PART-B CHAPTER-1

THEORITICAL BACKGROUND INTRODUCTION: What is TECHNICAL ANALYSIS?

Technical analysis involves a study of market generated data like prices and volumes to determine the future direction of price movement. In his book Technical Analysis Ex-plained, Martin.J.Pring explains; “The technical approach to investing is essentially a reflection of the idea that prices move in trends which determined by the changing attitudes of investors toward a variety of economic, monetary, political and psychological forces. The art of technical analysis-for it is and art-is to identify trend changes at an early stage and to maintain an investment posture until the weight of the evidence indicates that the trend has been reversed. Basic Premises The basic premised underlying technical analysis, as articulated by

Robert.A.Levy, is as follows. 1. Market prices are determined by the interaction of supply and demand forces. 2. Supply and demand are influenced by a variety of factors, both rational and irrational. These include fundamental factors as well as psychological factors. 3. Barring minor deviations, stocks prices tend to move in fairly persistent trends. 4. Shifts in demand and supply bring about changes in trends. 5. Irrespective of why they occur, shifts in demand and supply can be detected with the help of charts of market action. 6. Because of the persistence of trends and patterns, analysis of past market data can be used to predict future price behavior.

Differences between Technical Analysis and Fundamental Analysis. The key differences between technical analysis and fundamental analysis are as follows; 1. Technical analysis mainly seeks to predict short-term price movements, whereas fundamental analysis tries to establish long-term values.

2. The focus of technical analysis is mainly on internal market data, particularly price and volume data. The focus of fundamental analysis is on fundamental factors relating to the economy, the industry, and the firm.

3. Technical analysis appeals mostly to short-term traders, whereas fundamental analysis appeals primarily to long-term investors.

PROBLEM STATEMENT Technical analysis is very important to invest smartly. every investor would like to have handful information to decide :     On what type of security to invest? When it should be bought? When it should be sold? Whether to hold the security?

The basic idea behind the research is to make buy, hold and sell decisions of stocks. To make this decision one should have sound information base. The increasing trend towards complexity in investment decisions calls for security analysis.

OBJECTIVE OF THE STUDY The objectives of the study are stated as under:1. To study the applicability of technical analysis in stock market 2. To know how various tools of technical analysis such as charts and graphs are Used in determining stocks prices. To make buy, hold or sell decisions. 3. To know how to use charting techniques to identify, buy and sell opportunities. 4. To study the Indian IT sector‟s stock movement taking sample of five IT companies.

SCOPE OF THE STUDY The study mainly focuses on guiding investors on making buy, hold and sell decisions by determining the pattern of price movement through technical analysis. The analysis is confined only to four companies listed on the National Stock Exchange (NSE) namely, 1. 2. 3. 4. Infosys Technologies Ltd., Tata Consultancy Services Ltd., Tech Mahindra Ltd., Wipro Ltd.,

RESEARCH METHODOLOGY Descriptive research design is adopted to learn in detail the technical analysis to predict the short term price movements and establish long term patterns. Quantitative techniques are used to analyze the technical indicators. Sample size taken is four Companies namely Infosys Technology, Wipro, Tech Mahindra Ltd., and Tata Consultancy Services. The four companies are listed on the NSE. Secondary data is collected from Books, Journals, News Paper and Web Sites.

each days price which prevailed seven days ago and then one is subtracted from this price ratio. The RSI also considers the closing price and is calculated as follows: RSI = 100 – 100/(1 + RS) RS = Average Gain / Average Loss Average Gain = Total of Gains during past 14 periods / 14 Average Loss = Total of Losses during past 14 periods / 14 3. The closing prices are taken into consideration and the short term exponential moving average and the long term exponential following formulae :EMAS EMAL = = EMASn-1 EMALn-1 + + ((2 ((2 / / (n (n + + 1)) 1)) * * (Pn (Pn EMASn-1)) EMALn-1)) moving average are calculated using the MACD = EMAS – EMAL The signal line is calculated by taking the exponential moving average of the MACD. ROC = (Current price / Price 7 period ago) – 1. .The data collected is then analyzed using the following methods:1. Rate of Change Indicator (ROC). Relative Strength Index (RSI). Moving Average Convergence Divergence. To calculate the seven day rate of change. 2.

with its own benefits and drawbacks.100-(100 / (1 + money ratio)) LIMITATIONS OF THE STUDY . 5. Bollinger Bands and Candlestick Charts. The study limits to use of only few technical tools like MACD. 3. MFI is calculated using the following formulae: Typical Price = (Day high + Day low + Day close) / 3 Money Flow = (Typical Price) X Volume Money Ratio = positive money flow / Negative money flow Finally. ROC. 4. Day close and the volume traded per day. As technical analysis involves collection. . The study is purely of academic interest with no experience in the field makes it less precise and non-professional. Money Flow Index The data require for money flow index are Day high. Day low. MFI. presentation and interpretation of voluminous data it becomes very difficult to concise the analysis. The limitations of the study are as enumerated below:1. Hence it is difficult to conclude by just considering two or three technical indicators. The data used for the analysis pertains to six to eight months only. RSI. Each method provides its own unique interpretation. the MFI can be calculated using this ratio: Money Flow Index.5. 2.

a public participation phase." based on Dow's editorials. founder and first editor of the Wall Street Journal and co-founder of Dow Jones and Company. and a distribution phase." nor presented it as a trading system. and Schaefer are described below. Six basic concepts of Dow Theory 1.THEORITICAL REFERENCE TO TECHNICAL ANALYSIS: DOW THEORY: Dow Theory is a heterodox theory on stock price movements that is used as the basis for technical analysis. Robert Rhea and E. Trends have three phases Dow Theory asserts that major market trends are composed of three phases: an accumulation phase. for instance. (3) The "short swing" or minor movement varies with opinion from hours to a month or more. The theory was derived from 255 Wall Street Journal editorials written by Charles H. Dow (1851–1902). (2) The "medium swing". The three movements may be simultaneous. Rhea. Dow himself never used the term "Dow Theory. secondary reaction or intermediate reaction may last from ten days to three months and generally retraces from 33% to 66% of the primary price change since the previous medium swing or start of the main movement. Hamilton. journalist. William P. primary movement or major trend may last from less than a year to several years. Following Dow's death. a daily minor movement in a bearish secondary reaction in a bullish primary movement. It can be bullish or bearish. The six basic tenets of Dow theory as summarized by Hamilton. the stock price does not change much because these investors are in the minority absorbing . George Schaefer organized and collectively represented "Dow Theory. 2. The accumulation phase (phase 1) is a period when investors "in the know" are actively buying (selling) stock against the general opinion of the market. The market has three movements (1) The "main movement". During this phase.

the market catches on to these astute investors and a rapid price change occurs (phase 2). The US had population centers but factories were scattered throughout the country. Dow maintained . then they have to ship more goods to consumers. To Dow. he or she should look at the performance of the companies that ship the output of them to market. At this point. On this point. Once news is released. Dow's first stock averages were an index of industrial (manufacturing) companies and rail companies. it follows that they are producing more. stock prices will change to reflect this new information.(releasing) stock that the market at large is supplying (demanding). there could be many different explanations why. if manufacturers' profits are rising. usually by rail. The two averages should be moving in the same direction. the astute investors begin to distribute their holdings to the market (phase 3). This phase continues until rampant speculation occurs. If many participants are active in a particular security. 5. usually first. Eventually. An overly aggressive seller could be present for example. a bull market in industrials could not occur unless the railway average rallied as well. the railroads. When prices move on low volume. Trends are confirmed by volume Dow believed that volume confirmed price trends. Hence. However. 4. Dow theory agrees with one of the premises of the efficient market hypothesis. if an investor is looking for signs of health in manufacturers. the US was a growing industrial power. If they produce more. Dow believed this represented the "true" market view. This occurs when trend followers and other technically oriented investors participate. it is a warning that change is in the air. Stock market averages must confirm each other In Dow's time. When the performance of the averages diverges. and the price moves significantly in one direction. The stock market discounts all news Stock prices quickly incorporate new information as soon as it becomes available. Factories had to ship their goods to market. According to this logic. when price movements are accompanied by high volume. 3.

According to the Elliott Wave Theory. Specifically. 6. it was a signal that a trend is developing. Elliott believed markets had well-defined waves that could be used to predict market direction. which states that stock prices are governed by cycles founded upon the Fibonacci series (1-2-3-5-8-13-21…). Determining whether a reversal is the start of a new trend or a temporary movement in the current trend is not easy. N. but they will soon resume the prior move. Elliott believed the market moved in five distinct waves on the upside and three distinct on the downside.2 ELLIOT WAVE THEORY R. Dow Theorists often disagree in this determination. To him. 1. stock prices tend to move in a predetermined number of waves consistent with the Fibonacci series. Markets might temporarily move in the direction opposite the trend. Trends exist until definitive signals prove that they have ended Dow believed that trends existed despite "market noise". The basic shape of the wave is shown below. Elliott detailed the Elliott Wave Theory. In 1939. The trend should be given the benefit of the doubt during these reversals. . Technical analysis tools attempt to clarify this but different investors can interpret them differently.that this was the direction in which the market anticipated continued movement.

Intermediate 6. Minuette 9. The waves lettered A and C represents the minor down-waves in a major bear move.Waves one. Sub-Minuette . To clarify. this means that the chart above not only represents the primary wave pattern. Minor 7.' or minor down-waves in the major bull move. Minute 8. while B represents the one up-wave in a minor bear wave. Waves two and four represent the 'corrective. Supercycle 3. Elliott Wave theory describes names to the waves in order of descending size: 1. The diagram below shows how primary waves could be broken down into smaller waves. Elliott proposed that the waves existed at many levels. Primary 5. three and five represent the 'impulse'. or minor up-waves in a major bull move. but it could also represent what occurs just between points 2 and 4. Cycle 4. Grand Supercycle 2. meaning there could be waves within waves.

enters long.2 TOOLS OF TECHNICAL ANALYSIS: (Charting basics) 1. as a significant percentage for retrenchment. charts are referred to as time series plots. The caution to this is that much of the wave identification is taken in hindsight and disagreements arise between Elliott Wave technicians as to which cycle the market is in. and then sells or shorts. The price plot for IBM extends from January 1. and minor waves determine minor trends. 1. Trading using Elliott Wave patterns is quite simple. This continues in progressively shorter cycles until the cycle completes and the main wave resurfaces. In statistical terms. the y-axis (vertical axis) represents the price scale and the x-axis (horizontal axis) represents the time scale. The trader identifies the main wave or Super cycle.The major waves determine the major trend of the market. On the chart. and placed particular importance on the golden mean. This is similar to the way Dow Theory postulates primary and secondary trends. 2000.618. as the reversal is determined. 0. Prices are plotted from left to right across the x-axis with the most recent plot being the furthest right. Elliott provided numerous variations on the main wave.2. 1999 to March 13. .1 What Are Charts? A price chart is a sequence of prices plotted over a specific time frame.

technical analysts and chartists use charts to analyze a wide array of securities and forecast future price movements. Any security with price data over a period of time can be used to form a chart for analysis. they can also be of great benefit to fundamental analysts. The less compressed the data is. the more detail is displayed.2 How to Pick a Time Frame? The time frame used for forming a chart depends on the compression of the data: intraday. commodities.2. the use of charts is not limited to just technical analysis. . its performance over a period of time and whether it's trading near its highs. near its lows. Because charts provide an easy-to-read graphical representation of a security's price movement over a specific period of time. 1. bonds. futures or market indices. or in between. monthly. The word "securities" refers to any tradable financial instrument or quantifiable index such as stocks. weekly. While technical analysts use charts almost exclusively. daily. quarterly or annual data.Technicians. A graphical historical record makes it easy to spot the effect of key events on a security's price.

Daily data is made up of intraday data that has been compressed to show each day as a single data point. or period. The difference in detail can be seen with the daily and weekly chart comparison above. The more the data is compressed. Weekly data is made up of daily data that has been compressed to show each week as a single data point. the longer the time frame possible for displaying the data. 100 data points (or periods) on the daily chart is equal to the last 5 months of the weekly chart. which is shown by the data marked in the rectangle. If the chart can .

3 TYPES OF CHARTS We will be explaining the construction of line.  Traders usually concentrate on charts made up of daily and intraday data to forecast shortterm price movements. short-term charts can be volatile and contain a lot of noise.display 100 data points. a daily chart can be used to zoom in on the last few months.  Investors usually focus on weekly and monthly charts to spot long-term trends and forecast long-term price movements. 1. price movements do not appear as extreme and there is often less noise.  Others might use a combination of long-term and short-term charts. these are 4 of the most popular methods for displaying price data. While long on detail. the more detail that is available.1 Line Chart . which can distort the overall picture. Although there are other methods available. wide high-low ranges and price gaps can affect volatility. There are about 20 trading days in a month and about 252 trading days in a year. 1. bar. The shorter the time frame and the less compressed the data is. candlestick and point & figure charts. The choice of data compression and time frame depends on the data available and your trading or investing style. A daily chart that displays 100 days would represent about 5 months. a weekly chart will hold 100 weeks (almost 2 years).3. Because long-term charts (typically 1-4 years) cover a longer time frame with compressed data. Large sudden price movements. Once the general picture is analyzed. Long-term charts are good for analyzing the large picture to get a broad perspective of the historical price action.

thinly traded stocks and intraday prices. high or low. Line charts are also used when open. The high. .Some investors and traders consider the closing level to be more important than the open. each bar represents the high. The high and low are represented by the top and bottom of the vertical bar and the close is the short horizontal line crossing the vertical bar. low and close are required to form the price plot for each period of a bar chart. high and low data points are not available. 1. Weekly charts would have a bar for each week based on Friday's close and the high and low for that week. By paying attention to only the close. low and close for a particular day. Sometimes only closing data are available for certain indices. intraday swings can be ignored.3. On a daily chart.2 Bar Chart Perhaps the most popular charting method is the bar chart.

For a candlestick chart. and the close. which is displayed as a short horizontal line extending to the left of the bar. the open. low and close are all required. high. the intraday high and low. A daily candlestick is based on the open price. Whether or not a bar chart includes the open depends on the data available. low and close. 1. candlestick charts have become quite popular in recent years.Bar charts can also be displayed using the open. high. . the weekly high-low range and Friday's close. The only difference is the addition of the open price.3 Japanese Candlestick Chart Originating in Japan over 300 years ago.3. A weekly candlestick is based on Monday's open.

The white and black portion formed from the open and close is called the body (white body or black body). especially the relationship between the open and the close. White (clear) candlesticks form when the close is higher than the open and black (solid) candlesticks form when the close is lower than the open. Contrary to this methodology. The lines above and below are called shadows and represent the high and low. bar. Even if the price is unchanged from day to day or week to week. 1. bar. plot one data point for each period of time. all. a dot. point & figure . each day or week represented is one point. No matter how much price movement. or candlestick is plotted to mark the price action.4 Point & Figure Chart The charting methods shown above.Many traders and investors believe that candlestick charts are easy to read. or candlestick along the time scale.3.

Charts are based solely on price movement, and do not take time into consideration. There is an x-axis but it does not extend evenly across the chart.

The beauty of point & figure charts is their simplicity. Little or no price movement is deemed irrelevant and therefore not duplicated on the chart. Only price movements that exceed specified levels are recorded. This focus on price movement makes it easier to identify support and resistance levels, bullish breakouts and bearish breakdowns. This P&F article has a more detailed explanation of point & figure charts. 1.4 TREND LINES Technical analysis is built on the assumption that prices trend. Trend Lines are an important tool in technical analysis for both trend identification and confirmation. A trend line is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance. Many of the principles applicable to support and resistance levels can be applied to trend lines as well. 1.4.1. UPTREND

An uptrend line has a positive slope and is formed by connecting two or more low points. The second low must be higher than the first for the line to have a positive slope. Uptrend lines act as support and indicate that net-demand (demand less supply) is increasing even as the price rises. A rising price combined with increasing demand is very bullish, and shows a strong determination on the part of the buyers. As long as prices remain above the trend line, the uptrend is considered solid and intact. A break below the uptrend line indicates that net-demand has weakened and a change in trend could be imminent.

1.4.2 DOWN TREND A downtrend line has a negative slope and is formed by connecting two or more high points. The second high must be lower than the first for the line to have a negative slope. Downtrend lines act as resistance, and indicate that net-supply (supply less demand) is increasing even as the price declines. A declining price combined with increasing supply is very bearish, and shows the strong resolve of the sellers. As long as prices remain below the downtrend line, the downtrend is solid and intact. A break above the downtrend line indicates that net-supply is decreasing and that a change of trend could be imminent.

3 SIDEWAYS TREND The sideways trend is also known as a trend less.1. .4. the sideways trend shows no major difference in the price values between the beginning and the end of a specific time period. Though similar to the other two types. The sideways trend denotes market conditions in which prices may be moving back and forth between levels of support and resistance (covered next). ranging or flat market.

prices decline. bears and selling. prices are driven by excessive supply (down) and demand (up).5.5 CHART PATTERNS When the price bar charts of several days are drawn close together.1 SUPPORT AND RESISTANCE Support and resistance represent key junctures where the forces of supply and demand meet. bulls and buying. prices advance and as supply increases. it is believed that demand will overcome supply and . The logic dictates that as the price declines towards support and gets cheaper. In the financial markets. prices move sideways as bulls and bears slug it out for control. Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. Supply is synonymous with bearish. The patterns are used by technical analysts to identify trend reversals and predict the future movements of prices.1. 1. reversal patterns and continuation patterns. As demand increases.. Demand is synonymous with bullish. certain patterns emerge. The chart patterns may be classified as support and resistance. By the time the price reaches the support level. When supply and demand are equal. buyers become more inclined to buy and sellers become less inclined to sell.

A decline below support indicates a new willingness to sell and/or a lack of incentive to buy. . Resistance does not always hold and a break above resistance signals that the bulls have won out over the bears. Resistance breaks and new highs indicate buyers have increased their expectations and are willing to buy at even higher prices. Support does not always hold and a break below support signals that the bears have won out over the bulls.prevent the price from falling below support. Once resistance is broken. Once support is broken. another support level will have to be established at a lower level. In addition. another resistance level will have to be established at a higher level. sellers could not be coerced into selling until prices rose above resistance or above the previous high. A break above resistance shows a new willingness to buy and/or a lack of incentive to sell. buyers could not be coerced into buying until prices declined below support or below the previous low. Support breaks and new lows signal that sellers have reduced their expectations and are willing sell at even lower prices. In addition.

Calculating Pivot Points The Classic Formulae PP=(HIGH+LOW+CLOSE)/3 S1=(2*PP)-HIGH S2=PP-RANGE S3=S2-RANGE R1=(2*PP)-LOW R2=PP+RANGE R3 = R2 + RANGE The classic calculation for the pivot point is pathetically simple. All of the variations that I've seen involve an average of a set of prices that include a combination of yesterday's open/high/low/close and today's open.2 TREND REVERSAL PATTERNS . It's the average of the high. Support and resistance are like mirror images and have many common characteristics. There are now many variations on this formula. This classic formula uses the high. low and close from the pit traded session which is also commonly know as the Regular Trading Hours (RTH) session. This time period is used because when pivots were first created this is what the floor traders used.Calculating the support and resistance levels: All of the support and resistance levels are calculated off the pivot point. The classic formulae shown below will allow you to calculate the most common support and resistance levels. 1. The pivot point is always the start of these calculations. low. and close for the previous day.5. If you limit the input to those 5 figures then there will be a finite number of ways that you can calculate a pivot point based on all the permutations of those 5 figures that you can come up with.

1 HEAD AND SHOULDERS A Head and Shoulders reversal pattern forms after an uptrend. A good validation of a reversal would be if the break is significant or if the neckline is tested and it turns from support to resistance. a trader should look and see if momentum was higher during the formation of the left shoulder compared to the right shoulder. The reversals can be identified with the help of certain chart formations that typically occur during these trend reversals.5. The pattern contains three successive peaks with the middle peak (head) being the highest and the two outside peaks (shoulders) being low and roughly equal. as this would indicate that buying pressure is decreasing and a true reversal pattern is taking place. In addition. Thus reversal patterns are chart formations that tend to signal a change in direction of the earlier trend. the downward move can be expected to be equal to the distance from neckline to head.2. The reaction lows of each peak can be connected to form support. or a neckline. During a true head and shoulders reversal. The trends reverse directions after a period of time.Price movements exhibit up trends and down trends. and its completion marks a trend reversal. There is a chance that even after there is a break of the neckline that the trend may not reverse. . 1.

2. and its completion marks a change in trend.5. but relies more heavily on volume patterns for confirmation.Here is an example of a head and shoulders pattern on a daily chart using the CNET/ NASDAQ. the Head and Shoulders Bottom forms after a downtrend. The pattern shares many common characteristics with its comparable partner.2 HEAD AND SHOULDER BOTTOM The Head and Shoulders bottom is referred to sometimes as an Inverse Head and Shoulders. . As a major reversal pattern. The pattern contains three successive troughs with the middle trough (head) being the deepest and the two outside troughs (shoulders) being shallower. 1.

The role of volume marks the biggest difference between the two. Generally speaking. the two shoulders would be equal in height and width. . or a neckline. volume plays a larger role in bottom formations than top formations. it is absolutely required for a bottom. The price action forming both Head and Shoulders Top and Head and Shoulders Bottom patterns remains roughly the same.Ideally. The reaction highs in the middle of the pattern can be connected to form resistance. but reversed. While an increase in volume on the neckline breakout for a Head and Shoulders Top is welcomed.

As its name implies.5.3 DOUBLE TOP The double top is a major reversal pattern that forms after an extended uptrend. . the pattern is made up of two consecutive peaks that are roughly equal. with a moderate trough in-between.1.2.

1. the classic double top marks at least an intermediate change. in trend from bullish to bearish.Although there can be variations.2. a reversal cannot be confirmed. with a moderate peak in-between.4 DOUBLE BOTTOM The double bottom is a major reversal pattern that forms after an extended downtrend. if not long-term change. As its name implies. A lth oug h the re can be var iati ons . the pattern is made up of two consecutive troughs that are roughly equal.5. Many potential double tops can form along the way up. the cla . but until key support is broken.

from bearish to bullish.5 Triple Tops / Triple Bottoms In the typical triple top formation. 1.5. a reversal cannot be confirmed.6 Rounded Tops/ Rounded Bottoms Another variation of the shape a top and bottom can take is one in which the reversal is "rounded". 1. The rounded top formation forms when the market gradually yet steadily shifts from a bullish to bearish outlook while in the case of a rounded bottom. A neckline should be drawn connecting the support levels. Many potential double bottoms can form along the way down. After the third head.ssic double bottom usually marks an intermediate or long-term change in trend. each one of the heads is about the same size. The market may rebound for a short attempt at breaking back past the neckline only to be followed by the start of a new downward trend.2. price falls below the neckline. but until key resistance is broken. The prices take on a bowl shaped pattern as the market slowly and casually changes from an upward to a downward trend.5. A line of resistance can be drawn connecting the three tops.2. .

These patterns are formed during sideway movements of share prices and are called continuation patterns because they indicate a continuation of the trend prevailing before the formation of the pattern. Regardless of where they form.5. .3. but they are typically continuation patterns.3 CONTINUATION PATTERNS There are certain patterns which tend to provide a breathing space to the earlier sharp rise or fall and after the completion of these patterns.1 ASCENDING TRIANGLE The ascending triangle is a bullish formation that usually forms during an uptrend as a continuation pattern.5. the price tends to move along the original trend.1. There are instances when ascending triangles form as reversal patterns at the end of a downtrend. 1. ascending triangles are bullish patterns that ate accumulation.

2 DESCENDING TRIANGLE The descending triangle is a bearish formation that usually forms during a downtrend as a continuation pattern.3.5. . There are instances when descending triangles form as reversal patterns at the end of an uptrend. but they are typically continuation patterns.1. Regardless of where they form. descending triangles are bearish patterns that indicate distribution.

If both lines were extended right.3.Because of its shape. though not always. the descending trend line could act as the hypotenuse of a right triangle. 1. The triangle pattern yields to a breakout in the direction that corresponds with the trend beforehand.5. Two or more comparable lows form a horizontal line at the bottom. a right triangle would form. . Two or more declining peaks form a descending trend line above that converges with the horizontal line as it descends. If a perpendicular line were drawn extending up from the left end of the horizontal line. The symmetrical triangle has a line of support that slopes upwards and a line of resistance that slopes downward.3 SYMMETRIC TRINGLE A symmetrical triangle is indicative of a period of consolidation during an uptrend or a downtrend. the pattern can also be referred to as a right-angle triangle.

Flags have a tendency to form slanted in the direction opposite to the major market trend they inhabit. It is short lived. Flags are usually marked by a sharp.1. and mark a mid-point of the move. PENNANT Flags and Pennants are short-term continuation patterns that mark a small consolidation before the previous move resumes. Flags are bound by parallel lines of support and resistance. ending the flag pattern and continuing the downtrend.3. On the right. Below.5. which plays out in a long timeframe The consolidation phase lasts two months but does not turn into a new trend. and there is a substantial breakout when price moves above the line of resistance. The line of support is broken. is a flag that interrupts an uptrend. These patterns are usually preceded by a sharp advance or decline with heavy volume. The pattern is commonly followed by a sharp break back into the prevailing trend. . is a flag pattern during a downtrend. Flags are a type of short-term pause in the dynamic and progressive movement of a market trend.4 FLAG. almost horizontal entry into the pattern.

An example is presented below.1. as one can open alternating positions as the price repeatedly bounces from support to resistance and back. fluctuating between two horizontal lines before finally resuming its previous trended course. Such a pattern is not very significant to the trend‟s future course – a rectangle seldom accelerates the prevailing trend beyond its previous slope. a rectangle pattern presents an opportunity to trade within. A theoretical sketch of a rectangle in a downtrend and an uptrend is shown. Though not characteristic in determining any anomalous effects in the presiding trend. . Price forms a rectangle pattern before the uptrend continues. An uptrend that was started in September enters a period of consolidation in October.5 Rectangles A Rectangle is a period of consolidation within an existing trend where the price moves sideways.3.5.

We can observe high volume during the breakout. but has to wait for the breakout. Until the break out occurs. In rectangle we cannot predict the future movement. One can predict the course of prices when a rectangle is being formed. A rectangle therefore may be consolidation pattern or result in reversal.The rectangle indicates equal pressure being exercised by buyers and sellers and combat is indecisive until a breakout occurs. The measuring implication for a breakout is that prices should move out at least by a distance equal to the maximum distance between the boundaries of the rectangle. we can say that it is sideways movement. By observing the graph. The breakout is definitely accompanied by a high volume. .

. they generally do not penetrate the rectangle. So. it gives signal to sell or hold. Even if the prices touch the boundary level.The breakout from a rectangle is reliable as prices generally do not return to the rectangle.

Narayana Murthy and six others: Nandan Nilekani. Dinesh and Ashok Arora. Novell and Lycos. D. Infosys IPO was undersubscribed but it was "bailed out" by US investment banker Morgan Stanley which picked up 13% of equity at the offer price of Rs. Infosys was founded on July 2. 1981 in Pune by N. 2009. since listing on the Bombay Stock Exchange till the year 2000. north-central Pune as the registered office.". It has offices in 22 countries and development centers in India. Infosys was among the 20 biggest companies by market capitalization on the Nasdaq well ahead of Adobe Systems. with Raghavan officially being the first employee of the company. Infosys opened an office in Bangalore which soon became its headquarters.100 by 1999 making it the costliest share on the market at the time.. President of . Kris Gopalakrishnan. In 1982. Interestingly. At that time. Australia. with Raghavan's house in Model Colony. S. Infosys' sales and earnings compounded at more than 70% a year.000 from his wife Sudha Murthy. China. S. K. N. The company was incorporated as "Infosys Consultants Pvt Ltd. Infosys Technologies Limited is a multinational information technology services company headquartered in Bangalore. Infosys went public in 1993. It is one of India's largest IT companies with 104. Shibulal. Murthy started the company by borrowing INR 10. Canada and Japan.850 professionals (including subsidiaries) as of Mar 31.DATA ANALYSIS AND INTERPRETATION Technical analysis:  INFOSYS TECHNOLOGIES LTD. 8. According to Forbes magazine. The share price surged to Rs. In the year 2000. UK. India. R. Raghavan. 95 per share.

Consumer Product Goods and Logistics (RETL) New Markets and Services (NMS) : Non US and Non European markets. being the only Indian company to win this award and is inducted into the Global Hall of Fame for the same. 2004 and 2005. Media and Entertainment (CME) Energy. Healthcare and Life Sciences (IHL) Manufacturing (MFG) Retail. Infosys has fired over 2500 employees on account of bad performance. [16] Infosys serves various industries through its Industrial Business Units (IBU). there are Horizontal Business Units (HBUs) . In 2009. 2009 Infosys reported its first ever sequential fall in its revenue in a decade during the March 2009 quarter. for the years 2003.the United States Bill Clinton complimented India on its achievements in high technology areas citing the example of Infosys. such as:        Banking & Capital Markets (BCM) Communications. Infosys was considered one of the BusinessWeek's 50 Most Innovative Companies. The company has been hit hard by lower revenue from a crisis hit European and North American market. SaaS. Learning Services  India Business Unit (IND) In addition to these. Forbes rated Infosys among the 5 best performing companies in the software and services sector in the world. In 2001. Infosys won the Global MAKE (Most Admired Knowledge Enterprises) award. it was rated Best Employer in India by Business Today. along with Wipro and Tata accounted for nearly 80% of the [H-1B] visa petitions approved in 2007 for the top 10 participants in the program. In April 2009. Utilities and Services (EUS) Insurance. BusinessWeek reported that Infosys. From December 2008 till April 2009. On Aril 15.

      Consulting (CS) Enterprise Solutions (ES): ERP. SCM. CRM. HCM. BI/DW. BPM-EAI Infrastructure Management Services (IMS) Product Engineering and Validation Services (PEVS) Systems Integration (SI) Finacle : Core Banking Product  Moving Average Convergence and Divergence(MACD) MACD of Infosys .

the trend can be considered to have bearish trend its indicates a selling opportunity. Relative Strength Index (RSI): RSI of Infosys . When the MACD falls below the signal line i. which suggests that the price of the asset is likely to experience upward momentum. so it is time to buy and hold the shares of Infosys. If the MACD line crosses the zero line from above.& Aug these were the selling opportunities in the Infosys stock scrip during the financial year 2011-2012. The MACD line Crosses the zero line is in the month of Feb. By the above graph. in Apr . selling opportunities can be identified when the MACD line crosses the Zero line from above. when the MACD rises above the signal line. The chart depicts that this happened 4 times in the financial year. This we can see in the end of Apr12 and Aug 13. which indicates that it may be time to sell.Apr.e.July. If MACD line moves above the zero line from below. beginning of Feb & Aug this can be seen the indicator gives a bullish signal.By the above graph buying opportunities can be identified when the MACD line crosses the Zero line from below. In this graph we can find the buying opportunity is in the beginning of Feb & Aug 2012. the trend turned bullish and indicates a buying opportunity. it is a bearish signal.

and its crossed 30 line twice in the month of May & August 2012 its indicating a buying opportunity. . and we can see this signal is in the month of Apr 12 & Aug 12.The above chart depicts the RSI or Relative Strength Index for different months starting from Jan 2012 to Dec 2012. The RSI line touches 30 line twice in the financial year 2011-12 its in the end of April and beginning of August. a sell signal is indicated. When it has crossed the 70 line from above to below and is falling. In this case it has touched 70 line Twice in calender year 2012 that is in Feb & Beginning of Oct2012 its indicating a selling opportunity. a buying opportunity is indicated. If the RSI crosses 70 then it is a strong sell signal and if it touches or crosses 30 then it is a strong buy signal. When the RSI has crossed the 30 line from below to above and is rising. The RSI is always between “0 to 100”.

May. . In this case we can Sell the Infosys shares is in the beginning of Apr. Dec 2012 and the highest peak in the price is in the end of Sep 2012. July. The upside crossing indicates a buying opportunity. The above chart depicts that. it was ideal to buy the shares of Infosys is in Feb. the price is falling its indicates a bearish trend. The greatest fall in the price is in the Apr. the price is rising its indicates a bullish trend.There are a lot of fluctuations in the ROC its implies that the market is volatile.Mid of july and end of October2012.Sep&Dec. When it is below the zero line.Aug. While down side crossing indicates a selling opportunity. Oct.Rate of Change Indicator (ROC): ROC of Infosys When the ROC line is above the zero line.

which puts pressure on the company's margins. Since 1992 Wipro began to grow its roots off shore in United States and by 2000 Wipro Ltd ADRs were listed on the New York Stock ExchangeThe company's revenue grew by 450% from 2002 to 2007. This expanded their IT business and subsequently invented the first Indian 8086 chip.WIPRO LTD: Wipro Technologies (Western India Products Limited) is a corporation based in India. Wipro started as a vegetable oil company in 1947 from an old mill founded by Azim Premji's father. but since then has diversified into the information technology. Wipro entered the information technology sector. when IBM was asked to leave India. it was valued at $2 million. Wipro. Azim. took on the leadership of the company at the age 21. engineering and healthcare businesses. a graduate in Electrical Engineering from Stanford University. Wipro hired managers who were computer savvy. Wipro began developing its own computers and in 1981. lighting. This was the first in a string of products that would make Wipro one of India's first computer makers. laundry soap. was founded as a vegetable oil company. consumer care. At that time. wax and tin containers and later set up Wipro Fluid Power to manufacture hydraulic and pneumatic cylinders in 1975. . He repositioned it and transformed Wipro (Western India Vegetable Products Ltd) into a consumer goods company that produced hydrogenated cooking oils/fat company. In 1977. and strong on business experience. This success has led to higher salaries (wages have been growing by more than 14% per year since 2005). started selling the finished product. When his father died in 1966. In 1980 Wipro moved in software development and started developing customized software packages for their hardware customers. In 1979. The company licensed technology from Sentinel Computers in the United States and began building India's first mini-computers.

HR Services. Japan and over 650 customers in India. In 2002. Wipro enables firms to introduce new products rapidly. ERP. Wipro's enterprise solutions serve a host of industries such as Energy and Utilities.  Business Process Outsourcing: Wipro provides business process outsourcing services in areas Finance & Accounting. Wipro acquiring Spectramind and became one of the largest BPO service players. Loyalty Services and Knowledge Services. The range of services extends from Enterprise Application Services (CRM. and Technology Consulting. Procurement. e-Procurement and SCM) to e-Business solutions. people and customers with more than 200 customers in US. Telecom.Wipro Technologies deals in following businesses  IT Services: Wipro provides complete range of IT Services to the organization. Using "Extended Engineering" model for leveraging R&D investment and accessing new knowledge and experience across the globe. Finance.  Product Engineering Solutions: Wipro is the largest independent provider of R&D services in the world. . people and technical infrastructure.  Technology Infrastructure Service: Wipro's Technology Infrastructure Services (TIS) is the largest Indian IT infrastructure service provider in terms of revenue. Process Consulting.  Consulting Services: Wipro offers services in Business Consulting. Quality Consulting. Europe. and Media and Entertainment.

Mid of Aug2012. By the above graph. which suggests that the price of the asset is likely to experience upward momentum. when the MACD rises above the signal line. the trend turned bullish and indicates a buying opportunity. Mid of Aug2012 this can be seen the indicator gives a bullish signal.. beginning of Feb.Nov &. The chart depicts that this happened 4 times in the financial year. If MACD line moves above the zero line from below. Moving Average Convergence and Divergence (MACD): MACD of Wipro By the above graph buying opportunities can be identified when the MACD line crosses the Zero line from below.Jun.. In this graph we can find the buying opportunity is in the beginning of Feb.Nov &.Jun. so it is time to buy and hold the shares of Wipro. selling opportunities can be identified when the MACD line crosses the Zero line from above. The MACD line Crosses the zero line is in the month of .

a . When the MACD falls below the signal line i. If the MACD line crosses the zero line from above.End of Feb. which indicates that it may be time to sell. When the RSI has crossed the 30 line from below to above and is rising. the trend can be considered to have bearish trend its indicates a selling opportunity. in Oct .Oct & Dec these were the selling opportunities in the Wipro stock scrip during the calender year 2012.  Relative Strength Index(RSI): RSI of Wipro. it is a bearish signal. The above chart depicts the RSI or Relative Strength Index for different months starting from Jan 2012 to Dec 2012.July. This we can see in the end of July Oct & Dec12.Apr beginning of .e.

buying opportunity is indicated.Aug & Oct 2012 its indicating a buying opportunity. The RSI is always between “0 to 100”.  Rate of Change Indicator(ROC): ROC of Wipro. When it has crossed the 70 line from above to below and is falling. and its crossed 30 line thrice in the month of July. In this case it has touched 70 line Trice in calendar year 2012 that is in Feb.Sep and in beginning of Dec2012 its indicating a selling opportunity. a sell signal is indicated. If the RSI crosses 70 then it is a strong sell signal and if it touches or crosses 30 then it is a strong buy signal. and we can see this signal is in the month of July & Oct end & Beginning of Aug 12.  . The RSI line touches 30 line thrice in the calendar year 2012 its in July Oct & Aug.

It began as the "Tata Computer Centre". The greatest fall in the price is in the Apr. Tata Consultancy Services Limited (TCS) is a software services and consulting company. manufacturing. the company succeeded in establishing the Indian IT Industry. When it is below the zero line. chemicals. the Tata Group. government and healthcare. July. Oct. TCS is considered a pioneer in the Indian IT industry. it was ideal to buy the shares of Infosys is in Feb. which has interests in areas such as energy. a division of the Tata Group. The company is listed on the National Stock Exchange and Bombay Stock Exchange of India. While down side crossing indicates a selling opportunity. Dec 2012 and the highest peak in the price is in the end of Sep 2012. The upside crossing indicates a buying opportunity. The above chart depicts that. engineering. like the License Raj. TCS is part of one of India's largest and oldest conglomerates.Aug. It is India's largest provider of information technology and business process outsourcing services. .May.. Despite unfavorable government regulations.Sep&Dec. When the ROC line is above the zero line.There are a lot of fluctuations in the ROC its implies that the market is volatile. financial services. whose main business was to provide computer services to other group companies. In this case we can Sell the Infosys shares is in the beginning of Apr.  TATA CONSULTANCY SERVICES LTD.Mid of july and end of October2012. The legendary JRD Tata was its first Chairman and was followed by luminaries such as Nani Palkhivala. telecommunications. F C Kohli was its first General Manager. materials. Tata Consultancy Services was established in the year 1968. the price is falling its indicates a bearish trend. the price is rising its indicates a bullish trend.

which catered to two million customers in the US. TCS set up India's first software research and development center. the Indian IT outsourcing industry grew tremendously due to the Y2K bug and the launch of a unified European currency. . TCS started exporting its services. TCS's first international order came from Burroughs. Tata Steel (then TISCO). thus becoming one of the first companies to offer BPO services. TKS Teknosoft. In the early 1990s. TCS associated with a Swiss partner. It also provided bureau services to Unit Trust of India. TCS delivered an electronic depository and trading system called SECOM for SIS SegaInterSettle.. assigned TCS the task of maintaining and upgrading its computer systems. It was by far the most complex project undertaken by an Indian IT company. TCS was assigned to write code for the Burroughs machines for several US-based clients. the Inter-Branch Reconciliation System (IBRS) for the Central Bank of India. which it later acquired. This experience also helped TCS bag its first onsite project . Euro. The first client-dedicated offshore development center was set up for Compaq (then Tandem) in 1985. It later bagged the country's first software project. the Tata Research Development and Design Center (TRDDC). TCS pioneered the factory model for Y2K conversion and developed software tools which automated the conversion process and enabled third-party developers and clients to make use of it. Switzerland. In 1981. In the early 1970s.One of TCS' first assignments was to provide punch card services to a sister concern. TCS followed this up with System X for the Canadian Depository System and also automated the Johannesburg Stock Exchange (JSE).the Institutional Group & Information Company (IGIC). one of the first business computer manufacturers. In 1989. a data centre for ten banks.

Bioinformatics. TCS ventured into a new area for an Indian IT services company . By 2004.During 2004. In 2004.  Moving Average Convergence and Divergence(MACD):  MACD of TCS . E-Business was contributing half a billion dollars (US) to TCS. much later than its rivals.In 1999. TCS became a publicly listed company. Wipro and Satyam. Infosys. TCS saw outsourcing opportunity in E-Commerce and related solutions and set up its E-Business division with ten people.

 Relative Strength Index(RSI): RSI of TCS  Rate of Change Indicator(ROC): ROC of TCS .

UK with M&M(Mahindra and Mahindra) holding 44% and BT holding 39% of the equity. Application . 2007) and 2nd largest Telecom Software Provider in India (Voice & Data. With its core strength in providing Telecom Solutions. TECH MAHINDRA LTD. India. 2007). (TechM) formerly known as Mahindra British Telecom (MBT) is an Indian Information Technology service provider company.[1] It is a joint venture between Mahindra & Mahindra Limited (M&M) and British Telecommunications plc (BT). Tech Mahindra provides a wide variety of services ranging from IT Strategy and Consulting to Systems Integration. Tech Mahindra has grown rapidly to become the 6th largest software exporter in India (Nasscom. Tech Mahindra has its headquarters at Pune. Tech Mahindra Ltd. It has more than 25000 employees..

Development & Maintenance. a company probably two times its size in number of people. Ravichandran (Executive Vice President and COO After the Satyam scandal of 2008-09. Alcatel-Lucent & O2. Tech Mahindra will be paying 17. It will also acquire another 20 percent equity through a public offer to other Satyam shareholders. beating a strong rival Larsen & Toubro. Nayyar said. according to analysts. Tech Mahindra is also BS7799 certified across all development centers. it has emerged victorious in Satyam sell-off." Through a subsidiary. Its executive management team consists of Vineet Nayyar (Managing Director & CEO). But some of Tech Mahindra's key managers have experience in other industries from their previous jobs.The move by Tech Mahindra to acquire a majority stake in Satyam may put off clients from outside the telecommunications industry. subject to the approval of the Hon'ble Company Law Board. CP Gurnani (President. the governmentappointed board of Satyam Computer announced on 13 April 2009: "its Board of Directors has selected Venturbay Consultants Private Limited. Tech Mahindra bid for Satyam Computer Services. Continental Europe. ANZ. Sanjay Kalra (President. a subsidiary controlled by Tech Mahindra Limited as the highest bidder to acquire a controlling stake in the Company. International Operations). Significant portion of revenues comes from UK. Infrastructure Management and Product Engineering. AT&T. through a preferential issue of equity. Some of its largest clients are BT. Strategic Initiatives). but the company is aggressively expanding in other major economies like US. Rakesh Soni (Chief Operating Officer) and L. . After evaluating the bids. Tech Mahindra is ISO 9001:2000 certified and is assessed at SEI-CMMi Level 5 and SEI-PCMMi Level 5.6 billion Indian rupees (US$354 million) for a 31 percent stake in Satyam. BPO. and emerged as a top bidder with an offer of Rs 58 a share for a 31 per cent stake in the company. Canada & Middle East.

Tech Mahindra GmbH. Taipei. Kuwait  Moving Average Convergence and Divergence(MACD): MACD of Tech Mahindra. . Tech Mahindra (R & D Services) Ltd. Bengaluru. the Company acquired iPolicy Networks Private Limited (renamed iPolicy Networks Limited). Munich. Europe. California Middle East & Africa: Dubai. Kolkata. Noida. Tech Mahindra (Thailand ) Ltd. Rome. Tech Mahindra (Singapore) Pte. Singapore. which develops next generation. Middle-east. Mumbai. carrier-grade integrated network security solutions for enterprise and service providers. Texas.. Toronto. Tech Mahindra Limited announced that Tech Mahindra (R&D Services) Inc USA. and PT Tech Mahindra Indonesia.Tel Aviv. a wholly owned subsidiary of the Company. Brussels Americas: New Jersey. Chandigarh. USA. also a wholly owned subsidiary of the Company. Belfast. Düsseldorf. Malaysia    Europe: Milton Keynes. In January 2007. Ltd. Chennai. Africa and AsiaPacific.The Company‟s subsidiaries include Tech Mahindra (Americas) Inc. Jakarta. Hyderabad. Sydney.. In July 2008. Bangkok.  Asia Pacific: Pune. Cairo. Tech Mahindra's global footprint spans 24 locations in 14 countries including 11 state-of-theart development centres and 13 sales offices in Americas.. Auckland. had been merged with Tech Mahindra Americas Inc. Georgia.

1) Relative Strength Index(RSI): RSI of tech Mahindra .

.2) Rate of Change Indicator(ROC): ROC of tech Mahindra.

the following findings have been made. In the case of fundamental analysis. Return on assets and EPS was increased for the financial year 2011-12.  Infosys ltd: As being very popular company in the industry its ratio analysis says its liquidity position is high compared to all other companies. It is also a one of the unlevered firm in the industry.CHAPTER-8 FINDINGS The summary of findings relating to each company are given below.  Wipro ltd: .

 Tata consultancy services : As having a very good history and a very good name in the industry. EPS is increasing year on year and hence fundamentally the stock has huge potential and one can buy the stock at current levels. so it is advisable to the investors to sell their shares for making speculative profit. Asset turnover ratio. As per the ratio analysis company having a very good liquidity position and its sales and EPS also in growth rate over the last five years.As per the ratio analysis is concerned it says company‟s liquidity position is good and EPS also slightly increased. Return on asset ratio.  Wipro Limited: . Receivable turnover ratio is less compare to the financial year 2010-11. Consolidation of Technical Analysis TECHNICAL INDICATOR BUY SIGNAL SELL SIGNAL MACD October and November2008 July 2008 May 2008 and End of March RSI October and July 2008 October and end of 2009 May. August and Beginning of November 2008 ROC  Infosys Limited: November 2008 As per the oscillators indication sell signals are more than the buy signals of Infosys limited. P/E Ratio.  Tech Mahindra ltd: According to the interpretation made on the company's financials it is noted that most of the ratio's are indicating good sign of growth. But ROE. But ROE. company is operating well. Receivable turnover ratio is slightly less compared to last years.

CONCLUSION:  The objective behind taking over this project is to understand the performance IT stocks of selected companies. . should be kept in mind before buying a stock. like GDP. it is conclude from the results that the technical indicators can play a useful role in the timing of stock market entry and exits.  Indian economy indicators like GDP.  In general. inflation are strongly influencing the growth and IT industry. Both fundamental and technical analysis helps to identify the attractiveness of the stocks which in turn provides the information in advising the investor for making investment decision. brokers or investors may enjoy substantial profits.  Fundamentals of the company are necessary to judge the growth of the company as well has the government policies.As per the oscillators indication of Wipro Limited „Buy‟ signals are more than „Sell‟ signals so it is preferable to investors to Buy new share form Wipro limited to get Good Avenue for better investment in share market.  Tata Consultancy Services: In case of TATA Consultancy Service the oscillators are indicating „Sell‟ signals more compared to „Buy‟ signals so it is advised to the shareholders to sell their shares in the market. By applying technical indicators.  Tech Mahindra Limited: As per the oscillators indication of Tech Mahindra Limited „Buy‟ signals are more than „Sell‟ signals so it is preferable to investors to Buy new share form Tech Mahindra limited to have better investment opportunity in share market. inflation.

simply not from whim. . these companies financial health and profitability is quite sound and technical indicators are quite encouraging. Book Value of the company gives the detailed insight regarding Long term as well as Short term Growth of the company .  From the overall observation Infosys. The varies ratio's EPS . TCS best for investment as these companies fundamentally and technically strong. But. Wipro.  An investor can invest for long term gain lucrative profit from IT companies after through fundamental and technical analysis. so in these companies investor can invest for long term.

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