2010788.2539.15 39.1512.83.058675.36114-01-2010782.2 6.0539.1511.453.419277.37215-01-2010791.89.6 24.37511.452.128868.03918-01-2010799.67.8 18.8511.451.646362.21119-01-2010780.6 1918.8515.091.249255.53920-01-2010778.65 1.9518.8512.061.56360.984 5.4: Closing price and RSI chart of TCS RSI Analysis for TCS RSI is calculated for TCS from the date 15-10-09 to 20-01-2010. The RSI graph, drawn above shows the overbought and oversold regions. Overbought; this region is a selling signal of the stock. The RSI value band of 68-70 and above that value gives us a good signal for selling the stock. It indicates the overbought points where the buying pressure exhausts and the selling pressure starts developing curtailing further upward movement of price. Following are the selling points from the RSI graphs for TCS . Are 17-11-09 to 24th of November 09. 11,12th of December 09. 13, 14th of 2010. Oversold; the region is signaled for buying the stock. If the RSI value is in band of 30-32 and below that value then it’s the signal for buying. It indicates the oversold point; where in the selling pressure is over taken by slowly developing buying pressure, curtailing the further downward movement of the stock price. Buying points from the RSI graph for TCS are 2,4,8,9th of December 09. And 7, 8, 11, 12th of January 2010. Indicates good buying points for this stock. RSI OF ITC DATECLOSING PRICEGAINLOSS 10 DAYGAIN10 DAY LOSSRS RSI1/18/2010250.4 1/15/2010252.92.5 1/14/2010248.4 4.5 1/13/2010249.20.8 1/12/2010250.150.95 1/11/2010256.456.3 1/8/2010256.750.3 1/7/2010256 0.75 1/6/2010257.951.95 1/5/2010256.05 1.92.1333332.38333330.895147.2321/4/2010254.3 1.752.1333332.2250.958848.94812/31/2009251.35 2.952.062.370.869246.50112/30/2009250.1 1.252.061.721.1976754.49712/29/2009255.85.7 3.041.721.7674463.86612/24/2009255.35 0.453.56251.50833332.3618870.25512/23/2009254.5 0.852.651.41428571.8737465.20212/22/2009246 8.53.8252.31.6630462.44912/21/2009244 23.8252.456251.5572560.89612/18/2009246.22.2 3.952.456251.6081461.65912/17/2009249.12.9 3.62.53571431.4197258.67312/16/2009250.51.4 3.052.66666671.1437553.35312/15/2009249.9 0.63.052.2751.3406657.27712/14/20092511.1 2.662.481.0725851.75112/11/2009251.60.6 1.642.480.6612939.80612/9/2009256.85.2 2.2333332.98750.7475642.77712/8/2009258.61.8 2.1714293.70.5868736.98312/7/2009254.5 4.12.1714292.23333330.9722849.29712/4/2009257.63.1 2.28752.350.973449.32612/3/2009255 2.62.32.43333330.9452148.59212/2/20092572 2.1714292.43333330.8923747.15612/1/2009258.451.45 2.1785712.43333330.895347.23811/30/2009257.75 0.72.1785712.46666670.883246.89911/27/2009257.2 0.552.3583331.98751.1865854.26711/26/20092613.8 2.8916671.98751.4549359.26611/25/2009268.957.95 3.351.98751.6855362.76311/24/2009262.95 63.662.791.3118356.74411/23/2009269.46.45 4.1252.46251.6751362.61911/20/2009260.55 8.854.333.741.1577553.65611/19/2009255.5 5.054.334.231.0236450.58411/18/2009258.73.2 4.574.231.0803851.93211/17/2009255.3 3.45.354.09166671.3075456.66411/16/2009255.50.2 4.324.770.9056647.52511/13/2009254 1.54.324.960.8709746.55211/12/2009252.85 1.154.454.3251.028950.71211/11/2009258.055.2 3.76254.3250.8699446.52211/10/2009256.45 1.63.76253.59166671.0475651.16111/9/2009258.552.1 2.6753.59166670.7447842.68611/6/2009249.4 9.152.6753.64166670.7345542.34811/5/2009251.351.95 2.533.360.7529842.95411/4/20092553.65 2.623.360.7797643.81311/3/2009244.5 10.52.624.780.5481235.40510/30/200925611.5 4.884.781.0209250.51810/29/20092604 4.7333335.60.8452445.80610/28/2009260.250.25 4.0928577.08333330.5778236.62110/27/2009259.5 0.753.9083335.50.7106141.54110/26/2009264.354.85 4.0428576.80.5945437.28610/23/2009260 4.354.3666676.18750.7057241.37410/22/2009247.8 12.24.3666676.950.628338.58610/21/2009244.05 3.754.856.310.7686243.45910/20/2009250.156.1 5.346.310.8462845.83710/16/2009251.751.6 4.7166675.26250.8962847.26510/15/2009256.154.4 3.5333335.26250.6714240.171 5.5:Closing price and RSI chart of ITC RSI Analysis for ITC RSI is calculated for ITC from the date 15-10-09 to 15-01-2010. The RSI graph, drawn above shows the overbought and oversold regions. Overbought; this region is a selling signal of the stock. The RSI value band of 68-70 and above that value gives us a good signal for selling the stock. It indicates the overbought points where the buying pressure exhausts and the selling pressure starts developing curtailing further upward movement of price. Following are the selling points from the RSI graphs for ITC .Are 24,25th of November 09, 17,18,21,22,23,24th of December 2009 . Oversold; the region is signaled for buying the stock. If the RSI value is in band of 30-32 and below that value then it’s the signal for buying. It indicates the oversold point; where in the selling pressure is over taken by slowly developing buying pressure, curtailing the further downward movement of the stock price. Buying points from the RSI graph for ITC. Are 12,13th of Dec 09. 21, 22, 23 ,26, 27th of October 09. RSI OF RELIANCE COMMUNICATION DATECLOSING PRICEGAINLOSS 10 DAY GAIN10 DAY LOSSRS RSI12/7/2009173.9 12/4/2009179.96 12/2/2009175 4.9 12/1/2009177.62.6 11/30/2009172.1 5.5 11/27/2009166.55 5.55 11/26/2009167.350.8 11/25/2009171.54.15 11/24/2009173.41.9 11/23/2009171.65 1.753.094.4250.6983141.117811/20/2009174.22.55 34.4250.6779740.40411/19/2009172.1 2.12.43.960.6060637.735811/18/20091785.9 2.983333.7250.8008944.47211/17/2009175.7 2.33.063.440.8895347.076911/16/2009178.32.6 2.983332.9251.0199450.493711/13/2009173.1 5.22.983332.83751.051451.252711/11/2009170.6 2.53.422.771.2346655.250411/10/2009168 2.63.23752.741661.1808554.146311/9/20091757 4.51252.741661.645962.205611/6/20091783 4.212.941.4319758.881111/5/2009178.40.4 3.782.941.2857156.2511/4/2009169.1 9.33.784.380.8630146.323511/3/2009164.5 4.63.254.416660.7358528.532310/30/2009175.210.7 4.744.840.9793449.478110/29/2009188.4513.25 6.874.841.4194258.667810/28/2009202.714.25 8.14.751.7052663.03510/27/2009207.54.8 7.628575.51.3870158.106610/26/2009220.9513.45 8.356256.951.2023454.593710/23/2009229.458.5 8.543756.951.2293255.143210/22/2009233.54.05 8.6756.951.248255.5210/21/2009231 2.59.857145.466661.8031464.325710/20/2009230.9 0.19.857142.44.1071480.419610/16/2009233.852.95 8.993751.36.9182787.37110/15/2009229.6 4.258.752.2833333.8321279.305110/14/2009231.92.3 7.185712.28333333.1470375.886310/12/2009248.3516.45 7.52.28333333.2846776.66110/9/2009250.31.95 7.092862.28333333.1063675.647510/8/2009246 4.36.033332.78752.1644268.398710/7/2009260.1514.15 6.9752.78752.5022471.446910/6/20092687.85 7.608332.78752.7294573.186410/5/200929931 10.952.88333333.7976979.156610/1/2009317.318.3 11.86884.2752.7763273.51929/30/2009308.7 8.613.14295.71666672.2990469.68829/29/2009300.05 8.6513.14297.18333331.8296364.65979/25/2009301.651.6 13.04297.18333331.8157164.4859/24/2009304.252.6 11.06437.18333331.5402760.63419/23/2009298.2 6.0512.58336.91.8236764.58519/22/20093067.8 11.97.76666671.5321960.50859/18/2009305.25 0.7511.5256.01251.9168465.71639/17/2009311.96.65 11.3256.01251.8835865.32089/16/2009308.5 3.47.395.491.3460857.37589/15/2009300.55 7.954.66255.90.7902544.1429/14/2009292.5 8.054.66255.80833330.8027344.52859/11/2009297.254.75 4.685.240.8931347.17749/10/2009303.556.3 5.625.241.0725251.74959/9/2009300.15 3.46.3754.93333331.2922356.37449/8/2009305.255.1 6.124.711.2993656.50979/7/2009310.35.05 5.574.711.1825954.18299/4/2009292.5 17.85.578.120.6859640.68669/3/2009292.1 0.45.36.83333330.7756143.68139/2/2009277.2 14.95.38.750.6057128.65549/1/2009263.6 13.65.39.69166670.5468629.5623 5.6:Closing price and RSI chart of Reliance Communication RSI Analysis for RELIANCE COMMUNICATION. RSI is calculated for Reliance Communication from the date 1-9-09 to 7-12-09. The RSI graph drawn above, shows the overbought and oversold regions. Overbought; this region is a selling signal of the stock. The RSI value band of 68-70 and above that value gives us a good signal for selling the stock. It indicates the overbought points where the buying pressure exhausts and the selling pressure starts developing curtailing further upward movement of price. Following are the selling points from the RSI graphs for Reliance Communications Are 1,5,6,7,9,12,14,15,16,20th of October 09. Oversold; this region is signaled for buying the stock. It is at RSI value band of 32-30th and below that value. It indicates the oversold point where the selling pressure is over taken by slowly developing buying pressure curtailing the further downward movement of the stock price. Buying points from the RSI graph for Reliance Communications. are 3,4th 0f October 09. And 3rd of December 2009. FINDINGS. The analysis has been done mainly by the use of two mathematical indicator called RELATIVE STRENGH INDEX and MOVING AVERAGES, which are the leading indicator in technical analysis. After analysis of five companies, it has been proved that by the use of Relative Strength Index and moving averages . An investor can identify oversold, overbought and trend reversals to take right investment decisions at minimum level of risk. According to RSI indications, it is better to take long position when RSI line touches or goes near to oversold market condition i.e., near or less then 30 level. On the other hand, it is better to take short position when RSI line touches or goes near to overbought market condition i.e., near or more then 70 level. Secondly, according to moving averages indications it is better to take long position when there is bullish divergence. On the other hand, it is better to take short position when there is bearish divergence. Apart from these two indicators, even an investor can identify popular chart patterns like Support and Resistance, Head and Shoulders, triangles, flag etc that helps an investor to take investment decisions. ,[object Object]

Once he identifies the primary trend any pull back in the rally is an opportunity for a re entry provided the primary trend is intact.

The investor should not hesitate in increasing his position on identifying the strength and hold on to his position until the trend gives a reverse signal.

An investor is supposed to follow the principles laid down with total clarity and in good faith, which will help him in reducing the psychological strain, stretch and pressures. This will also help him in protecting from false roomers/wrong information and protecting from market manipulation.SUGGESTIONS. Before going to invest, an investor should have clear knowledge of capital market so it is the part of the company to educate the investor with relate to all the types of investment alternatives available. As the long term investment is more favour to the company as it can enjoy the benefit of long term cash reserve the marketer should try to push and pull more and longer term investment from the investors. Also it is necessary to keep in mind that only maintaining more and more fund reserve only should not be the sole objective of the company, it should predict the future changes in the value of money, by changing its mind set the company should also play the role of fund creator. Investors perceive that the stock market activities are risky and they hesitate to come forward to invest in stock market, so the company has to execute such programs that train and educate the investors about the benefits part of stock market investment and the return they get from it. As in case of Stock market half knowledge is very dangerous. So, it is the responsibility of the company to train the employees and technical analysts to make them experts in subject of stock market, so that they become experts to solve all the queries of the investors without any wrong information or hesitation and solve the confusions of the investors to increase the investment. CONCLUSIONS Technical analysis is one of the advanced technique which is used to analyze securities by analyzing the historical and other statistics which are generated by market activity. Technical analysis is mainly based on three assumptions namely, Market discounts every thing, Price moves in trends, History tends to repeat itself. Technical analysts states that all fundamentals of the company are discounted by the market at any point of time, also they consider short term approach to analyze the market than the long term analysis, trend is one of the important concept in technical analysis which actually refers to a direction in which a security is headed. This trend line is drawn by using the closing prices of the stock. To show the series of prices over a period of time charts and graphical representation are used in technical analysis. Relative strength index and Moving average are the leading oscillators in technical analysis. Relative strength index is the one, which is more popular among oscillators, which helps to identify overbought and oversold market conditions of a particular stock or an index. Moving average is one of the important mathematical indictor, which is used to show the average price movements of a security over a period. The stock market has a great opportunity to excel in the market, but firstly the investors need to be educated and trained with proper information about stock market and secondly the analysts has to bet trained and made professional in analyzing and delivering service. These measures will lead the company towards success. BIBLIOGRAPHY: BOOKS REFERRED: Donald E. Fischer and Ronald J. Jordan, “Security Analysis and Portfolio Management”, Prentice hall of India Pvt Ltd., New Delhi. S. Kevin, “portfolio Management” Prentice – hall of India Private Ltd., New Delhi. Chandra Prasanna, “Investment Analysis and Portfolio Management”. Tata Mc Graw – hill publishing Company Ltd., Security Analysis And Portfolio Management- Avadhania William F. Sharp, Gordon J. Alexander and Jeffery V. Bailey, “Investments”, Prentice – hall of India Pvt. Ltd., New Delhi. WEBSITES: www.invetopedia.com www.viratechsoftware.com www.bseindia.com www.chartpatterns.com MAGZINES AND JOURNALS: Economic Times – Big Bucks. Business Line. ,[object Object]

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