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  • 1. “Technical Analysis” - A Study On Selected Stocks INTRODUCTIONTECHNICAL ANALYSISTechnical 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, butstocks, which may satisfy this wish, tend to accompanied by a substantially greateramount of risk then many investors are normally willing to accept. However, it isimportant to understand that investors can be very conscious when it comes to stockownership.Technical analysis is the use of numerical series generated by market activity, such asprice and volume, to predict future price trends. The techniques applied to any marketwith a comprehensive price history. Primarily, but not exclusively, technical analysis isconducted by studying charts of past price movement. Many different methods and toolsare used in technical analysis, but they all rely on the assumption that price patterns andtrends exist in markets, and that they can be identified and exploited.Technical analysis or charting is considered to be as a supplement to FundamentalAnalysis of securities. As an approach to investment analysis technical analysis isradically different from fundamental analysis. While the fundamental analysts believethat the market is 90% logical and 10% psychological, the technical analysis assumesthat its 90% psychological and 10% logical. Technical analysis can be applied to anymarket with a comprehensive price history. The premises of technical analysis werederived from empirical observations of financial markets over hundreds of years. pg. 1
  • 2. “Technical Analysis” - A Study On Selected StocksPerhaps the oldest branch of technical analysis is the use of candlestick techniques byJapanese traders at least as early as the 18th century, and still very popular today.DOW THEORY ITS CORNERSTONENew tools and theories have been produced and existing tools have been enhanced at arapid rate in recent decades, with an increasing emphasis on computer-assistedtechniques. Technical analysis is not concerned with why a price is moving but ratherwhether it is moving in a particular direction or in a particular chart pattern. Technicalanalysts believe that profits can be made by "trend following." In other words if aparticular stock price is steadily rising (trending upward) then a technical analyst willlook for opportunities to buy this stock. Until the technical analyst is convinced thisuptrend 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 chartand will take positions in anticipation of the expected move following that pattern. Thevarious tools of technical analysis assist the technician in determining when trends haveformed, 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 futureprice movements. Technical analysis is open to interpretation. Many times twotechnicians will look at the same chart and paint two different scenarios or see differentpatterns. 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 beable to convince themselves that there are e patterns having a predictive value. It hasbecome more and more popular, as it offered an unlimited set of tools and signals and pg. 2
  • 3. “Technical Analysis” - A Study On Selected Stocksseemed to be an interesting method of market analysis. It has been proven that stockprices most of the time approximately follow a random walk pattern. Psychologists havedescribed a number of ways in which people deal with randomness. Additionally, marketparticipants may be subject to herd behavior.Technical analysis is applicable to stocks, indices, commodities, futures or any tradableinstrument where the price is influenced by the forces of supply and demand. Price refersto any combination of the open, high, low, or close for a given security over a specifictime 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 fewhours or many years. In addition, some technical analysts include volume or openinterest figures with their study of price action.Economists have traditionally been skeptical of the value of technical analysis, affirmingthe theory of efficient markets that holds no strategy should allow investors and tradersto make unusual returns except by taking excessive risk. pg. 3
  • 4. “Technical Analysis” - A Study On Selected Stocks RESEARCH DESIGN AND METHODOLOGYPROBLEM STATEMENTThe above study is undertaken to compare the selected technical analysis tools availablefor forecasting. The study tries to capture the contradicting views of different tools usedin technical analysis. This study is aims to exploration of the topic “TECHNICALANALYSIS.Investment in the stock market and the process Portfolio management encompassingmany activities aimed at optimizing the investment of one‟s funds. Five Phases can beidentified in this process: 1. Security analysis 2. Portfolio analysis 3. Portfolio selection 4. Portfolio revision 5. Portfolio evaluationEach phase is an integral part of the whole process and the success of portfoliomanagement depends upon the efficiency in carrying out each of these phases.The very first step consists of examining the risk –return characteristics of individualsecurities. Security analysis is such a crucial activity because every investor has todecide 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; pg. 4
  • 5. “Technical Analysis” - A Study On Selected Stocks 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 alsodetermining prospective benefits from the investment in a security. The risk associatedwith that investment.LITERATURE REVIEWCooter (1962) found that the stock prices move at random when studied at one weekinterval. The data for his study was week-end prices of forty five stocks from New Yorkstock exchange. He tested randomness of share by means of a mean square successivedifference test. He concluded that there was not one random walk model. He concludedthat the share price trends could be predicted when studied at fourteen-week interval. Butin 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 ofa common stock price can be used to make meaningful predictions concerning the futureprices of the stock? The theory of random walk on stock prices is studied with twohypotheses. They are i) Successive price changes are independent and ii) The pricechanges conform to some probability distribution. The data for this study consists of pg. 5
  • 6. “Technical Analysis” - A Study On Selected Stocksdaily prices for each of the thirty stocks of the Dow –Jones industrial average. This studyconcludes that there is strong and voluminous evidence in favor of random walk theory.Ramaswami.K (1996) assessed the relationship among book values, earnings, dividendand market price of share, impact of bonus issues, impact of security scam on equityreturn .to that end, the author used daily share price of 30 companies included in theconstruction 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 bonusissue made ,during the period of study ,the researcher used correlation ,regression andfrequency distribution for interpreting data.Sharma and Robert E. Kennedy (1977) tested the applicability of random walkhypothesis to the stock market in developing country namely India and compare this tothat of stock markets in developed countries namely USA, and England. For this purposethe price behavior of Bombay stock exchange is statistically examined both forrandomness and independence .The test the random walk hypothesis. The test covers 132monthly observations for each stock market index of common stock listed in Bombayexchange for eleven years from 1968-1973.The study indicates that price dependencewhile statistically significant, is comparably small in the developing countries. Based onthe test, it is evident that the Bombay stock exchange stock obeys a random walk and isequivalent 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 pricemovement 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 pg. 6
  • 7. “Technical Analysis” - A Study On Selected Stocksrules. By making use of bootstrap techniques the author shows the returns obtained fromthese 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 familiarpredictions from technical analysis: (1) trends tend to be reversed at predictable supportand resistance levels, and (2) trends gain momentum once predictable support andresistance 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 orderstend to reflect price trends and stop-loss Technical Analysis on Selected Stocks ofEnergy Sector orders tend to intensify trends. The requested execution rates of theseorders are strongly clustered at round numbers, which are often used as support andresistance levels. Significantly, there are marked differences between the clusteringpatterns of stop-loss and take-profit orders, and between the patterns of stop-loss buy andstop-loss sell orders. These differences explain the success of the two predictions.Gupta, (2003) examined the perceptions about the main sources of his worriesconcerning the stock market. A sample comprise of middle-class household‟s spreadover 21 sates/union territories. The study reveals that the foremost cause of worry forhousehold investors is fraudulent company management and in the second place is toomuch volatility and in the third place is too much price manipulation.Ravindra and Wang (2006) examine the relationship of trading volume to stock indicesin Asian markets. Stock market indices from six developing markets in Asia are analyzedover the 34 month period ending in October 2005. In the South Korean market, thecausality extends from the stock indices to trading volume while the causality is theopposite in the Taiwanese market. pg. 7
  • 8. “Technical Analysis” - A Study On Selected StocksOBJECTIVES OF THE STUDYThis study is aimed at undertaking technical analysis of selected companies included inthe CNX Nifty. I will also demonstrate how technical analysis can be of invaluable usefor 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 STUDYThis study mainly focuses on investment decisions by predicting futures stock pricemovements through the use of Technical analysis. This study is based on five companiesselected 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. pg. 8
  • 9. “Technical Analysis” - A Study On Selected StocksThe stocks so selected are as follows. Bajaj Auto limited Hero Honda Motors limited MarutiUdyog limited TVS Motors Company limited Tata Motors limitedTechniques of data analysis:Technical tools used for the study are:Chart patterns  Line charts  Japanese candlestick chartIndicators of the study Exponential Moving average (EMA) Rate of change Indicator (ROC) Moving average, convergence and Relative strength index (RSI) divergence.(MACD) On-Balance Volume Aroon Up and Down Oscillators Money flow Index (MFI) TRIX Bollinger band width William‟s percent rate (W%R) pg. 9
  • 10. “Technical Analysis” - A Study On Selected StocksRESEARCH DESIGNResearch design is a plan of action to be carried out in connection with a researchproject. The research design use in this study is explanatory and descriptive research. Itinvolves the collection of data from both the primary and secondary sources. The data socollected was subjected to analysis by using the necessary tools that are relevant andidealistic.RESEARCH METHODOLOGYFor the study, 5 companies were selected from CNX Nifty. There are following steps inmethodology: 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 DataPrimary 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 Businessjournals and periodicals and newspapers are also to collect some data and information. pg. 10
  • 11. “Technical Analysis” - A Study On Selected StocksLIMITATIONS 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. pg. 11
  • 12. “Technical Analysis” - A Study On Selected Stocks THEORETICAL BACKGROUNDOVERVIEW OF TECHNICAL ANALYSISA 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‟sintrinsic value, but instead use charts to identify patterns that can suggest future activity.Technical analysts believe that the historical performance of stocks and markets areindications of future performance.Technical Analysis has become increasingly popular over the past several years, as moreand more people believe that the historical performance of a stock is a strong indicationof future performance. People using fundamental analysis have always looked at thepast performance of companies by comparing fiscal data from previous quarters andyears to determine future growth. The difference lies in the technical analyst‟s belief thatsecurities move according to very predictable trends and patterns. These trends continueuntil something happens to change the trend, and until this change occurs, Price levelsare 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 aterrific tool, most agree it is much more effective when used in combination withfundamental analysis. pg. 12
  • 13. “Technical Analysis” - A Study On Selected StocksDOW THEORYThe ideas of Charles Dow, the first editor of the Wall Street Journal, form the basis oftechnical analysis today. Charles Dow created the Industrial Average, of top blue chipstocks, and a second average of top railroad stocks (now the Transport Average). Hebelieved that the behavior of the averages reflected the hopes and fears of the entiremarket. 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. pg. 13
  • 14. “Technical Analysis” - A Study On Selected StocksPrimary Phases of MovementsSecondary movements normally retrace from one-third to two thirds of the primary trendsince the previous secondary movement.Daily fluctuations are important for short-term trading, but are unimportant in analysis ofbroad 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. pg. 14
  • 15. “Technical Analysis” - A Study On Selected Stocks 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 TrendsA bull trend is identified by a series of rallies where each rally exceeds the highest pointof the previous rally. The decline, between rallies, ends above the lowest point of theprevious decline. pg. 15
  • 16. “Technical Analysis” - A Study On Selected StocksSuccessive higher highs and higher lowsThe start of an uptrend is signaled when price makes a higher low (trough), followed bya 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. pg. 16
  • 17. “Technical Analysis” - A Study On Selected StocksBear Trends: A bear trend starts at the end of a bull trend: when a rally ends with alower peak and then retreats below the previous low. The end of a bear trend is identicalto the start of a bull trend. Each successive rally fails to penetrate the high point of theprevious rally. Each decline terminates at a lower point than the preceding decline.Successive lower highs and lower lowsLarge 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). pg. 17
  • 18. “Technical Analysis” - A Study On Selected StocksHOW TECHNICAL ANALYSIS IS DONETechnical analysis done by identifying the trend from past movements and then using itas a tool to predict future price movements of the stock with the use of the tools oftechnical analysisASSUMPTIONS OF TECHNICAL ANALYSIS 1. The Market Discounts EverythingA major criticism of technical analysis is that it only considers price movement, ignoringthe fundamental factors of the company. However, technical analysis assumes that, atany given time, a stocks price reflects everything that has or could affect the company -including fundamental factors. Technical analysts believe that the companysfundamentals, along with broader economic factors and market psychology, are allpriced 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 aproduct of the supply and demand for a particular stock in the market. 2. Price Moves in TrendsIn technical analysis, price movements are believed to follow trends. This means thatafter a trend has been established, the future price movement is more likely to be in thesame direction as the trend than to be against it. Most technical trading strategies arebased on this assumption. pg. 18
  • 19. “Technical Analysis” - A Study On Selected Stocks 3. History Tends To Repeat ItselfAnother important idea in technical analysis is that history tends to repeat itself, mainlyin terms of price movement. The repetitive nature of price movements is attributed tomarket psychology; in other words, market participants tend to provide aconsistentreaction to similar market stimuli over time. Technical analysis uses chart patterns toanalyze market movements and understand trends. Although many of these charts havebeen used for more than 100 years, they are still believed to be relevant because theyillustrate patterns in price movements that often repeat themselvesCHART PATTERN1 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 toanalyze the price of rice contracts.Similar to a bar chart, candlestick charts also display the open, close, daily high and dailylow. The difference is the use of color to show if the stock went up or down over theday. pg. 19
  • 20. “Technical Analysis” - A Study On Selected StocksThe chart below is an example of a candlestick chart for AT&T (T). Green bars indicatethe stock price rose, red indicates a decline:Figure: Candlestick chartingInvestors seem to have a "love/hate" relationship with candlestick charts. People eitherlove them and use them frequently or they are completely turned off by them. There areseveral patterns to look for with candlestick charts - here are a few of the popular onesand what they mean.. This is a bullish pattern - the stock opened at (or near) its low and closed nearits high The opposite of the pattern above, this is a bearish pattern. It indicates that thestock 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 stockprice has dropped for several days. A small body along with a large range identifies ahammer. This pattern indicates that a reversal in the downtrend is in the works. pg. 20
  • 21. “Technical Analysis” - A Study On Selected Stocks 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.2 Line Chart: The most basic of the four charts is the line chart because it representsonly the closing prices over a set period of time. The line is formed by connecting theclosing prices over the time frame. Line charts do not provide visual information of thetrading 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 stockdata compared to the high and low for the day and this is why it is the only value used inline charts.Figure: Line Chart3 Support and resistance: Support and resistance are price levels at which movementshould stop and reverse direction. Think of support/resistance (S/R) as levels that act as afloor or a ceiling to future price movements.Support - A price level below the current market price, at which buying interest shouldbe able to overcome selling pressure and thus keep the price from going any lower. pg. 21
  • 22. “Technical Analysis” - A Study On Selected StocksResistance - A price level above the current market price, at which selling pressureshould be strong enough to overcome buying pressure and thus keep the price fromgoing any higher. One of two things can happen when a stock price approaches asupport/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/Rlevels may reverse roles once they are penetrated.For example - When the market price falls below a support level, that former supportlevel will then become a resistance level when the market later trades back up to thatlevel.Figure:Support and resistanceThis chart shows an excellent example of support and resistance levels for GeneralElectric (GE). Notice that once the stock price penetrated below the support level inDecember, it became the resistance level. You also need to understand that S/R levelsvary in strength, leading to certain price levels being designated as major or minor S/Rlevels. For example -- A five-year high on a bar chart would be a much more significantand useful resistance level than a one-month resistance level. pg. 22
  • 23. “Technical Analysis” - A Study On Selected Stocks4 Cup and Handle:This is a pattern on a bar chart that can be as short as seven weeksand as long as 65 weeks. The cup is in the shape of a "U". The handle has a slightdownward drift. The right-hand side of the pattern has low trading volume. As the stockcomes up to test the old highs, the stock will incur selling pressure by the people whobought at or near the old high. This selling pressure will make the stock price tradesideways with a tendency towards a downtrend for anywhere from four days to fourweeks, then it will take off.This pattern looks like a pot with a handle. It is one of the easier patterns to detect; andinvestors have made a lot of money using it.Figure: Cup and Handle5 Head and Shoulders:This is a chart formation resembling an "M" in which a stocksprice: 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. The first and third peaks are shoulders, and the second peak forms the head. Thispattern is considered a very bearish indicator. pg. 23
  • 24. “Technical Analysis” - A Study On Selected StocksFigure:Head and Shoulders6 Double Bottom: This pattern resembles a "W" and occurs when a stock price drops toa similar price level twice within a few weeks or months. You should buy when the pricepasses the highest point in the handle. In a perfect double bottom, the second declineshould normally go slightly lower than the first decline to create a shakeout of jitteryinvestors. The middle point of the "W" should not go into new high ground. This is avery bullish indicator.Figure: Double BottomsThe belief is that, after two drops in the stock price, the jittery investors will be out andthe long-term investors will still be holding on. pg. 24
  • 25. “Technical Analysis” - A Study On Selected Stocks7 Double Tops: Double tops point out a weakness of the uptrend and warn for a changeof trend generally a selling crazy starts when this formation is indicates.Figure:Double Tops8 Falling wedges: Falling wedges are opposite of the rising wedges and pull backreactions during the up trends. Sellers continue to believe the securities in their hand donot 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 inan uptrend.Figure: Falling wedges pg. 25
  • 26. “Technical Analysis” - A Study On Selected Stocks9 Symmetrical Triangles: All triangles formations are consolidation formations. Insymmetrical triangle direction of the trend is not known. It is only can be identified afterone of the line broken. Prices go up if upper line broken. And go down if lower linebroken. Volume is very important for triangle formations. Volume should decreaseduring the formations.Figure:Symmetrical Triangles10 Descending triangles: It is a signal for down trend. Price target can be foundapproximately by drawing a parallel line to descending line.Figure: Descending triangles11 Ascending Triangles: It is a signal for uptrend. By drawing a parallel line todescending line, price target can be calculated approximately. pg. 26
  • 27. “Technical Analysis” - A Study On Selected StocksFigure:Ascending triangleINDICATORS OF THE STUDYExponential Moving Average (EMA)Are calculated by applying a percentage of today‟s closing price to yesterday‟s movingaverage value. Use an exponential moving average to place more weight on recentprices.This moving average calculation uses a smoothing factor to place a higher weight onrecent data points and is regarded as much more efficient than the linear weightedaverage. Having an understanding of the calculation is not generally required for mosttraders because most charting packages do the calculation for you.The most important thing to remember about the exponential moving average is that it ismore 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 choiceamong many technical traders. As you can see in Figure 2, a 15-period EMA raises andfalls faster than a 15-period SMA. This slight difference doesn‟t seem like much, but it isan important factor to be aware of since it can affect returns. pg. 27
  • 28. “Technical Analysis” - A Study On Selected StocksFigure: Exponential Moving Averages (EMA)Moving Average Convergence Divergence (MACD)Common, the “MACD” is a trend following, momentum indicator that shows therelationship between two moving averages of prices. To Calculate the MACD subtractthe 26-day EMA from a 12-day EMA. A 9-day dotted EMA of the MACD called thesignal line is then plotted on top of the MACD. There are 3 common methods tointerpret the MACD:Crossover – When the MACD falls below the signal line it is a signal to sell. Vice versawhen the MACD rises above the signal line.Divergence – When the security diverges from the MACD it signals the end of thecurrent trend.Overbought/Oversold – When the MACD rises dramatically (shorter moving averagepulling away from longer term moving average) it is a signal the security is overboughtand will soon return to normal levels. pg. 28
  • 29. “Technical Analysis” - A Study On Selected StocksOther less common moving averages include triangular, variable, and weighted movingaverage. All of them being slight deviations from the++ ones above and are used todetect different characteristics such as volatility, and weighting different time spans.One of the easiest indicators to understand, the moving average, shows the average valueof a security‟s price over a period of time. To find the 50-day moving average, youwould add up the closing prices (but not always – explain later) from the past 50 daysand divide them by 50. Because prices are constantly changing, the moving average willmove as well. It should also be noted that moving averages are most as well. It shouldalso be noted that moving averages are most often used then compared or used inconjunction 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. Eachmoving average provides a different interpretation on what the stock will do-there is notone right time frame. The longer the time spans, the less sensitive the moving averagewill be to daily price changes. Moving averages are used to emphasize the direction of atrend and smooth out price and volume fluctuations that can confuse interpretation.Here is a visual example using stock priceFigure: Moving Average Convergence Divergences (MACD) pg. 29
  • 30. “Technical Analysis” - A Study On Selected StocksNotice 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 strongdivergence until the end of December when it rose above its 50-days average andcontinued to rise for several weeks.Typically, when a stock price moves below its moving average it is a bad sign becausethe stock is moving on a negative trend. The opposite is true for stock that exceed theirmoving average-in this case, hold on for the ride.BOLLINGER BANDS WIDTHDeveloped by John Bollinger, Bollinger Bands are an indicator that allows users tocompare volatility and relative price levels over a period time. The indicator consists ofthree bands designed to encompass the majority of a securitys price action. The purposeof Bollinger Bands is to provide a relative definition of high and low. By definitionprices are high at the upper band and low at the lower band. This definition can aid inrigorous pattern recognition and is useful in comparing price action to the action ofindicators to arrive at systematic trading decisions.Bollinger Bands consist of a set of three curves drawn in relation to securities prices. Themiddle band is a measure of the intermediate-term trend, usually a simple movingaverage that serves as the base for the upper and lower bands. The interval between theupper and lower bands and the middle band is determined by volatility, typically thestandard deviation of the same data that were used for the average. The defaultparameters, 20 periods and two standard deviations, may be adjusted to suit yourpurposes: pg. 30
  • 31. “Technical Analysis” - A Study On Selected StocksMiddle Bollinger Band = 20-period simple moving averageUpper Bollinger Band = Middle Bollinger Band + 2 * 20-period standard deviationLower Bollinger Band = Middle Bollinger Band - 2 * 20-period standard deviationStandard deviation is a statistical unit of measure that provides a good assessment of aprice plots volatility. Using the standard deviation ensures that the bands will reactquickly to price movements and reflect periods of high and low volatility. Sharp priceincreases (or decreases), and hence volatility, will lead to a widening of the bands.Figure: Bollinger Bands WidthThe center band is the 20-day simple moving average. The upper band is the 20-daysimple moving average plus 2 standard deviations. The lower band is the 20-day simplemoving average less 2 standard deviations.On-Balance VolumeThe on-balance volume (OBV) indicator is well-known technical indicators that reflectmovements in volume. It is also one of the simplest volume indicators to compute andunderstand. Joe Granville introduced the On Balance Volume (OBV) indicator in his1963 book, Granvilles New Key to Stock Market Profits. This was one of the first and pg. 31
  • 32. “Technical Analysis” - A Study On Selected Stocksmost popular indicators to measure positive and negative volume flow. The conceptbehind the indicator: volume precedes price. OBV is a simple indicator that adds aperiods volume when the close is up and subtracts the periods volume when the close isdown. 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 fordivergences or confirmation.CalculationAs stated above, OBV is calculated by adding the days volume to a running cumulativetotal when the securitys price closes up, and subtracts the volume when it closes down.For example, if today the closing price is greater than yesterdays closing price, then thenew  OBV = Yesterdays OBV + Todays VolumeIf today the closing price is less than yesterdays closing price, then the new  OBV = Yesterdays OBV - Todays VolumeIf today the closing price is equal to yesterdays closing price, then the new  OBV = Yesterdays OBVUseThe idea behind the OBV indicator is that changes in the OBV will precede pricechanges. A rising volume can indicate the presence of smart money flowing into asecurity. Then once the public follows suit, the securitys price will likewise rise. pg. 32
  • 33. “Technical Analysis” - A Study On Selected StocksLike other indicators, the OBV indicator will take a direction. A rising (bullish) OBVline indicates that the volume is heavier on up days. If the price is likewise rising, thenthe OBV can serve as a confirmation of the price uptrend. In such a case, the rising priceis the result of an increased demand for the security, which is a requirement of a healthyuptrend.However, if prices are moving higher while the volume line is dropping, a negativedivergence is present. This divergence suggests that the uptrend is not healthy and shouldbe 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 usershould concentrate on the OBV trend and its relationship with the securitys price.Figure: On-Balance VolumesThis chart shows how the OBV line can be used as confirmation of a price trend. Thepeak in September was followed by lower price movements that corresponded withvolume spikes, thus implying that the downtrend was going to continue. pg. 33
  • 34. “Technical Analysis” - A Study On Selected StocksAroon OscillatorsThe Aroon indicator is a relatively new technical indicator that was created in 1995. TheAroon is a trending indicator used to measure whether a security is in an uptrend ordowntrend and the magnitude of that trend. The indicator is also used to predict when anew trend is beginning.The indicator is comprised of two lines, an "Aroon up" line (blue line) and an "Aroondown" line (red dotted line). The Aroon up line measures the amount of time it has beensince 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 numberof periods that are used in the calculation is dependent on the time frame that the userwants to analyze.Figure: Aroon Up And Down OscillatorAn expansion of the Aroon is the Aroon oscillator, which simply plots the differencebetween the Aroon up and down lines by subtracting the two lines. This line is thenplotted between a range of -100 and 100. The centerline at zero in the oscillator isconsidered to be a major signal line determining the trend. The higher the value of theoscillator from the centerline point, the more upward strength there is in the security; thelower the oscillators value is from the centerline, the more downward pressure. A trend pg. 34
  • 35. “Technical Analysis” - A Study On Selected Stocksreversal 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 isformed 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 yieldpowerful information about trends. This is another great indicator to add to any technicaltraders arsenal.Money Flow IndexThe Money Flow Index (MFI) is a momentum indicator that is similar to the RelativeStrength Index (RSI) in both interpretation and calculation. However, MFI is a morerigid indicator in that it is volume-weighted, and is therefore a good measure of thestrength 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 toidentify 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 asecurity and a certain price. The money flow is not the same as the Money Flow Indexbut rather is a component of calculating it. So when calculating the money flow, we firstneed 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) / 3Money Flow = (Typical Price) X Volume pg. 35
  • 36. “Technical Analysis” - A Study On Selected StocksThe MFI compares the ratio of "positive" money flow and "negative" money flow. Iftypical 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 flowFinally, 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 andoverbought/oversold conditions.Positive and negative divergences between the stock and the MFI can be used as buy andsell signals respectively, for they often indicate the imminent reversal of a trend. If thestock price is falling, but positive money flow tends to be greater than negative moneyflow, then there is more volume associated with daily price rises than with the pricedrops. This suggests a weak downtrend that threatens to reverse as money flowing intothe 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 littlevolume associated with a security. A stock is considered "overbought" if the MFIindicator reaches 80 and above (a bearish reading). On the other end of the spectrum, abullish reading of 20 and below suggests a stock is "oversold". pg. 36
  • 37. “Technical Analysis” - A Study On Selected StocksFigure: Money Flow IndexRate of change indicators (ROC)It is a very popular oscillator which measures the rate of change of the current price ascompared to the price a certain number of days or weeks back. The ROC has to be usedalong with price chart. The buying and selling signals indicated by the ROC should alsobe confirmed by the price chart.Figure: Rate of change pg. 37
  • 38. “Technical Analysis” - A Study On Selected StocksRelative strength index (RSI)There are a few different tools that can be used to interpret the strength of a stock. One ofthese is the Relative Strength Index (RSI), which is a comparison between the days that astock finishes up and the days it finishes down. This indicator is a big tool in momentumtrading.The RSI is a reasonably simple model that anyone can use. It is calculated using thefollowing 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 overboughtand you should consider selling. In a bull market some believe that 80 is a better level toindicate an overbought stock since stocks often trade at higher valuations during bullmarkets. Likewise, if the RSI approaches 30, a stock is considered oversold and youshould 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 itwill hit extremes. A longer term RSI is more rolling, fluctuating a lot less. Differentsectors and industries have varying threshold levels when it comes to the RSI. Stocks insome industries will go as high as 75-80 before dropping back, while others have a toughtime breaking past 70. A good rule is to watch the RSI over the long term (one year ormore) to determine at what level the historical RSI has traded and how the stock reactedwhen it reached those levels. pg. 38
  • 39. “Technical Analysis” - A Study On Selected StocksThe RSI is a great indicator that can help you make some serious money. Be aware thatbig surges and drops in stocks will dramatically affect the RSI, resulting in false buy orsell signals. Most investors agree that the RSI is most effective in "backing up" orincreasing confidence before making an investment decision - dont invest simply basedon 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 thenumbers on the right hand side that go from 0 to 100. Notice the RSI was approachingthe 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 alongwith the RSI chart can be very useful. Rising bottoms on the RSI chart can produce thesame positive trend results as they would on the stock chart. Should the general trend ofthe stock price tangent from the RSI, it might spark a warning that the stock is eitherover- or under bought. pg. 39
  • 40. “Technical Analysis” - A Study On Selected StocksMomentumThe momentum is certainly the easiest one to compute. The momentum is the differencebetween todays price and the one of n days before.With: Pttodays price. Pt-n the price at the date t-nThe momentum is: MOt= Pt- Pt-nTRIX (Triple exponential)"Trix (or TRIX) is a technical analysis oscillator developed in the 1980s by JackHuston, editor of Technical Analysis of Stocks and Commodities magazine. It shows theslope (i.e. derivative) of a triple-smoothed exponential moving average. The name Trix isfrom "triple exponentialTrix 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 todays and yesterdays value in that final smoothed seriesLike any moving average, the triple EMA is just a smoothing of price data and thereforeis trend-following. A rising or falling line is an uptrend or downtrend and Trix shows theslope of that line, so its positive for a steady uptrend, negative for a downtrend, and acrossing 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 latestfew days dominate and the EMA follows recent prices quite closely; however, applying pg. 40
  • 41. “Technical Analysis” - A Study On Selected Stocksit three times results in weightings spread much more broadly, and the weights for thelatest few days are in fact smaller than those of day‟s further past. The following graphshows 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 distributions mode will lie with pN-2s weight, i.e. in the graph above p8carries the highest weighting. An N of 1 is invalid.The easiest way to calculate the triple EMA based on successive values is just to applythe EMA three times, creating single-, then double-, then triple-smoothed series. Thetriple EMA can also be expressed directly in terms of the prices as below, with p0 todaysclose, p1 yesterdays, etc, and with (as for a plain EMA). pg. 41
  • 42. “Technical Analysis” - A Study On Selected StocksThe coefficients are the triangle numbers, n (n+1)/2. In theory, the sum is infinite, usingall 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 theterms are negligible.Williams %RDeveloped by Larry Williams, Williams % R is a momentum indicator that works muchlike the Stochastic Oscillator. It is especially popular for measuring overbought andoversold levels. The scale ranges from 0 to -100 with readings from 0 to -20 consideredoverbought, and readings from -80 to -100 considered oversold.William %R, sometimes referred to as %R, shows the relationship of the close relative tothe high-low range over a set period of time. The nearer the close is to the top of therange, the nearer to zero (higher) the indicator will be. The nearer the close is to thebottom of the range, the nearer to -100 (lower) the indicator will be. If the close equalsthe high of the high-low range, then the indicator will show 0 (the highest reading). If theclose equals the low of the high-low range, then the result will be -100 (the lowestreading).Calculation%R = [(highest high over? periods - close) / (highest high over? periods - lowest lowover? periods)] * -100Typically, 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 varyaccording to desired sensitivity and the characteristics of the individual security. pg. 42
  • 43. “Technical Analysis” - A Study On Selected StocksUseIt is important to remember that overbought does not necessarily imply time to sell andoversold 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 asecurity becomes overbought or oversold, traders should wait for a signal that a pricereversal has occurred. One method might be to wait for Williams %R to cross above orbelow -50 for confirmation.Price reversal confirmation can also be accomplished by using other indicators or aspectsof technical analysis in conjunction with Williams %R.One method of using Williams %R might be to identify the underlying trend and thenlook for trading opportunities in the direction of the trend. In an uptrend, traders maylook to oversold readings to establish long positions. In a downtrend, traders may look tooverbought readings to establish short positions.Figure:Williams % R pg. 43
  • 44. “Technical Analysis” - A Study On Selected StocksThe chart of Weyerhaeuser with a 14-day and 28-day Williams % R illustrates some keypoints: 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. Ithas its ardent votaries: it has its severe critics. The advocates of technical analysis offerthe 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. 44
  • 45. “Technical Analysis” - A Study On Selected Stocks  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 stockThe detractors of technical analysis believe that the technical analysis is a uselessexercise. 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. 45
  • 46. “Technical Analysis” - A Study On Selected Stocks COMPANY PROFILEABOUT RELIGARE ENTERPRISE LIMITED Religare Enterprises Limited (REL) is a globalfinancial services group with a presence across Asia, Africa, Middle East, Europe andtheAmericas. In India, REL‟s largest market, the group offers a wide array of productsand services ranging from insurance, asset management, broking and lending solutions toinvestment banking and wealth management. The group has also pioneered the conceptof investments in alternative asset classes such as arts and films. With 10,000 plusemployees across multiple geographies, REL serves over a million clients, includingcorporates and institutions, high net worth families and individuals, and retail investors.Industry : Finance - General BSE Code : 532915 Book Closure : 25/09/2009Group : Religare NSE Code : RELIGARE Market Cap : Rs.5,340.49 Cr.ISIN No : INE621H01010 Market Lot 1 Face Value : Rs. 10.00Religare Enterprises Limited (REL) is a diversified financial services group of India.RELs businesses are broadly clubbed across three key verticals, the Retail, Institutionaland Wealth spectrums, catering to a diverse and wide base of clients. pg. 46
  • 47. “Technical Analysis” - A Study On Selected StocksThe vision is to build Religare as a globally trusted brand in the financial servicesdomain and present it as the Investment Gateway of India. All employees of the groupguided by an experienced and professional management team are committed to providingfinancial care, backed by the core values of diligence and transparency.REL offers a multitude of investment options and a diverse bouquet of financial serviceswith its pan India reach in 1837* locations across 498* cities and towns. REL alsocurrently operates from nine international locations following its acquisition of Londonsbrokerage & investment firm, Hichens, Harrison & Co. plc.With a view to expand, diversify and introduce offerings benchmarked against globalbest practices, Religare operates its Life Insurance business in partnership with the globalmajor - Aegon. For its wealth management business Religare has partnered withAustralia based financial services major-Macquarie. Religare has also partnered withVistaar Entertainment to launch Indias first SEBI approved Film Fund offering a uniquealternative asset class of investments.NAMEReligare is a Latin word that translates as to bind together. This name has been chosento reflect the integrated nature of the financial services the company offers.SYMBOLThe Religare name is paired with the symbol of a four-leaf clover. Traditionally, it isconsidered good fortune to find a four-leaf clover as there is only one four-leaf clover forevery 10,000 three-leaf clovers found. pg. 47
  • 48. “Technical Analysis” - A Study On Selected StocksFor 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. 48
  • 49. “Technical Analysis” - A Study On Selected StocksAccent usageThe diacritical tilde mark (˜) over the letter A in the Religare typeface indicates a palatalemphasis sound of the letter A.PRODUCT PROFILERetail Spectrum Life Insurance Asset Management Equity Trading Commodities Trading Online Investment Portal Health Insurance Insurance Solutions LoansWealth Spectrum Wealth Management Private Equity Fund Arts Initiative Film Fund pg. 49
  • 50. “Technical Analysis” - A Study On Selected StocksInstitutional Spectrum Institutional Broking Services Investment Banking Insurance Advisory pg. 50
  • 51. “Technical Analysis” - A Study On Selected Stocks DATA ANALYSIS AND INTERPRETATION 1. BAJAJ AUTO LIMITEDBollinger band width:-It indicates Bajaj auto ltd. For the period 1 May 2009 to 30 April 2010Graph 1.1As shown in the above Bollinger band which indicates the buying and selling signalswhich is got by using 20 day simple moving average and 2 period standard deviationlead the Bollinger band width to 121.7.Here the price touches the upper band in the month of October 2009 and April 2010indicating the security over bought implying the sell signal. It touches the lower band inthe month of July and in the month of November 2009. pg. 51
  • 52. “Technical Analysis” - A Study On Selected StocksMoving average convergence and divergence (MACD):-It indicates Bajaj auto ltd. For the period 1 May 2009 to 30 April 2010Graph 1.2At the end of September 2009 the Bajaj auto ltd stocks had a bull phase as shown. Thisbull line crosses 0 in the month of Dec 2009 and Apr 2010 it indicates the selling signalto the investors. It shows the buying signal in the month of July 2009 and Nov 2009.Relative Strength index:-It indicates Bajaj auto ltd. For the period 1 May 2009 to 30 April 2010Graph 1.3 pg. 52
  • 53. “Technical Analysis” - A Study On Selected StocksWhen the RSI has crossed the 30 line from below to above and is rising, a buyingopportunity is indicated. When it has crossed the 70 line from above to below and isfalling, a sell signal is indicated. In the month of Sept 2009 and Dec 2009 shows the sellsignal. In the month of Nov 2009 and in the month of Feb 2010 it indicates the buyingsignal.Rate of change indicators:-It indicates Bajaj auto ltd. For the period 1 May 2009 to 30 April 2010Graph 1.4When the ROC line is above the zero line, the price is rising and when it is below thezero line the price is falling. At the end of June, Aug and Nov 2009 we have the buysignal and at the end of july 2009, oct 2009 and Apr 2010. pg. 53
  • 54. “Technical Analysis” - A Study On Selected StocksTRIX:-It indicates Bajaj auto ltd. For the period 1 May 2009 to 30 April 2010Graph 1.5The movement of slope in the trix line indicates the corresponding movement in price ofstock which can be observed from the above chart clearly. The chart indicates the buyingsignal in the month of July 2009 and Sept 2009. It also indicates the sell signal in themonth of Aug 2009 and Sept 2009. pg. 54
  • 55. “Technical Analysis” - A Study On Selected Stocks 2. HERO HONDABollinger band width:-It indicates Hero Honda motors ltd. For the period 1 May 2009 to 30 April 2010Graph 2.1As shown in the above Bollinger band which indicates the buying and selling signalswhich is got by using 20 day simple moving average and 2 period standard deviationlead the Bollinger band width to 309.7Here the price touches the upper band in the month of Aug 2009 and April 2010indicating the security over bought implying the sell signal. It touches the lower band inthe month of Oct 2009 and in the month of Jan 2010 signaling buy.Moving average convergence and divergence (MACD):-It indicates Hero Honda motors ltd. For the period 1 May 2009 to 30 April 2010 pg. 55
  • 56. “Technical Analysis” - A Study On Selected StocksGraph 2.2Hero Honda motors ltd stocks had a bull phase in Sep 2009 and Mar 2010. This bull linecrosses 0 in the month of Sept 2009 and Mar 2010 it indicates the selling signal to theinvestors. It shows the buying signal in the month of Aug 2009 and Apr 2010Relative Strength index:-It indicates Hero Honda motors ltd. For the period 1 May 2009 to 30 April 2010Graph 2.3 pg. 56
  • 57. “Technical Analysis” - A Study On Selected StocksWhen the RSI has crossed the 30 line from below to above and is rising, a buyingopportunity is indicated. When it has crossed the 70 line from above to below and isfalling, a sell signal is indicated. In the month of Aug 2009 and Mar 2010 shows the sellsignal. In the month of Nov 2009 and in the month of Feb 2010 it indicates the buyingsignal.Rate of change indicators:-It indicates Hero Honda motors ltd. For the period 1 May 2009 to 30 April 2010Graph 2.4When the ROC line is above the zero line, the price is rising and when it is below thezero line the price is falling. At the end of May, Aug and Nov 2009 we have the buysignal and during Dec 2009 and Mar 2010 we have sell signal.TRIX:-It indicates Hero Honda motors ltd. For the period 1 May 2009 to 30 April 2010 pg. 57
  • 58. “Technical Analysis” - A Study On Selected StocksGraph 2.5The movement of slope in the trix line indicates the corresponding movement in price ofstock which can be observed from the above chart clearly. The chart indicates the buyingsignal in the month of Sept 2009 and Nov 2009. It also indicates the sell signal in themonth of Aug 2009 and Mar 2010. pg. 58
  • 59. “Technical Analysis” - A Study On Selected Stocks 3. MARUTI UDYOG LTD.Bollinger band width:-It indicates MarutiUdyog ltd. For the period 1 May 2009 to 30 April 2010Graph 3.1As shown in the above Bollinger band which indicates the buying and selling signalswhich is got by using 20 day simple moving average and 2 period standard deviationlead the Bollinger band width to 159.7Here the price touches the upper band in the month of Aug 2009 indicating the securityover bought implying the sell signal. It touches the lower band in the month of July 2009and Mar 2010Moving average convergence and divergence (MACD):-It indicates MarutiUdyog ltd. For the period 1 May 2009 to 30 April 2010 pg. 59
  • 60. “Technical Analysis” - A Study On Selected StocksGraph 3.2Hero Honda motors ltd stocks had a bull phase in Aug 2009 and Mar 2010. This bull linecrosses 0 in the month of Aug 2009 and Mar 2010 it indicates the selling signal to theinvestors. It shows the buying signal in the month of Oct 2009 and Jan 2010.Relative Strength index:-It indicates MarutiUdyog ltd. For the period 1 May 2009 to 30 April 2010Graph 3.3When the RSI has crossed the 30 line from below to above and is rising, a buyingopportunity is indicated. When it has crossed the 70 line from above to below and is pg. 60
  • 61. “Technical Analysis” - A Study On Selected Stocksfalling, a sell signal is indicated. In the month of Aug 2009 and Oct 2009 shows the sellsignal. In the month of Nov 2009 and in the month of Feb 2010 it indicates the buyingsignal.Rate of change indicators:-It indicates MarutiUdyog ltd. For the period 1 May 2009 to 30 April 2010Graph 3.4When the ROC line is above the zero line, the price is rising and when it is below thezero line the price is falling. At the end of Aug 2009 and Oct 2009 we have the buysignal and during the start of Aug 2009 and Sept 2009 we have sell signal.TRIX:-It indicates MarutiUdyog ltd. For the period 1 May 2009 to 30 April 2010 pg. 61
  • 62. “Technical Analysis” - A Study On Selected StocksGraph 3.5The movement of slope in the trix line indicates the corresponding movement in price ofstock which can be observed from the above chart clearly. The chart indicates the buyingsignal in the month of Nov 2009 and Feb 2010. It also indicates the sell signal in themonth of Aug 2009 and Mar 2010. pg. 62
  • 63. “Technical Analysis” - A Study On Selected Stocks 4. TVS MOTOR COMPANYBollinger band width:-It indicates TVS Motor company ltd. For the period 1 May 2009 to 30 April 2010Graph 4.1As shown in the above Bollinger band which indicates the buying and selling signalswhich is got by using 20 day simple moving average and 2 period standard deviationlead the Bollinger band width to 17.74.Here the price touches the upper band in the month of Aug 2009 and Jan 2010 indicatingthe security over bought implying the sell signal. It touches the lower band in the monthof Sept 2009 and Dec 2009.Moving average convergence and divergence (MACD):-It indicates TVS Motor company ltd. For the period 1 May 2009 to 30 April 2010 pg. 63
  • 64. “Technical Analysis” - A Study On Selected StocksGraph 4.2Hero Honda motors ltd stocks had a bull phase in Aug 2009 and Jan 2010. This bull linecrosses 0 in the month of Aug 2009 and Jan 2010 it indicates the selling signal to theinvestors. It shows the buying signal in the month of July 2009 and Feb 2010.Relative Strength index:-It indicates TVS Motor company ltd. For the period 1 May 2009 to 30 April 2010Graph 4.3When the RSI has crossed the 30 line from below to above and is rising, a buyingopportunity is indicated. When it has crossed the 70 line from above to below and isfalling, a sell signal is indicated. In the month of Aug 2009 and Jan 2010 shows the sell pg. 64
  • 65. “Technical Analysis” - A Study On Selected Stockssignal. It indicates the buying signal in the month of Nov 2009 and in the end of Feb2010.Rate of change indicators:-It indicates TVS Motor company ltd. For the period 1 May 2009 to 30 April 2010Graph 4.4When the ROC line is above the zero line, the price is rising and when it is below thezero line the price is falling. At the end of Aug 2009 we have the buy signal and duringthe start of Aug 2009, Jan 2010 and Mar 2010 we have sell signal.TRIX:-It indicates TVS Motor company ltd. For the period 1 May 2009 to 30 April 2010 pg. 65
  • 66. “Technical Analysis” - A Study On Selected StocksGraph 4.5The movement of slope in the trix line indicates the corresponding movement in price ofstock which can be observed from the above chart clearly. The chart indicates the buyingsignal in the month of Mar 2010. It also indicates the sell signal in the month of Aug2009 and Jan 2010. pg. 66
  • 67. “Technical Analysis” - A Study On Selected Stocks 5. TATA MOTORS LTD.Bollinger Band width:-Figure depicts the Bollinger Band width indicator of Tata Motors, for the period may 1 st2009 to April 30th 2010.Graph 5.1As shown in the above Bollinger band which indicates the buying and selling signalswhich is got by using 20 day simple moving average and 2 period standard deviationlead the Bollinger band width to 124.9Here the price touches the upper band in the month of august 2009 and in the month ofMarch 2010 indicating the security over bought implying sell signal. And touches thelower band in the month of June 2009 and February 2010 indicating it to be over soldand a buy signal is indicated.Moving average convergence and divergence (MACD):-Figure the following chart depicts the MACD indicator of Tata motors, for the periodmay 1st 2009 to April 30th 2010. The MACD is calculated by subtracting a 200 day pg. 67
  • 68. “Technical Analysis” - A Study On Selected Stocksmoving average of its price. The MACD‟s trigger (the blue line) is a 200 daysexponential moving average of the MACD indicator.Graph 5.2From beginning of august 2009 to the end of January 2010 the Tata Motors‟s stocks hada bullish trend as show i9n the fig. in the month of July 2009 and in end of February thefig shows there is bearish trend. In the month of April 2010 there is increase in themarket, the bullish phase picked up. The MACD line reaches highest point in the monthof October 2009.Rate of change indicators:-Figure depicts the ROC indicator of Tata Motors, for the period may10st 2009 to April30th 2010.Graph 5.3 pg. 68
  • 69. “Technical Analysis” - A Study On Selected StocksWhen the ROC line is above the zero line, the price is rising and when it is below thezero line, the price is falling. There are a lot of fluctuations in the ROC implying themarket is volatile. The greatest fall in the price is in the month of July 2009and thehighest peak in the price in the 1 year period is in the month of august 2009, ideally oneshould buy a share that is oversold and sell a share that is overbought. Hence it was idealto buy the shares of Tata Motors ltd in July 2009 and February 2010 and sell it in theaugust 2010 or middle of March 2010.Relative strength index:-Figure the following chart the RSI compares the magnitude of a stock‟s recent gains tothe magnitude of its recent losses and turns that information into a number that rangesfrom 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 30level.Graph 5.4When the RSI has crossed the 30 line from below to above and is rising, a buyingopportunity is indicated. When it has crossed the 70line from above to below and is pg. 69
  • 70. “Technical Analysis” - A Study On Selected Stocksfalling, a sell signal is indicated. In this case it has crossed 70 indicating a sellingopportunity .and it has crossed the 30 line indicating a buying opportunity. But we canclearly see that the Buying signal is more dominant than the Selling signal. Which lastedthe selling opportunity is seems to be in the month of July end 2009 and September 2009to January end 2010.and also the Buying indicators seems several times between themonth of May 2009 to April 2010.TRIX:-It indicates Tata Motor company ltd. For the period 1 May 2009 to 30 April 2010Graph: 4.9.5The movement of slope in the trix line indicates the corresponding movement in price ofstock which can be observed from the above chart clearly. The chart indicates the buyingsignal in the month of Aug 2009 it also indicates the sell signal in the month of Aug2009 and September 2009. pg. 70
  • 71. “Technical Analysis” - A Study On Selected Stocks FINDINGSThe study focused on five companies that operate in five completely different industries.Even though many different charting techniques are available, one method is notnecessarily better than the other. The data may be the same, but each method willprovide its own unique interpretation, with its own benefits and drawbacks. The choiceof charting methods, to use will depend on personal preferences and trading or investingstyles. Once you have chosen a particular charting methodology, it is probably best tostick with it and learn how best to read the signals. Switching back and forth may causeconfusion and undermine the focus of your analysis.BAJAJ AUTO LIMITED TECHNICAL BUY SIGNAL SELLING SIGNAL INDICATOR Bollinger July, November October, April Bands Width MACD July, November December, April RSI November, February September, December ROC June, November July, October TRIX July, September August, SeptemberHERO HONDA MOTORS LTD. TECHNICAL SELLING BUY SIGNAL INDICATOR SIGNAL Bollinger Bands October, January August, April Width MACD August, April September, March RSI November, February August, March ROC August, November December, March TRIX September, November August, March pg. 71
  • 72. “Technical Analysis” - A Study On Selected StocksMARUTI UDYOG LTD. TECHNICAL SELLING BUY SIGNAL INDICATOR SIGNAL Bollinger Bands July, March August Width MACD October, January August, March RSI November, February August, October ROC August, October August, September TRIX November, February August, MarchTVS MOTOR COMPANY TECHNICAL BUY SIGNAL SELLING SIGNAL INDICATOR Bollinger Bands September, December August, January Width MACD July, February August, January RSI November, February August, January ROC August August, March TRIX November, February August, JanuaryTATA MOTORS LTD. TECHNICAL SELLING BUY SIGNAL INDICATOR SIGNAL Bollinger Bands June, February August, March Width MACD July, February April RSI May, April July, September ROC July, February August, March TRIX August September pg. 72
  • 73. “Technical Analysis” - A Study On Selected Stocks SUGGESTIONSTechnical 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. 73
  • 74. “Technical Analysis” - A Study On Selected Stocks CONCLUSIONTechnical analysis is a useful technique in guiding investment decisions. In light of ourstudy on five companies, we have seen how technical analysis can be used to predict thepossible futures swings of stock prices. After analyzing the companies, the followingconclusion was drawn.According to RSI as the Gain increases, there is increase in the RSI value, whichindicates that there is increase in the share price. This states to the investor that it is astrong sell signal. Whenever there is decrease in the share price value, RSI valuedecreases which indicates the investor that it is a strong buy signal. In general, we canconclude from the result that technical indicators can play useful role in the timing stockmarket entry and exit. By applying technical indicators brokers or investors enjoysubstantial 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 areinfluenced by various fundamental factors and the economy as a whole. Even thoughthere are some universal principles and rules that can be applied, it must be rememberedthat technical analysis is more an art form than a science. As an art form, it is subject tointerpretation. However, it is also flexible in its approach and each investor should useonly that which suits his or her style. Developing a style takes time, effort anddedication, but the rewards can be significant.Analysis can offer great insight but if used improperly, they can also produce falsesignals. While trend lines have become a very popular aspect of technical analysis, they pg. 74
  • 75. “Technical Analysis” - A Study On Selected Stocksare merely one tool for establishing, analyzing, and confirming a trend. Trend linesshould not be the final arbiter, but should serve merely as a warning that a change intrend may be very useful. In some situation, this principle is violated. By studying foursectors, it can be stated that technical analysis does not provide 100% accuracy to theinvestor. As the stock prices are dynamic in nature, combination of Fundamental analysisand technical analysis will increases the percentage of accuracy and thus giving an ideato the investor to invest in that stock which will yield him good returns. pg. 75
  • 76. “Technical Analysis” - A Study On Selected StocksBIBLIOGRAPHY  BOOKS:Prasanna Chandra, Investment Analysis & Portfolio Management. 3rd edition, 2008Bodie& Kane, Securities Analysis & Portfolio Management. 6th edition, 2004Donald E Fischer, Securities Analysis & Portfolio Management, 6th edition, 2001  JOURNALS, MAGAZINES AND NEWSPAPERS: A. Economics Times B. Business line  WEBSITESwww.nseindia.comwww.in.yahoo.finance.comwww.bseindia.comwww.icharts.comwww.stockcharts.com pg. 76