Professional Documents
Culture Documents
Project Report Submitted For The Partial Fulfillment of The
Project Report Submitted For The Partial Fulfillment of The
PROJECT REPORT
ON
TECHNICAL ANALYSIS OF PUBLIC SECTOR UNIT"
201104100710011
MUKESH YADAV
201104100710136
SRIMCA
Page 1
Declaration
Date:11/12/2012
Priyanka sancheti
Place: Bardoli
Mukesh yadav
SRIMCA
Page 2
STOCK MARKET:
The Meaning
SRIMCA
Page 3
Stock market is a place where the shares of different companies are bought and sold. The
Organized Platform through which the buyers and sellers can trade in shares or other forms of
securities like bonds, derivatives is called STOCK EXCHANGE. The stock exchanges could
be a corporation or a mutual organization. They primarily serve the purpose of listing and
trading the shares.
In India, there are two stock exchanges apart from Regional stock exchanges:
1) National Stock Exchange (NSE)
2) Bombay Stock Exchange (BSE)
Definition
The market in which shares are issued and traded either through exchanges or over-thecounter markets. Also known as the equity market, it is one of the most vital areas of a market
economy as it provides companies with access to capital and investors with a slice of
ownership in the company and the potential of gains based on the company's future
performance.
Role of Stock Exchange in an Economy
Stock exchanges have multiple roles in the economy. This may include the following:
1) Raising capital for businesses
The Stock Exchange provides companies with the facility to raise capital for expansion
through selling shares to the investing public.
2) Mobilizing savings for investment
When people draw their savings and invest in shares, it leads to a more rational allocation of
resources because funds, which could have been consumed, or kept in idle deposits with
banks, are mobilized and redirected to promote business activity resulting in stronger
economic growth and higher productivity levels of firms.
3) Corporate governance
SRIMCA
Page 4
By having a wide and varied scope of owners, companies generally tend to improve
management standards and efficiency to satisfy the demands of the stakeholders.
4) Creating investment opportunities for small investors
As opposed to other businesses that require huge capital outlay, investing in shares is open to
both the large and small stock investors because a person buys the number of shares they can
afford.
5) Government capital-raising for development projects
Governments at various levels may decide to borrow money to finance infrastructure projects
by selling bonds. The issuance of such bonds can obviate the need, in the short term, to
directly tax citizens to finance development.
6) Barometer of the economy
At the stock exchange, share prices rise and fall depending, largely, on market forces.
Therefore the movement of share prices and in general of the stock indexes can be an
indicator of the general trend in the economy.
2)
3)
4)
5)
Investment strategies:
SRIMCA
Page 5
One of the many things people always want to know about the stock market is, How do I
make money investing?" There are many different approaches; two basic methods are
classified as either fundamental analysis or technical analysis. Fundamental analysis refers to
analyzing companies by their financial statements found in SEC Filings, business trends,
general economic conditions, etc.
INTRODUCTION OF THE STUDY:
The methods used to analyze securities and make investment decisions fall into two very
broad categories: fundamental analysis and technical analysis. Fundamental analysis involves
analyzing the characteristics of a company in order to estimate its value. Technical analysis
takes a completely different approach; it doesnt care one bit about the value of a company
or a commodity. Technicians (sometimes called chartists) are only interested in the price
movements in the market.
Despite all the fancy and exotic tools it employs, technical analysis really just studies supply
and demand in a market in an attempt to determine what direction, or trend, will continue in
the future. In other words, technical analysis attempts to understand the emotions in the
market by studying the market itself, as opposed to its components. If you understand the
benefits and limitations of technical analysis, it can give you a new set or skills that will
enable you to be a better trader or investor.
Just as there are many investment styles on the fundamental side, there are also many
different types of technical traders. Some rely on chart patterns, others use technical
indicators and oscillators, and most use some combination of the two. In any case, technical
analysts exclusive use of historical price and volume data is what separates them from their
fundamental counterparts. Unlike fundamental analysis, technical analysts dont care whether
a stock is undervalued the only thing that matters is a securitys past trading data and what
information this data can provide about where the society might move in the future.
Technical analysis
SRIMCA
Page 6
It is the polar opposite of fundamental analysis, which is the basis of every method explored
so far in this tutorial. Technical analysts, or technicians, select stocks by analyzing statistics
generated by past market activity, prices and volumes. Sometimes also known as chartists,
technical analysts look at the past charts of prices and different indicators to make inferences
about the future movement of a stock's price.
Philosophy of Technical Analysis
In his book, "Charting Made Easy", technical analysis guru John Murphy introduces readers
to the study of technical analysis, explaining its basic premises and tools. Here he explains
the underlying theories of technical analysis:
Definition
"Chart analysis (also called technical analysis) is the study of market action, using price
charts, to forecast future price direction. The cornerstone of the technical philosophy is the
belief that all factors that influence market price - fundamental information, political events,
natural disasters, and psychological factors - are quickly discounted in market activity. In
other words, the impact of these external factors will quickly show up in some form of price
movement, either up or down."
The most important assumptions that all technical analysis techniques are based
upon can be summarized as follows:
1) Prices already reflect, or discount, relevant information. In other words, markets
are efficient.
2) Prices move in trends.
3) History repeats itself.
General description
Technical analysts also widely use market indicators of many sorts, some of which are
mathematical transformations of price, often including up and down volume, advance/decline
data and other inputs. These indicators are used to help assess whether an asset is trending,
and if it is, the probability of its direction and of continuation. Technicians also look for
relationships between price/volume indices and market indicators. Examples include the
relative strength index, and MACD. Other avenues of study include correlations between
SRIMCA
Page 7
changes in Options (implied volatility) and put/call ratios with price. Also important are
sentiment indicators such as Put/Call ratios, bull/bear ratios, short interest, Implied Volatility,
etc.
There are many techniques in technical analysis. Adherents of different techniques (for
example, candlestick charting, Dow Theory, and Elliott wave theory) may ignore the other
approaches, yet many traders combine elements from more than one technique. Some
technical analysts use subjective judgment to decide which pattern(s) a particular instrument
reflects at a given time and what the interpretation of that pattern should be. Others employ a
strictly mechanical or systematic approach to pattern identification and interpretation.
Technical analysis is frequently contrasted with fundamental analysis, the study of economic
factors that influence the way investors price financial markets. Technical analysis holds that
prices already reflect all such trends before investors are aware of them. Uncovering those
trends is what technical indicators are designed to do, imperfect as they may be. Fundamental
indicators are subject to the same limitations, naturally. Some traders use technical or
fundamental analysis exclusively, while others use both types to make trading decisions.
Benefits of Technical Analysis
Breakout - when a price passes through and stays above an area of support or
resistance
Commodity Channel Index - identifies cyclical trends
Momentum - the rate of price change
SRIMCA
Page 8
SRIMCA
Page 9
REVIEW OF LITERATURE
According to Achelis "Technical analysis is the process of analyzing a securitys historical
prices in an effort to determine probable future prices."
According to Edwards, Magee and Bassetti "It refers to the study of the action of the market
itself as opposed to the study of the goods in which the market deals. Technical Analysis is
the science of recording, usually in graphic form, the actual history of trading (price changes,
volume of transactions, etc.) in a certain stock or in the Averages and then deducing from
that pictured history the probable future trend."
SRIMCA
Page 10
According to Murphy "Technical analysis is the study of market action, primarily through the
use of charts, for the purpose of forecasting future price trends. The term market action
includes the three principal sources of information available to the technicianprice,
volume, and open interest."
According to Pring "The art of technical analysis, for it is an art, is to identify a trend reversal
at a relatively early stage and ride on that trend until the weight of the evidence shows or
proves that the trend has reversed. [...] Therefore, technical analysis is based on the
assumption that people will continue to make the same mistakes they have made in the past."
According to Cory Janssen, Chad Langager and Casey Murphy Technical analysis
is a method of evaluating securities by analyzing the statistics generated by market activity,
such as past prices and volume. Technical analysts do not attempt to measure a security's
intrinsic value, but instead use charts and other tools to identify patterns that can suggest
future acti
SRIMCA
Page 11
Research Methodology
Introduction to topic:
In this Project, well introduce you to the subject of technical analysis. Its a broad topic, so
well just cover the basics, providing you with the foundation youll need to understand more
advanced concepts down the road.
Technical analysis is a method of evaluating securities by analyzing the statistics generalized
by market activity, such as past prices and volume. Technical analysis do not attempt to
SRIMCA
Page 12
measure a securitys intrinsic value, but instead use charts and other tools to identify patterns
that can suggest future activity.
ANALYTICAL RESEARCH:
Research Design was based on analytical research, on the other hand, the researcher has to
use facts or information already available, and analyze these to make these to make a critical
evaluation of the material.
OBJECTIVES OF THE STUDY:
To analyze the price movements of shares of SBI and interpret the corrections and trends by
using Technical Analysis tools.
1)
To forecast the future trends and provide suitable suggestions to the investors.
2)
To identify the inherent technical strength and weakness of the equity shares.
3)
To represent the trend of the stock price through charts of the technical analysis.
SCOPE OF THE STUDY:
1)
The study covers for a period of one year from 1/10/ 2011 to 28/10/2012.
2)
The study helps to find out the future trends in the prices of PSU sectors companies
shares i.e. (ONGC, SBI, NTPC, COAL INDIA, BHEL) Valuable hints can be identified by
the investors for their future buying and selling.
One of the most important limitations for most technical analysis methods is the fact
that there are so many people using the basic technical analysis methods already, and the
number is increasing every day, making it harder for a single trader to make money on the
market with the methods.
2)
Because of these methods are so widely spread and there is so much money riding on
the methods, some also claim that technical analysis has become self-fulfilling prophecy, as
SRIMCA
Page 13
people trend to enter the market and put their stops on the same places, increasing the
volatility towards the technical analysis method being correct.
3)
Technical analysis systems usually do not take into account correlation between
different markets. If you are analyzing several markets and they all give similar signals, they
may have close correlations, meaning that the risk profile for each is very similar, and that the
prices of the assets move in close steps with each other.
SOURCES OF DATA:
The main sources of data are collected through website, various publication books,
magazines, newspaper and reports prepared by research scholars etc.
METHODS OF DATA COLLECTION:
SECONDARY DATA:
The study is purely based on secondary data. The secondary data are those which have
already been collected by someone else and which have already been passed through the
statistical process. The methods of collecting secondary data are published data or
unpublished data. It takes short time and relatively low cost.
SAMPLING METHOD
- Systematic Rndom Sampling method used in this project by us , as we have
selected sectors nd companies on the basis of market capitalization.
SAMPLE SIZE
- 5 companies are selected by us
1) ONGC
2) NTPC
3) SBI
4) BHEL
5) COAL INDIA
DURATION OF STUDY
SRIMCA
Page 14
Here we hawe taken data for 1 year i.e. from 1-oct-2011 to 26-oct-2012 of all
five compnies .
ROC =
SRIMCA
Page 15
The Rate of Change Indicator can give a good idea of a stock, share or market's cyclical
pattern of movement upwards and downwards, and the graphical display of ROC can be a
way to identify these cycles better than just looking at the share price graph alone. When it
comes to interpretation for buying or selling decisions, analysts consider that a ROC indicator
which is at a high peak and starting to move down is an indication of a sell signal, whereas an
ROC at a low peak, but staring to move upwards, is a buy signal. This is due to the theory
that the higher the ROC, the more overbought the stock or share is, and the lower the ROC,
the more oversold it is likely to be. It is also based on the idea that movement toward the zero
line indicates that the existing trend is losing momentum. The best overbought or oversold
levels are likely to vary depending on the stock or share under study, so it is a good idea to
look at past patterns to assist in making a decision regarding a particular stock. In very strong
upwardly trending bull markets it may be advantageous to use higher and lower peaks than in
times of a weaker market.
Although more difficult to identify, divergences between the ROC trend and the stock price
can be helpful in interpretation, with the movement of ROC and price in opposite directions
considered to be a sign of a possible reversal of the stock price trend.
Some analysts also use the zero level as a basis of buy or sell decisions - buying when the
stock moves from below the zero line to above, and selling when the stock moves from above
to below the zero mark. However, other market technicians may consider this to be a slight
over-simplification of ROC interpretation.
SRIMCA
Page 16
whole markets worldwide (for example to compare the relative performance of the UK Stock
Market in comparison to the USA stock market). This type is not what will be discussed on
this page, but instead the Relative Strength Index developed by J. Welles Wilder Jr. is a
momentum oscillator which is based purely on the price changes of a single particular stock,
share or security, and does not compare that individual stock to others or to a sector or the
market as a whole.
Calculation of the RSI Indicator
Wilder's RSI looks at the positive and negative price changes over a period of days prior to
"today" and, from these changes, calculates a RSI figure for "today" which can oscillate
between 0 and 100. Wilde preferred to use 14 days as a period for calculation, and this
appears to continue to be a popular choice, but some analysts and charts may use periods as
low as 8 or as high as 25 days.
If we call the period of days prior to "today" the period, then to start out in the calculation of
the RSI, we need to add together all of the positive price changes over the period.
Calculation:
RSI = 100 100 / (1+RS)
Average gain = (Total gains / n)
Average loss = (Total loss / n)
Relative Strength = Average gain / Average loss
Relative Strength Index = 100 100 / (1+ RS)
N = number of RSI periods.
To simplify the formula, the, the Average Loss, the First RS, and the subsequent Smoothed
RSs For a 20 period RSI, the Average Gain equals the sum total all gains divided by 20.Even
if there are only 5 gains (losses), the total of those 5 gains (losses) is divided by the total
number of RSI periods in the calculation (7 in this case). The Average Loss is computed in a
similar manner. Calculation of the First RS value is straightforward: divide the Average Gain
by the Average Loss. All subsequent RS calculations use the previous period's Average Gain
and Average Loss for smoothing purposes.
RSI interpretation
SRIMCA
Page 17
The RSI is a momentum oscillator, which measures the speed of directional price movement.
According to Wilder, a divergence between the RSI and price action on the chart is a very
strong indication that a market turning point is imminent. A divergence between the RSI and
stock price action is where the stock is making new highs and the RSI is making new lows (or
vice-versa).
RSI can also be used to identify when a stock or share is overbought or oversold. With a 14
day period RSI, many analysts consider that if the RSI drops to below 30 mark, it indicates
that the stock is oversold, so is a possible buy signal. Conversely, if the RSI rises to above 70,
the stock may be overbought and it is worth considering selling. If a shorter period (for
example 8 days) is used, you may wish to use a lower level (for example 20 to 25) as an
oversold level, and a higher level (eg 75 to 80) as an overbought indicator. The lower number
of days used for the period, the more volatile the RSI will be.
Overall, RSI is one of the most popular technical indicators, and analysts consider it to be
among the most reliable. However, it works best with volatile shares, and may not provide as
much success if used with shares whose price does not change much over time. Also, beware
of large surges and drops in stock or share values - such sudden movements may produce a
false buy or sell signal. It is best to use RSI as a compliment to your investing tools and
information, rather than simply on its
SRIMCA
Page 18
SRIMCA
Page 19
27th-OCT-2012
SECTOR
AUTO
2.81
BANKEX
6.73
CD
0.34
CG
2.35
FMCG
4.39
HC
2.25
IT
3.79
METAL
2.03
OIL&GAS
4.11
POWER
2.01
PSU
24.73
REALITY
0.40
TECH
4.91
Source: www.bseindia.com
STEP-2
As per the market capitalization we have selected five companies from the PSU sector. The
five companies are as follows.
As on 28/10/2012
Company name
SRIMCA
Page 20
1)
ONGC
15.38
2)
15.28
3)
7.3
4)
COAL INDIA
5.87
5)
BHEL(Bharat
Heavy
Electricals 5.44
Ltd)
Source: www.bseindia.com
Date
Close
Price
3-Oct-11 268.55
SRIMCA
change
Gai
Loss
Page 21
4-Oct-11
264.4
-4.15
4.15
5-Oct-11
264.2
-0.2
0.2
]7-Oct-11 264.45
0.25
0.25
10-Oct-11
273.5
9.05
9.05
11-Oct-11 268.35
-5.15
5.15
12-Oct-11
270.5
2.15
2.15
13-Oct-11
265
-5.5
5.5
14-Oct-11 266.65
1.65
1.65
17-Oct-11
269.5
2.85
2.85
18-Oct-11
263.6
-5.9
5.9
19-Oct-11 268.35
4.75
4.75
20-Oct-11
266.8
-1.55
1.55
21-Oct-11
265.4
-1.4
1.4
Calculation
FORMULA FOR CALCULATING RSI:
RSI = 100 (100/ 1+ Rs)
Average gain = Total Gains / n = (20.7/14) = 1.47857143
Average loss = Total Loss / n = (22.45/14) = 1.60357149
RS
Average GAIN
Average Loss
= 0.922049
1) ONGC
SRIMCA
Page 22
INTERPRETATION
The Relative Strength Index (RSI) is a financial technical analysis showing price
2) SBI BANK
SRIMCA
Page 23
INTERPRETATION
The Relative Strength Index (RSI) is a financial technical analysis showing price
3) Coal India
SRIMCA
Page 24
INTERPRETATION
The Relative Strength Index (RSI) is a financial technical analysis showing price
4) NTPC
SRIMCA
Page 25
INTERPRETATION
The Relative Strength Index (RSI) is a financial technical analysis showing price
5) BHEL
SRIMCA
Page 26
INTERPRETATION
The Relative Strength Index (RSI) is a financial technical analysis showing price
SRIMCA
Close Price
ROC -1 Method
(%)
ROC -2 Method
(%)
Page 27
3-Oct-11
1862.75
4-Oct-11
1786.7
5-Oct-11
1715.3
7-Oct-11
1751.85
10-Oct-11
1754.55
11-Oct-11
1765.1
12-Oct-11
1872.25
13-Oct-11
1886.95
14-Oct-11
1882.5
17-Oct-11
1891.8
101.5595222
1.559522212
18-Oct-11
1863.4
104.2928304
4.292830358
19-Oct-11
1919.1
111.8813036
11.88130356
ROC =
SRIMCA
Page 28
1) ONGC
25
20
15
10
5
0
-5
-10
-15
-20
-25
INTERPRETATION
ROC measures the rate of change between the current price & the price n number of
days in past. ROC helps to find out the overbought & oversold positions in scrip.
In the above chart, scrips ROC reaches the historic high value in the month of Jun,
the scrip is in overbought region & a fall in the value can be anticipated. In 27-sep2012, the investor can sell the scrip.
Similarly, scrips ROC reaches the historic low value in the month of January and
May, the scrip is in oversold region & a rise in the scrips price can be anticipated. In
January, the investor can buy the scrip.
The Double top & double bottom trend generated in January & February month.
Raising trend found from the month of August to September.
Falling trend found in 17 December 2012.
2) SBI BANK
SRIMCA
Page 29
25
20
15
10
5
0
-5
-10
-15
-20
-25
INTERPRETATION
3) COAL INDIA
SRIMCA
Page 30
15
10
-5
-10
-15
INTERPRETATION
In December month Raising trend found & from 2 Dec 2011 trend starts to fall
downward side.
Here top head & shoulder I found in month of February
Between month of May & June bottom head & shoulder is found
In all chart pattern we found all price movement is within the limit.
Only two point are in the situation off over bought & over sold situation.
At 2-Dec 2011 value is overbought area.
At 14 Dec 2012 the oversold situation arise .
4) NTPC
SRIMCA
Page 31
15
10
-5
-10
-15
INTERPRETATION
In December month downward trend found & from 20 Dec 2011 trend starts to rise
upward side.
Here bottom head & shoulder is found in the month of march
At the end of December trends starts falling i.e history is repeating
In all chart pattern we found all price movement is within the limit.
Top head & shoulder is also observed
Trend is following repeated pattern
5) BHEL
SRIMCA
Page 32
40
30
20
10
-10
-20
-30
INTERPRETATION
SRIMCA
Page 33
FINDINGS
1) ONGC
SRIMCA
Page 34
2) SBI
During November share price is at minimum point thus it gives the buy
signal to the investors.
Double top trend has been repeated twice, one is within limit &
another is crossing the resistance level in the month of Jan & Feb.
In the month of April bottom Head & Shoulder is noticed
Raising trend has been found in the end of May & August.
3) COAL INDIA
Support level is provided in the beginning of Jan 12 as result price rises.
Bottom Head & Shoulder has been found in May 12.
Buy call is twice & 3 sell call has been observed.
Double bottom is seen in November & april.
Top Bottom Head & Shoulder has been found in February & may
respectively.
Raising trend is observed in the month of December as it is overbought.
4) NTPC
5) BHEL
SRIMCA
Twice support level has been provided in the month of may &
September.
Double top trend is observed in the month of July.
Two Bottom head & shoulder and one top head & shoulder are seen in
the charts.
One symmetric triangle is found in March.
Page 35
SRIMCA
Page 36
SUGGESTIONS
The investors should be trained to use the technical analysis tools. Since it will help
them in their day to day investments to get more returns.
Fundamental analysis can also be suggested to the investors together corporate,
growth of earnings and profitability.
The company should orient the investors to mainly watch the business, economic,
social and political factors that affect the supply and demand for securities.
The investors can also use more number of charts which will depict a true picture on
the movement of the securities.
The investors should analyze market data in real time; plan your own market timing
strategy to make money, regardless of upwards and downwards trending markets.
Minute by Minute trading volume shows the reversal points of the market, and
therefore when to buy and sell can be identified.
The trend is your Friend is the motto of technical analysis. So the investor has to
monitor the trend of stocks before investment.
SRIMCA
Page 37
SRIMCA
Page 38
CONCLUSION
Buying and selling of stock is not an easy task if you want to make money doing it.
Millions of investors have lost the money in past trying guessing stock price movements. In
order to consistently make money in the stock market, investors have to be right over 70% of
the time.
In todays world, if you rely on fundamental analysis, brokers advice newspaper, articles or
business channels for your investing or trading decisions, you are asking for a painful
experience in the markets. So, this study on technical analysis will help the investors in
analyzing the scripts based on the technical tools and oscillators to earn fruitful investment.
Technical analysis is the art and science of chart patterns in order to better analyze and
predict prices of a given security. It is also becoming popular with the younger generation.
But further research has to be conducted to know whether the technical analysis alone will
guarantee profits to the investors. Knowledge of the stock markets is the key to the success
and emphasis should be on managing trading risk while technical analysis can help you to
control them.
SRIMCA
Page 39
SRIMCA
Page 40
BIBLIOGRAPHY
BOOKS REFERRED:
1) Security Analysis and Portfolio Management by Dr. Punithavathi Pandian in the year
2008 Publication: Vikas Publishing House Pvt Ltd.
WEBSITES:
-
www.nseindia.com
www.bseindia.com
www.technicaltrends.com
www.stockcharts.com
www.investopedia.com
www.sharetermpapers.com
www.indiabulls.com
http://www.investopedia.com/terms/s/stockmarket.asp#ixzz2Ac12urX7
http://www.boersefrankfurt.de/en/basics+overview/role+of+the+stock+exchange/the+stock
+exchange
http://www.investopedia.com/university/stockpicking/stockpicking9.asp#ixzz2AcBof
otn
http://www.pandacash.com/technical-analysis/roc.htm
SRIMCA
Page 41