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CHAPTER I

INTRODUCTION

1.1 INTRODUCTION ABOUT INDUSTRY

In the wake of the introduction of new economic policy in the middle of the year 1991,
the Indian Capital Market has witnessed a tremendous growth. There was an explosion of
investor interest during the nineties and an equity cult emerged in the country. To experience
sustained growth statutory legislations have helped the capital market. Foreign Exchange
Regulation Act is one such legislation in this direction. Government of India has initiated
several steps to strengthen the capital market and regulate its activities.

An important recent development has been the entry of Foreign Institutional Investors
as participants in the primary and secondary markets for industrial securities. The liberalization
policy of the Government of India has now started yielding results and the country is poised for
a big leap in the industrial and economic growth. The Economy of the country is mainly based
on the development of the corporate sectors. Funds may be raised through securities market for
financing corporate growth.

Generally, the security prices reflect the performance of a company. Both economic and
non-economic factors invariably affect stock return behavior. As Cootner (1964) says that “the
prices of securities are typically very sensitive, responsive to all events, both real and
imagined”. Again a major factor responsible for stock return fluctuations is speculative
purchase and sale by foreign institutional investors. Indian financial institutions also play a
major role in equity market leading to stock return fluctuations.
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1.1.1 Bombay Stock Exchange

Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now
spanning three centuries in its 133 years of existence. What is now popularly known as BSE
was established as "The Native Share & Stock Brokers' Association" in 1875.

BSE is the first stock exchange in the country which obtained permanent recognition (in
1956) from the Government of India under the Securities Contracts (Regulation) Act 1956.
BSE's pivotal and pre-eminent role in the development of the Indian capital market is widely
recognized. It migrated from the open outcry system to an online screen-based order driven
trading system in 1995. Earlier an Association of Persons (AOP), BSE is now a corporatised
and demutualised entity incorporated under the provisions of the Companies Act, 1956,
pursuant to the BSE (Corporatisation and Demutualisation) Scheme, 2005 notified by the
Securities and Exchange Board of India (SEBI). With demutualisation, BSE has two of world's
best exchanges, Deutsche Börse and Singapore stock exchange as its strategic partners.

Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector
by providing it with an efficient access to resources. There is perhaps no major corporate in
India which has not sourced BSE's services in raising resources from the capital market. Today,
BSE is the world's number 1 exchange in terms of the number of listed companies and the
world's 5th in transaction numbers. The market capitalization as on December 31, 2007 stood at
USD 1.79 trillion. An investor can choose from more than 4,700 listed companies, which for
easy reference, are classified into A, B, S, T and Z groups.
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The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic
stature , and is tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The
SENSEX is constructed on a 'free-float' methodology, and is sensitive to market sentiments and
market realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices.

BSE also has a wide range of services to empower investors and facilitate smooth
transactions

 Investor Services

The Department of Investor Services redresses grievances of investors. BSE was the
first exchange in the country to provide an amount of Rs.1 million towards the investor
protection fund; it is an amount higher than that of any exchange in the country. BSE launched
a nationwide investor awareness programme- 'Safe Investing in the Stock Market' under which
264 programmes were held in more than 200 cities.

The BSE On-line Trading (BOLT)

BSE On-line Trading (BOLT) facilitates on-line screen based trading in securities.
BOLT is currently operating in 25,000 Trader Workstations located across over 450 cities in
India.

BSEWEBX.com

In February 2001, BSE introduced the world's first centralized exchange-based Internet
trading system, BSEWEBX.com. This initiative enables investors anywhere in the world to
trade in BSE e-trade platform.
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Awards

 The World Council of Corporate Governance has awarded the Golden Peacock Global
CSR Award for BSE's initiatives in Corporate Social Responsibility (CSR).
 The Annual Reports and Accounts of BSE for the year ended March 31, 2006 and
March 31 2007 have been awarded the ICAI awards for excellence in financial
reporting.

1.1.2 National Stock Exchange

Organisation

The National Stock Exchange of India Limited has genesis in the report of the High
Powered Study Group on Establishment of New Stock Exchanges, which recommended
promotion of a National Stock Exchange by financial institutions (FIs) to provide access to
investors from all across the country on an equal footing. Based on the recommendations, NSE
was promoted by leading Financial Institutions at the behest of the Government of India and
was incorporated in November 1992 as a tax-paying company like other stock exchanges in the
country.

Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations
in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities)
segment commenced operations in November 1994 and operations in Derivatives segment
commenced in June 2000.

Corporate Structure

NSE is one of the first de-mutualised stock exchanges in the country, where the
ownership and management of the Exchange is completely divorced from the right to trade on
it.
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It has been set up as a public limited company, owned by the leading institutional
investors in the country.

From day one, NSE has adopted the form of a demutualised exchange - the ownership,
management and trading is in the hands of three different sets of people. NSE is owned by a set
of leading financial institutions, banks, insurance companies and other financial intermediaries
and is managed by professionals, who do not directly or indirectly trade on the Exchange. This
has completely eliminated any conflict of interest and helped NSE in aggressively pursuing
policies and practices within a public interest framework.

Promoters

NSE has been promoted by leading financial institutions, banks, insurance companies and other
financial intermediaries:

 Industrial Development Bank of India Limited

 Industrial Finance Corporation of India Limited
 Life Insurance Corporation of India
 State Bank of India
 ICICI Bank Limited
 IL & FS Trust Company Limited
 Stock Holding Corporation of India Limited
 SBI Capital Markets Limited
 Bank of Baroda
 Canara Bank
 General Insurance Corporation of India
 National Insurance Company Limited
 The New India Assurance Company Limited
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 The Oriental Insurance Company Limited

 United India Insurance Company Limited
 Punjab National Bank
 Oriental Bank of Commerce
 Indian Bank
 Union Bank of India
 Infrastructure Development Finance Company Ltd.

Wholesale Debt Market

The Wholesale Debt Market segment deals in fixed income securities and is fast gaining
ground in an environment that has largely focussed on equities.The Wholesale Debt Market
(WDM) segment of the Exchange commenced operations on June 30, 1994. This provided the
first formal screen-based trading facility for the debt market in the country. This segment
provides trading facilities for a variety of debt instruments including Government Securities,
Treasury Bills and Bonds issued by Public Sector Undertakings/ Corporates/ Banks like
Floating Rate Bonds, Zero Coupon Bonds, Commercial Papers, Certificate of Deposits,
Corporate Debentures, State Government loans, SLR and Non-SLR Bonds issued by Financial
Institutions, Units of Mutual Funds and Securitized debt by banks, financial institutions,
corporate bodies, trusts and others.

Large investors and a high average trade value characterize this segment. Till recently,
the market was purely an informal market with most of the trades directly negotiated and struck
between various participants. The commencement of this segment by NSE has brought about
transparency and efficiency to the debt market, along with effective monitoring and
surveillance to the market.
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Equities

NSE started trading in the equities segment (Capital Market segment) on November 3,
1994 and within a short span of 1 year became the largest exchange in India in terms of
volumes transacted. Trading volumes in the equity segment have grown rapidly with average
daily turnover increasing from Rs.17 crores during 1994-95 to Rs.6,253 crores during 2005-06.
During the year 2005-06, NSE reported a turnover of Rs.1,569,556 crores in the equities
segment.

The Equities section provides you with an insight into the equities segment of NSE and
also provides real-time quotes and statistics of the equities market. In-depth information
regarding listing of securities, trading systems & processes, clearing and settlement, risk
management, trading statistics etc are available here.

National Securities Clearing Corporation Ltd. (NSCCL)

The National Securities Clearing Corporation Ltd. (NSCCL), a wholly owned

subsidiary of NSE, was incorporated in August 1995. It was set up to bring and sustain
confidence in clearing and settlement of securities; to promote and maintain, short and
consistent settlement cycles; to provide counter-party risk guarantee, and to operate a tight risk
containment system. NSCCL commenced clearing operations in April 1996.

NSCCL carries out the clearing and settlement of the trades executed in the Equities and
Derivatives segments and operates Subsidiary General Ledger (SGL) for settlement of trades in
government securities.
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It assumes the counter-party risk of each member and guarantees financial settlement. It
also undertakes settlement of transactions on other stock exchanges like, the Over the Counter
Exchange of India. NSCCL has successfully brought about an up-gradation of the clearing and
settlement procedures and has brought Indian financial markets in line with international
markets.

S&P CNX Nifty

S&P CNX Nifty is a well diversified 50 stock index accounting for 21 sectors of the
economy. It is used for a variety of purposes such as benchmarking fund portfolios, index
based derivatives and index funds.

S&P CNX Nifty is owned and managed by India Index Services and Products Ltd.
(IISL), which is a joint venture between NSE and CRISIL. IISL is India's first specialised
company focused upon the index as a core product. IISL has a marketing and licensing
agreement with Standard & Poor's (S&P), who are world leaders in index services.

 The traded value for the last six months of all Nifty stocks is approximately 44.89% of
the traded value of all stocks on the NSE.
 Nifty stocks represent about 58.64% of the total market capitalization as on March 31,
2008.
 Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 crore is 0.15%.
 S&P CNX Nifty is professionally maintained and is ideal for derivatives trading.
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Trading in Nifty

The National Stock Exchange of India Limited (NSE) commenced trading in

derivatives with index futures on June 12, 2000. The futures contracts on NSE are based on
S&P CNX Nifty. The Exchange later introduced trading on index options based on Nifty on
June 4, 2001.

The turnover in the derivatives segment has shown considerable growth in the last year,
with NSE turnover accounting for 60% of the total turnover in the year 2000-2001. Further
details on index based derivatives are available under the Derivatives (F&O) section of the
website.

S&P CNX Nifty Futures

A futures contract is a forward contract, which is traded on an Exchange. NSE

commenced trading in index futures on June 12, 2000. The index futures contracts are based on
the popular market benchmark S&P CNX Nifty index. (Selection criteria for indices)
NSE defines the characteristics of the futures contract such as the underlying index, market lot,
and the maturity date of the contract. The futures contracts are available for trading from
introduction to the expiry date.

Our Technology

Across the globe, developments in information, communication and network

technologies have created paradigm shifts in the securities market operations. Technology has
enabled organisations to build new sources of competitive advantage, bring about innovations
in products and services, and to provide for new business opportunities.
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Stock exchanges all over the world have realised the potential of IT and have moved
over to electronic trading systems, which are cheaper, have wider reach and provide a better
mechanism for trade and post trade execution.

It uses satellite communication technology to energise participation from around 320

cities spread all over the country. In the recent past, capacity enhancement measures were taken
up in regard to the trading systems so as to effectively meet the requirements of increased users
and associated trading loads. With upgradation of trading hardware, NSE can handle up to 6
million trades per day in Capital Market segment. In order to capitalise on in-house expertise in
technology, NSE set up a separate company, NSE.IT, in October 1999.

NEAT is a state-of-the-art client server based application. At the server end, all trading
information is stored in an in-memory database to achieve minimum response time and
maximum system availability for users. The trading server software runs on a fault tolerant
STRATUS main frame computer while the client software runs under Windows on PCs. The
telecommunications network uses X.25 protocol and is the backbone of the automated trading
system. Each trading member trades on the NSE with other members through a PC located in
the trading member's office, anywhere in India.

The trading members on the various market segments such as CM / F&O , WDM are
linked to the central computer at the NSE through dedicated 64Kbps leased lines and VSAT
terminals. The Exchange uses powerful RISC -based UNIX servers, procured from Digital and
HP for the back office processing. The latest software platforms like ORACLE 7 RDBMS,
GUPTA - SQL/ORACLE FORMS 4.5 Front - Ends, etc. have been used for the Exchange
applications.
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NSE is one of the largest interactive VSAT based stock exchanges in the world. Today
it supports more than 3000 VSATs. The NSE- network is the largest private wide area network
in the country and the first extended C- Band VSAT network in the world. Currently more than
9000 users are trading on the real time-online NSE application. There are over 15 large
computer systems which include non-stop fault-tolerant computers and high end UNIX servers,
operational under one roof to support the NSE applications. This coupled with the nation wide
VSAT network makes NSE the country's largest Information Technology user.

In an ongoing effort to improve NSE's infrastructure, a corporate network has been

implemented, connecting all the offices at Mumbai, Delhi, Calcutta and Chennai. This
corporate network enables speedy inter-office communications and data and voice connectivity
between offices.

In keeping with the current trend, NSE has gone online on the Internet. Apart from
having a 2mbps link to VSNL and our own domain for internal browsing and e-mail purposes,
we have also set up our own Web site. Currently, NSE is displaying its live stock quotes on the
web site (www.nseindia.com) which are updated online.
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1.2 INTRODUCTION ABOUT COMPANY

1.2.1 The Kotak Mahindra Group

Kotak Mahindra is one of India's leading financial conglomerates, offering complete

financial solutions that encompass every sphere of life. From commercial banking, to stock
broking, to mutual funds, to life insurance, to investment banking, the group caters to the
financial needs of individuals and corporates.

The group has a net worth of over Rs 5,609 crore, employs around 17,100 people in its
various businesses and has a distribution network of branches, franchisees, representative
offices and satellite offices across 344 cities and towns in India and offices in London, New
York, Dubai, San Francisco, Singapore and Mauritius. The Group services around 3.6 million
customer accounts.

Group Management

1. Mr. Uday Kotak      Executive Vice Chairman & Managing Director

2. Mr. Shivaji Dam
3. Mr. C. Jayaram
4. Mr. Dipak Gupta

Incorporation

The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance
Limited. This company was promoted by Uday Kotak, Sidney A. A. Pinto and Kotak &
Company. Industrialists Harish Mahindra and Anand Mahindra took a stake in 1986, and that's
when the company changed its name to Kotak Mahindra Finance Limited.
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The following are the stage by stage development of Kotak Mahindra group

1986 - Kotak Mahindra Finance Limited starts the activity of Bill Discounting.

1987 - Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market

1990 - The Auto Finance division is started.

1991 - The Investment Banking Division is started. Takes over FICOM one of India's largest
financial retail marketing networks.

1992 - Enters the Funds Syndication sector.

1995 - Brokerage and Distribution businesses incorporated into a separate company called
Kotak Securities. Investment Banking division incorporated into a separate company called
Kotak Mahindra Capital Company.

1996 - The Auto Finance Business is hived off into a separate company - Kotak Mahindra
Prime Limited (formerly known as Kotak Mahindra Primus Limited). Kotak Mahindra takes a
significant stake in Ford Credit Kotak Mahindra Limited, for financing Ford vehicles. The
launch of Matrix Information Services Limited marks the Group's entry into information
distribution.

1998 - Enters the mutual fund market with the launch of Kotak Mahindra Asset Management
Company.

2000 - Kotak Mahindra ties up with Old Mutual plc. For the Life Insurance business.
Kotak Securities launches its on-line broking site (now www.kotaksecurities.com).
2001 - Matrix sold to Friday Corporation, Launches Insurance Services
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2003 - Kotak Mahindra Finance Ltd. converts to a commercial bank - the first Indian company
to do so.

2004 - Launches India Growth Fund, a private equity fund.

2005 - Kotak Group realigns joint venture in Ford Credit; Buys Kotak Mahindra Prime
(formerly known as Kotak Mahindra Primus Limited) and sells Ford credit Kotak Marinara,
Launches a real estate fund.

2006 - Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital Company and
Kotak Securities

1.2.2 Kotak Securities Ltd.

Kotak Securities Ltd. is India's leading stock broking house with a market share of 8.5%
as on 30th September, 2007. Kotak Securities Ltd. has been the largest in IPO distribution.

The accolades that Kotak Securities has been graced with include:

 'Best Brokerage Firm in India' by Asiamoney in 2007

 ‘The Leading Equity House in India’ in Thomson Extel Surveys Awards for the year
2007
 Euromoney Award (2006 & 2007) - Best Provider of Portfolio Management : Equities
 Avaya Customer Responsiveness Awards (2006) in Financial Institution Sector
 Asiamoney Award (2006)- Best Broker In India
 Euromoney Award (2005)-Best Equities House In India
 Finance Asia Award (2005)-Best Broker In India
 Finance Asia Award (2004)- India's best Equity House
 Prime Ranking Award (2003-04)- Largest Distributor of IPO's
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The company has a full-fledged research division involved in Macro Economic studies,
Sectoral research and Company Specific Equity Research combined with a strong and well
networked sales force which helps deliver current and up to date market information. It is also a
depository participant with National Securities Depository Limited (NSDL) and Central
Depository Services Limited (CDSL), providing dual benefit services wherein the investors can
use the brokerage services of the company for executing the transactions and the depository
services for settling them.

Kotak Securities has 862 outlets servicing over 3,60,000 customers and a coverage of
310 cities. Kotaksecurities.com, the online division of Kotak Securities Limited offers Internet
Broking services and also online IPO and Mutual Fund Investments.

Kotak Securities Limited has over Rs. 3490 crore of Assets Under Management (AUM)
as of 30th September, 2007. The portfolio Management Services provide top class service
catering to the high end of the market. Portfolio Management from Kotak Securities comes as
an answer to those who would like to grow exponentially on the crest of the stock market, with
the backing of an expert.

Account

It has a full-fledged research division involved in Macro Economic studies, Sectoral

research and Company Specific Equity Research combined with a strong and well networked
sales force which helps deliver current and up to date market information and news.
 16

It has also a depository participant with National Securities Depository Limited (NSDL)
and Central Depository Services Limited (CDSL), providing dual benefit services wherein the
investors can avail our brokerage services for executing the transactions and the depository
services for settling them. We process more than 600000 trades a day which is much higher
even than some of the renowned international brokers. It network spans over 310 cities with
867 outlets.

Kotak Securities Limited has over Rs. 4000 crore of Assets Under Management (AUM)
as of 31st December, 2007. The portfolio Management Service provides top class service,
catering to the high end of the market. Portfolio Management from Kotak Securities comes as
an answer to those who would like to grow exponentially on the crest of the stock market, with
the backing of an expert.

Advantage of kotak securities

The following are the advantages of kotak securities

Stability: It is 100% subsidiary of Kotak Mahindra Bank and one of the oldest and largest
broking firms in the Industry. It has been the first and only NBFC to receive the license to be
converted into a bank.

 Innovators in the Industry: It has been the first in providing many products and
services which have now become industry standards

 First to provide Margin Financing to the customers

 First to enable investing in IPOs and Mutual Funds on the phone
 Providing SMS alerts before execution of depository transactions
 Launching of Mobile application to track portfolio
 AutoInvest of a systematic investing plan in Equities and Mutual fund
 Provision of margin against securities automatically against shares in your Demat
account.
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Reliability: It accolades a testimony to our services and high standards. It has been awarded as

 Best Performing Equity Broker in India – CNBC Financial Advisor Awards 2008
 Avaya Customer Responsiveness Awards (2007) in Financial Services Sector
 Best Brokerage Firm in India" by Asiamoney in 2007
 The Leading Equity House in India' in Thomson Extel Surveys Awards for the year
2007
 Euromoney Award (2006 & 2007) - Best Provider of Portfolio Management Equities

Value: Whether you are a customer with a small or large wallet size, you can expect us to bring
value to you in every form.

 Quality Research
 Quick trade execution
 Low brokerages
 Accounts that suit your investment profile
 Risk Profiler
 Superior Customer Service

Service: We believe in high standards of service and that's precisely what we offer. It's an
honour to be awarded the most customer responsive company award in the Financial Institution
sector by AVAYA GlobalConnect Award both in 2006 and 2007.

Robust Technology: It has developed our own proprietary trading platform which is robust
and among the best in the industry. It has more than 150 technology professionals constantly
working on upgrading and speeding up all our systems.
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Centralised Risk Management System: Unlike many other players it has centralised risk
management system. This allows us to offer the same levels of service to customers across all
locations.

Exceptional Research: Unlike most other competitors it has its our own in house research
team. Their house research team is among the best in the industry and they have years of
experience in the financial markets. They scan through the plethora of stocks and find the scrips
that have a high potential of providing you good returns. Its investors get research Technical,
Fundamental, Derivatives, Macro-economic and mutual fund research.

Large Presence: It is present in 309 cities with 867 offices all over the country. Its employee
strength extends beyond 5000.

Products

Easy Equity: Want your capital to appreciate fast? Invest in Easy Equity.

Easy Derivatives: The higher your risk, the greater the returns on your investments.

Easy IPO: Invest early for greater returns.

Easy Mutual Fund: Looking to diversify your risk? Invest in Easy Mutual Fund.

Easy Insurance: Secure your future and your family's. There's more to insurance than just
security.

Kotak Portfolio Management: The Portfolio Management Service combines competent fund
management, dedicated research and technology to ensure a rewarding experience for its client.
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1.3 INTRODUCTION ABOUT PROJECT

Technical analysis is the study of market action, primarily through the use of charts, for
the purpose of forecasting future price trends. In its purest form, technical analysis considers
only the actual price behavior of the market or instrument, based on the premise that price
reflects all relevant factors before an investor becomes aware of them through other channels.

Technical analysis is widely used among traders and financial professionals, and some
studies say its use is more widespread than is "fundamental" analysis in the foreign exchange
market. Academics such as Eugene Fama say the evidence for technical analysis is sparse and
is refuted by the efficient market hypothesis, yet some Federal Reserve and academic studies
include evidence that supports technical analysis. MIT finance professor Andrew Lo argues
that "several academic studies suggest that technical analysis may well be an effective means
for extracting useful information from market prices. Burton Malkiel argues, "Technical
analysis is an anathema to the academic world." He further argues that under the weak form of
the efficient market hypothesis, "...you cannot predict future stock prices from past stock prices.

1.3.1 General Description

Technical analysts (or technicians) identify non-random price patterns and trends in
financial markets and attempt to exploit those patterns, while technicians use various methods
and tools, the study of price charts is primary. Technicians especially search for archetypal
patterns, such as the well-known head and shoulders reversal pattern, and also study such
indicators as price, volume, and moving averages of the price. Many technical analysts also
follow indicators of investor psychology (market sentiment).
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Technicians seek to forecast price movements such that large gains from successful
trades exceed more numerous but smaller losing trades, producing positive returns in the long
run through proper risk control and money management.

There are several schools of technical analysis. Adherents of different schools (for
example, candlestick charting, Dow Theory, and Elliott wave theory) may ignore the other
approaches, yet many traders combine elements from more than one school. Technical analysts
use judgment gained from experience to decide which pattern a particular instrument reflects at
a given time, and what the interpretation of that pattern should be. Technical analysts may
disagree among themselves over the interpretation of a given chart.

Technical analysis is frequently contrasted with fundamental analysis, the study of

economic factors that some analysts say can influence prices in financial markets. Pure
technical analysis holds that prices already reflect all such influences before investors are aware
of them, hence the study of price action alone. Some traders use technical or fundamental
analysis exclusively, while others use both types to make trading decisions.

1.3.2 Principles of technical analysis

Technicians say that a market's price reflects all relevant information, so their analysis
looks more at "internals" than at "externals" such as news events. Price action also tends to
repeat itself because investors collectively tend toward patterned behavior, hence technicians'
focus on identifiable trends and conditions.
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1.3.4 Prices move in trends

Technical analysts believe that prices trend. Technicians say that markets trend up,
down, or sideways (flat). This basic definition of price trends is the one put forward by Dow
Theory.

An example of a security that had an apparent trend is AOL from November 2001
through August 2002. A technical analyst or trend follower recognizing this trend would look
for opportunities to sell this security. AOL consistently moves downward in price. Each time
the stock rose, sellers would enter the market and sell the stock; hence the "zig-zag" movement
in the price. The series of "lower highs" and "lower lows" is a tell tale sign of a stock in a down
trend. In other words, each time the stock edged lower, it fell below its previous relative low
price. Each time the stock moved higher, it could not reach the level of its previous relative
high price.

Note that the sequence of lower lows and lower highs did not begin until August. Then
AOL makes a low price that doesn't pierce the relative low set earlier in the month. Later in the
same month, the stock makes a relative high equal to the most recent relative high. In this a
technician sees strong indications that the down trend is at least pausing and possibly ending,
and would likely stop actively selling the stock at that point.
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1.4 REVIEW OF LITERATURE

1.4.1 Dow Theory

The ideas of Charles Dow, the first editor of the Wall Street Journal, form the basis of
technical analysis. Dow created the Industrial Average, of top blue chip stocks, and a second
average of top railroad stocks (now the Transport Average). He believed that the behavior of
the averages reflected the hopes and fears of the entire market. The behavior patterns that he
observed apply to markets throughout the world. He explains the behavior by three types of
movements which are bull trend, bear trend and the ranging markets.

Bull markets

 Bull markets commence with reviving confidence as business conditions improve.

 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 results.

Bear markets

 Bear markets start with abandonment of the hopes and expectations that sustained
inflated prices.
 Prices decline in response to disappointing earnings.
 Distress selling follows as speculators attempt to close out their positions and securities
are sold without regard to their true value.

Ranging Markets

 A secondary reaction may take the form of a ‘line’ which may endure for several weeks.
 Price fluctuates within a narrow range of about five per cent.
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Large Corrections

A large correction occurs when price falls below the previous low (during a bull trend)
or where price rises above the previous high (in a bear trend).

1.4.2 Trend Analysis Method

A trend reflects the average rate of change in a stock's price over time. Trends exist in
all time frames and all markets. Day traders can establish the trend of their stocks to within
minutes. Long term investors watch trends that persist for many years. The trend can be
classified as upward trend which stock rallies often with intermediate periods of consolidation,
then downward trend which stock declines often with intermediate periods of consolidation and
the rangebound where price swings back and forth for long periods between easily seen upper
and lower limits.

1.4.3 Support Level

Support defines that level where buyers are strong enough to keep price from falling
further. A support level is a price level where the price tends to find support as it is going
down. This means the price is more likely to "bounce" off this level rather than break through
it. However, once the price has passed this level, even by a small amount, it is likely to
continue dropping until it finds another support level.

EMA = (Today’s closing price * exponent) + (Previous day EMA*(1-exponent))

N-1
Exponent =
No of days
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1.4.4 Accumulation Distribution index for Nifty

This is a cumulative total volume technical analysis indicator created by Marc Chaikin,
which adds or subtracts each day's volume in proportion to where the close is between the day's
high and low. The accumulation distribution index is calculated by

Close Location Value(CLV) = ((Close – Low)-(High – Close)/(High- Low))

Accdist = Accdist(previous)+ CLV*Volume

The starting point for the acc/dist total, i.e the zero point, is arbitrary, only the shape of
the resulting indicator is used, not the actual level of the total. The name
accumulation/distribution comes from the idea that during accumulation buyers are in control
and the price will be bid up through the day, or will make a recovery if sold down, in either
case more often finishing near the day's high than the low. The opposite applies during
distribution.

1.4.5 Williams %R

Williams %R is so named as it was first used by Larry Williams, a renowned trader who
is famed for turning $10,000 into $1,147,607.10 in 12 months, thus making a hugely
impressive profit of 11,376% and winning a prominent trading championship in 1987. In
technical analysis terms, Williams %R is an oscillator. It measures overbought and oversold
levels by plotting how the current price of a share, stock or security compares with its most
extreme high and low prices over a set period of time. A zero value for the W%R means that
the stock is at its very highest level that it has attained over the period in question, whereas a
-100 level indicates that the stock is at its very lowest level to which it has fallen during the
period.

W%R = (Highest price during the period - Today's closing price) ÷ (Highest price
during the period- Lowest price during the period) x -100.
 25

1.4.6 Moving average envelopes for investors and traders

These are a pair of lines also known as trading bands, and may sometimes also be
referred to as price envelopes, moving average bands or percentage envelopes. As the
combination of different names suggest, moving average envelopes aim to identify a band
within which a stock is trading. They are based upon a chosen moving average, and run in
exactly the same pattern but one of the envelope lines runs slightly above the moving average
and the other envelope line runs slightly below the moving average, thus creating the "trading
band" in between the two envelope lines.

The percentage figure used may depend on the volatility of the stock, but often is a
value of around 5% is used, with figures of 2% to 6% also being reasonably common.
Top band = Moving Average + (Moving Average x 5 ÷ 100)
Bottom band = Moving Average - (Moving Average x 5 ÷ 100)

1.4.7 Money Flow Index

MFI in stock and share technical analysis stands for Money Flow Index. It considers the
volume of shares traded, in order to gain a picture of the flow of money into, or out of, a stock
or share. The MFI is an oscillator which ranges from 0 to 100. To start, the "typical price" for a
share or stock for each day is calculated by adding the day's high to the day's low, then adding
the day's closing price and dividing the result by 3. Once the typical price has been established,
this is multiplied by the day's volume (the total number of shares traded during that day),
resulting in a figure which is called the money flow.

By comparing yesterday's typical price to today's typical price you can establish whether
today's Money Flow is positive or negative. A typical price for today which is higher than
yesterday's typical price will mean that today's Money Flow is positive.
 26

Conversely, if today's typical price is lower than yesterday's then today's Money Flow is
negative. The Money Ratio is then calculated by dividing the positive money flow by the
negative money flow.

The Money Flow Index is calculated by the formula

Money Flow Index = 100 - (100÷(1+Money Ratio ))

1.4.8 Relative Strength Index

When applied to stocks, shares and securities, RSI stands for Relative Strength Index. It
was originally developed by J. Welles Wilder, Jr, who first introduced the concept of RSI to the
world in his 1978 book, New Concepts in Technical Trading Systems .It 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. It oscillates 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.

By adding together all the positive price changes we get up total and by dividing the "up
total" by the number of days in our period then we get average "up" price change. Now, a
similar calculation needs to be done with all the negative changes which occurred during the
period. We need to ignore the negative sign when doing this calculation, we get average down
price. Once we've got the average "up" price change and the average "down" price change, we
can calculate the RS, which is the Relative Strength. The RS is the average "up" price change
divided by the average "down" price change.
 27

The Relative Strength Index is calculate by the formula

RSI = 100 - (100÷(1+RS))

1.4.9 Moving Average Convergence/Divergence method

MACD stands for Moving Average Convergence/Divergence. It was originally

developed by Gerald Appel in the 1960's. As the name suggests, it is based upon the principal
of the moving average. The MACD is calculated by simply the taking difference between two
exponential moving averages of different periods. Most stock and share analysts seem to prefer
to compare a 26 day exponential moving average (EMA) with a 12 day EMA. Once the MACD
has been calculated, a 9 day Exponential moving average of the MACD value is then
calculated. This value is then plotted and is known as the signal line.

When the MACD crosses over from below the signal and rises above the signal, this is a
sign to buy. Conversely, when the MACD crosses over from above and drops below the signal,
this is a sign to sell. If the MACD crosses the zero point and moves from below zero to above
zero, this is a buy signal. Again, the converse applies - crossing from above zero to below is a
sign to sell.

1.4.10 Bollinger Bands

Bollinger Bands are a technical trading tool created by John Bollinger in the early
1980s. The purpose of Bollinger Bands is to provide a relative definition of high and low.
Bollinger Bands consists of a set of three curves drawn in relation to securities prices. The
middle band is a measure of the intermediate-term trend, usually a simple moving average that
serves as the base for the upper and lower bands. The interval between the upper and lower
bands and the middle band is determined by volatility, typically the standard deviation of the
same data that are used for the average.
 28

Standard Deviation is =

1.4.11 Price Volume Trend Method

(PVT) is a technical analysis indicator intended to relate price and volume in the stock
market. PVT is based on a running total volume, with volume added according to the
percentage change in closing price over the previous close. The starting point for the PVT total,
i.e. the zero point, is arbitrary. Only the shape of the resulting indicator is used, not the actual
level of the total. The PVT is calculated by the formula

PVT = PVT previous + Volume * Close today - Close previous

Close previous

1.4.12 Stochastics Method

Stochastics indicators measure the current position of a stock, share or other security in
relation to the highest high point and lowest low point over a set period of time. This
measurement is expressed as a percentage, with 100% being where a stock is at the very
highest point that it has reached during the period in question, 0 being the very lowest and 50
being exactly half-way. The raw %K stochastic is calculated as follows

Fast %K = (Today's closing price - lowest low during the last [period] days) ÷ (highest
high during the last [period] days - lowest low during the last [period] days)
 29

The Fast %D stochastic is arrived at by calculating a short-term moving average of the

%K value. One of the most popular periods for the moving average is to use a 3 day moving
average of the %K figure to obtain the %D value. Then %K and %D value which is very
sensitive to price changes and can oscillate quite considerably. This can potentially give a large
number of false signals when it comes to interpretation, so, in order to smooth out the
oscillating movements, a slow stochastic can be calculated.
 30

CHAPTER 2

OBJECTIVES, NEED, SCOPE AND LIMITATIONS OF THE STUDY

2.1 PRIMARY OBJECTIVE

 To determine the true position of National Stock Exchange through analysis of Nifty
and Reliance Industries.
 To determine the trend of the National Stock Exchange through technical analysis for
forming investment strategy.

2.2 SECONDARY OBJECTIVE

 To determine the support level of Nifty and selected share for investors to make their
entry and exit decisions.

 To determine the Range bound of nifty and selected share for traders and medium and
long term investors for making buy and sell signal.

 To determine the relative strength of Nifty and selected share to minimize the risk
associated with the investments.

 To determine the selling and buying pressure to find out the overbought and oversold
situation.
 31

2.3 NEED OF THE STUDY

Apart from the company’s performance, Profitability, etc, the market analysts
confirmed that the behavior of the share market is more influenced by internal factors in the
market than the external factors i.e. the public and other information’s coming in to the market.
The internal factors reflects the price changes, so the study of technical analysis is required to
determine how long it would affect and to find out the share price levels in which the investors
can make an investment strategy.

2.4 SCOPE OF STUDY

 It will work well when the market is rising above a previous high and falling below a
previous low.

 It applies to all time frames including intraday, daily, weekly, and monthly charts.

 It helps the traders and investors to anticipate the future position of market.

 It provide the support and resistance level for investments.

2.5 LIMITATIONS

 It can only anticipate the future position but not to make predictions because we never
know the outcome of a particular pattern or series of events with 100 per cent certainty.

 Validity and Reliability of the data is helpful till the reversal of the trend.

 It will not reflect the company’s performance, growth and earnings.

 The size of the sample comparing to the population is small and hence may not fully
apply to the whole population.
 32

CHAPTER 3

RESEARCH METHODOLOGY

3.1 RESEARCH DESIGN

A Research design is simply the framework or plan for a study that guides the collection
and analysis of the data. It provides scientific framework for conducting some research
investigation. In this study descriptive research is followed where it typically concerned with
determining frequency with which something occurs.

3.2 DESCRIPTIVE RESEARCH

A descriptive study attempts to describe or define a subject, often by creating a

profile of a group of problems, people, or events. Such studies may involve the collection of
data and the creation of a distribution of the number of times the researcher observes a single
event or characteristic (known as research variable), or they may involve relating the
interaction of two or more variables.

In this study the analysis of share price fluctuations in the equity market with certain
factors is found out. Descriptive research is used to obtain information concerning the current
status of the phenomena to describe "what exists" with respect to variables or conditions in a
situation. The methods involved range from the survey which describes the status quo, the
correlation study which investigates the relationship between variables, to developmental
studies which seek to determine changes over time.
 33

3.3 DATA COLLECTION

Information sources are generally categorized into three levels: (1) primary sources, (2)
secondary sources.

3.3.1 PRIMARY DATA COLLECTION

There is no primary source of collection of data in this research work. Data collection
has been done through secondary source and tertiary source.

3.3.2 SECONDARY DATA COLLECTION

The Secondary data for conducting this research study has been collected from various
websites which involves nseindia.com, wekipedia.com, investopedia.com, and pandacash.com
websites. It is also collected from magazines, reports and publications of various associations
connected with business, historical documents and other sources of published information, and
through literature review.
 34

3.4 SAMPLING PLAN

Before undertaking the analysis the sampling unit, sample size and sampling procedure
are to be determined.

A. Population: All the companies in the equity market listed in National Stock Exchange.
B. Sampling Method: In this study, purposive sampling method is used, a type of non
probability sampling, where the researcher purposively chooses the particular units of
the universe for constituting a sample on the basis that the small mass that they so select
out of a huge one, will be typical or representative of the whole.
C. Sample Media: Sample media for the present research is based on the market
capitalization of shares.
D. Sample Unit: Each and every company in the equity market listed in National Stock
Exchange has been treated as the sample unit by the researcher.
E. Sample Size: One Index and one company share is selected to represent the whole
national stock exchange.

3.5 STATISTICAL TOOLS

The various tools used for the study are

1. Simple Moving Average Method.

2. Exponential Moving Average Method.
3. Standard Deviation Method.
 35

CHAPTER 4

ANALYSIS AND INTERPRETATION

4.1 Dow Theory for Nifty

It says that the behavior of the industrial average reflected the hopes and fears of the
entire market. It consists of three movements which are bull trend that has series of rally, then
bear trend which has continuous downside and ranging markets.

TABLE 4.1.1

Date Nifty Position % Change

Jan-07 4083 2.93

Feb-07 3745 -5.57
Mar-07 3822 -3.65
Apr-07 4088 3.06
May-07 4296 8.30
Jun-07 4318 8.87
Jul-07 4529 14.18
Aug-07 4464 12.55
Sep-07 5021 26.60
Oct-07 5901 48.77
Nov-07 5763 45.29
Dec-07 6139 54.77
Jan-08 5137 29.52
Feb-08 5224 31.69
Mar-08 4735 19.37

FIGURE 4.1.1
 36

DOW Chart
6500
6000
Nifty Position
5500
5000
4500
4000
3500
3000

Jul-07
Jan-07

May-07

Nov-07

Jan-08
Mar-07

Mar-08
Sep-07
Month Nifty Position

Interpretation

The Index Nifty had been soaring with a long term bull trend with intermediate
corrections from January 2007 to December 2007 but from January 2008 onwards the market
has been facing larger corrections with an intermediate bear trend. So the investors should wait
till the end of the bear market to make their investments. The end of the bear trend is identified
by a bounce back with a series of rallies without major corrections in the downside.

This market analysis theory involves determination of overall trend but it doesn’t
consider the daily fluctuations for investment strategies. So the investors should consider this
theory only to find out the trend but not to make the investments.

4.2 Trend Analysis Method of Nifty

 37

The Market Movements has been classified in to three types of movements. They are
uptrend, a stock rallies often with intermediate periods of consolidation then a downtrend,
where stock declines often with intermediate periods of consolidation or movement against the
trend and a Rangebound where price swings back and forth for long periods between easily
seen upper and lower limits.

TABLE 4.1.2

Date Nifty Position 100 Days EMA 200 Day's EMA

Jan-07 4083 3731 3550

Feb-07 3745 3791 3642
Mar-07 3822 3780 3659
Apr-07 4088 3812 3713
May-07 4296 3884 3804
Jun-07 4318 3948 3884
Jul-07 4440 4054 4002
Aug-07 4464 4102 4061
Sep-07 5021 4206 4172
Oct-07 5901 4456 4429
Nov-07 5763 4712 4690
Dec-07 6139 4930 4912
Jan-08 5137 5095 5080
Feb-08 5224 5115 5103
Mar-08 4735 5057 5048

FIGURE 4.1.2
 38

Trend Analysis Chart

6300
5800
Nifty Position 5300

4800
4300
3800
3300

Jul-07
Jan-07

May-07

Jan-08
Nov-07
Sep-07

Mar-08
Mar-07

Nifty Position 200Month

Day's EMA 100 Day"s EMA

Interpretation

The Index Nifty has strong up trend from January 2007 to December 2007. but due to
poor world economic condition the nifty has been facing the downward trend from January
2008. This method is also to find the trend, not to make the investment. Due to impossibility of
finding the Rangebound, the investors should look at the moving average line while making
their investments.

The 200 days EMA line and 100 days EMA line also has long term uptrend without any
corrections like share price line. Due to the overselling of shares from the third week of the last
January to till now the corrections have been taking place. So the investors should wait till the
market to become stable to make their investments.

4.3 Support Level for Nifty

 39

Support level defines that level where buyers are strong enough to keep price from
falling further. In an uptrend, support is where a pullback from a rally should end. The two
support lines were drawn with 200 days and 100 days moving average. The exponential
moving average lines were drawn for the period of 15 months from January 2007 to March
2008.

TABLE 4.1.3

Date Nifty Position 100 Days EMA 200 Day's EMA

Jan-07 4083 3731 3550

Feb-07 3745 3791 3642
Mar-07 3822 3780 3659
Apr-07 4088 3812 3713
May-07 4296 3884 3804
Jun-07 4318 3948 3884
Jul-07 4440 4054 4002
Aug-07 4464 4102 4061
Sep-07 5021 4206 4172
Oct-07 5901 4456 4429
Nov-07 5763 4712 4690
Dec-07 6139 4930 4912
Jan-08 5137 5095 5080
Feb-08 5224 5115 5103
Mar-08 4735 5057 5048

FIGURE 4.1.3
 40

Support Chart
6300
5800
Nifty Position 5300
4800
4300
3800
3300

Jul-07
Jan-07

May-07

Nov-07

Jan-08
Sep-07

Mar-08
Mar-07

Nifty Position 200Month

Day's EMA 100 Day"s EMA

Interpretation

The 200 Day’s exponential moving average line is a support line for investors during
high level of volatility. The large corrections occur due to the poor economic condition and
during the poor earning season. The 200 day’s exponential moving average line had been a
support during the March 2007 and during the January 2008 corrections.

The investors have the buying opportunity when the nifty bounces back from support
level. The shareholders should sell their positions when it breaches the support level. The
breaching of support level was happened during this January and March corrections. So there is
a buying opportunity when the current nifty position line moves along with moving average
lines.

Accumulation Distribution index for Nifty

 41

This is a cumulative total volume, which adds or subtracts each day's volume in
proportion to where the close is between the day's high and low. The starting point for the
acc/dist total, i.e. the zero point, is arbitrary, only the shape of the resulting indicator is used,
not the actual level of the total.

TABLE 4.1.4

Accumulation/
Date CLV Volume CLV*Volume
Distribution
3-Mar-08 -0.88 630905 -556318 -556318
4-Mar-08 -0.37 714054 -266653 -822971
5-Mar-08 0.66 570751 374974 -447997
7-Mar-08 -0.19 711140 -136852 -584850
10-Mar-08 0.85 783669 666391 81541
11-Mar-08 0.71 620576 440364 521905
12-Mar-08 -0.79 745379 -589006 -67101
13-Mar-08 -0.70 806205 -563492 -630593
14-Mar-08 0.83 718913 594029 -36563
17-Mar-08 -0.84 780780 -656258 -692822
18-Mar-08 -0.14 917700 -125923 -818745
19-Mar-08 -0.57 849001 -480410 -1299155
24-Mar-08 0.28 784075 217739 -1081416
25-Mar-08 0.86 1197432 1032357 -49058
26-Mar-08 -0.61 911465 -556200 -605259
27-Mar-08 0.29 952328 274622 -330636
28-Mar-08 0.67 935389 626542 295905
31-Mar-08 -0.75 957775 -716312 -420407

FIGURE 4.1.4
 42

Accumulation/Distribution Chart
1000000

500000
Accu/Distri Value

0
08 08 /0
8
/0
8
/0
8
/0
8
/0
8
/0
8
-500000
/3/ 7/ 11 15 19 23 27 31
3 3/ 3/ 3/ 3/ 3/ 3/ 3/
-1000000

-1500000
Date

Accumulation/Distribution

Interpretation

During accumulation buyers are in control and the price will be bid up through the day,
or will make a recovery if sold down, in either case more often finishing near the day's high
than the low. The opposite applies during distribution.

The accumulation/distribution chart is drawn for the March 2008. The chart shows the
nifty will raise during the days in which the CLV value is near +1 and nifty will decline during
the days in which the CLV is near -1.The nifty position was shoot up between 11 th and 13th of
March 2008.

4.5 Williams %R Method for Nifty

 43

It measures overbought and oversold levels of current price of a share, stock or security
compares with its most extreme high and low prices over a set period of time. A zero value for
the W%R means that the stock is at its very highest levels and 100 level indicates that the stock
is at its very lowest level to which it has fallen during the period.

TABLE 4.1.5

Highest Lowest
Date Close Price W%R
Price Price
3-Mar-08 4953 5484 4804 78
4-Mar-08 4864 5484 4804 91
5-Mar-08 4921 5484 4804 83
7-Mar-08 4772 5484 4804 105
10-Mar-08 4800 5484 4672 84
11-Mar-08 4866 5484 4621 72
12-Mar-08 4872 5484 4621 71
13-Mar-08 4624 5323 4855 149
14-Mar-08 4746 5303 4580 77
17-Mar-08 4503 5303 4608 115
18-Mar-08 4533 5303 4482 94
19-Mar-08 4574 5303 4469 87
24-Mar-08 4610 5303 4469 83
25-Mar-08 4878 5303 4469 51
26-Mar-08 4829 5303 4469 57
27-Mar-08 4830 5285 4469 56
28-Mar-08 4942 5285 4469 42
31-Mar-08 4735 5285 4469 67

FIGURE 4.1.5
 44

Williams Chart
160
140
120
100
W%R 80
60
40
20
0
08 0 8
/0
8 0 8
/0
8
3/ 0/ 7 4/ 1
3/ 3/
1
3/
1
3/
2
3/
3
Date W%R

Interpretation

It uses 20% or below as a selling point, 80% or above as a buying point, refining this
slightly by waiting until the stock or security's W%R rises back up above a certain level before
buying (or conversely waiting until it drops below a certain level before selling). Some may
choose to use a re-crossing of the 80 mark as a bounceback level when deciding to buy whereas
other stock market analysts may choose the 50 mark. Again, converse values of 20 or 50 may
be used when making selling decisions.

During the beginning of March 2008 the buy signal is given, because the line passes
80% and this signal is valid till the line breaches 50%. The 50% is breached during the end of
March. So the hold signal is given and it should be sold when it reaches 20%.

4.6 Moving Average Envelope Method of Nifty for Investors

 45

Moving average envelopes are a pair of lines also known as trading bands. The moving
average has been calculated, the top envelope point for a particular day is calculated by adding
a certain percentage to the moving average figure for that day and the bottom band by deducing
the same percentage to the moving average.

TABLE 4.1.6

Share Price Top Band Bottom Band

Date
3-Mar-08 4953 5349 4744
4-Mar-08 4864 5347 4742
5-Mar-08 4921 5346 4741
7-Mar-08 4772 5343 4738
10-Mar-08 4800 5341 4736
11-Mar-08 4866 5339 4734
12-Mar-08 4872 5337 4733
13-Mar-08 4624 5333 4729
14-Mar-08 4746 5330 4726
17-Mar-08 4503 5324 4721
18-Mar-08 4533 5319 4717
19-Mar-08 4574 5314 4713
24-Mar-08 4610 5310 4709
25-Mar-08 4878 5309 4708
26-Mar-08 4829 5307 4706
27-Mar-08 4830 5305 4704
28-Mar-08 4942 5304 4704
31-Mar-08 4735 5301 4701

FIGURE 4.1.6
 46

Moving Average Envelope Chart For Investors

5400

5200
Nifty Position
5000

4800

4600

4400
08 08 /0
8
/0
8
/0
8
/0
8
/0
8
/0
8
3/ 7/ 11 15 19 23 27 31
3/ 3/ 3/ 3/ 3/ 3/ 3/ 3/

Nifty Position Top Band

Date Bottom Band

Interpretation

The moving average envelopes can be helpful in identifying overbought or oversold

conditions, where stock or share prices hit the top or bottom of their trading range. The 5%
volatility is added and deduced to the moving average for forming top band and bottom.

The above chart shows that selling pressure had been seen from the beginning of the
month till the 20th of March. So till March 20th the nifty index was oversold and after that the
nifty bounces back and passes above the bottom band of moving envelope. The investment
from bounces back from the bottom band is a best investment strategy.

4.7 Moving Average Envelope Method of Nifty for Traders

 47

The 50 day’s moving average has been calculated for traders, the top envelope point
for a particular day is calculated by adding a 2.5% to the moving average figure for that day
and the bottom envelope by deducing 2.5% to moving average.

TABLE 4.1.7

Nifty
Date Top Band1 Top Band2 Bottom Band1 Bottom Band2
Position
3-Mar-08 4953 5698 5856 5476 5406
4-Mar-08 4864 5691 5848 5469 5398
5-Mar-08 4921 5685 5841 5463 5392
7-Mar-08 4772 5677 5832 5455 5384
10-Mar-08 4800 5669 5824 5448 5376
11-Mar-08 4866 5663 5816 5442 5369
12-Mar-08 4872 5656 5809 5435 5362
13-Mar-08 4624 5647 5799 5426 5353
14-Mar-08 4746 5639 5790 5419 5345
17-Mar-08 4503 5629 5779 5409 5334
18-Mar-08 4533 5619 5768 5400 5325
19-Mar-08 4574 5609 5758 5391 5315
24-Mar-08 4610 5601 5749 5382 5306
25-Mar-08 4878 5595 5742 5376 5300
26-Mar-08 4829 5588 5735 5370 5293
27-Mar-08 4830 5582 5728 5364 5287
28-Mar-08 4942 5577 5722 5359 5282
31-Mar-08 4735 5569 5714 5352 5274

FIGURE 4.1.7
 48

Moving Average Envelope Chart For Traders

6000
5800
Nifty Position 5600
5400
5200
5000
4800
4600
4400
08 08 0 8 0 8 0 8 0 8 0 8 0 8
3/ 7/ 1/ 5/ 9/ 3/ 7/ 1/
3/ 3/ 3/
1
3/
1
3/
1
3/
2
3/
2
3/
3

NIfty Position Top Band1

Date Top Band2
Bottom Band1 Bottom Band2

Interpretation

The two top bands and two bottom bands are drawn with 100 day’s exponential moving
average and 50 day’s exponential moving average. The top band 1 and bottom band 1 are
drawn with 50 day’s moving average and top band 2 and bottom band 2 are drawn with 100
day’s moving average.

The share price is well below the bottom band 2, and it is continuously falling from the
bottom bands, so the best investment strategy is to wait till the share price bounces back to the
to bottom band 2.

4.8 Money Flow Index Method for Nifty

 49

The Money Flow Index looks at each day's Money Flow by incorporating into the
calculations the volume of shares traded. The typical price for a share or stock for each day is
calculated and compared with yesterday's typical price to find whether today's Money Flow is
positive or negative, resulting in a figure which is called the Money Flow for the day.

TABLE 4.1.8

Typical
Date Volume Money Flow Sign
Value
3-Mar-08 5037 630905 3178047241 Negative
4-Mar-08 4885 714054 3487891970 Negative
5-Mar-08 4902 570751 2797707252 Positive
7-Mar-08 4787 711140 3404499784 Negative
10-Mar-08 4745 783669 3718731445 Negative
11-Mar-08 4829 620576 2996813219 Positive
12-Mar-08 4915 745379 3663773822 Positive
13-Mar-08 4691 806205 3781786724 Negative
14-Mar-08 4704 718913 3381838643 Positive
17-Mar-08 4577 780780 3573538969 Negative
18-Mar-08 4540 917700 4166205050 Negative
19-Mar-08 4609 849001 3912833359 Positive
24-Mar-08 4600 784075 3606509778 Negative
25-Mar-08 4797 1197432 5744121218 Positive
26-Mar-08 4850 911465 4420544486 Positive
27-Mar-08 4821 952328 4591363754 Negative
28-Mar-08 4903 935389 4586259036 Positive
31-Mar-08 4795 957775 4592642865 Negative

Calculation

Positive Money flow = 31503891035

Negative Money flow = 38101217580

Positive money flow

Money Ratio =
 50

Negative money flow

Money Ratio = 0.83

Money Flow Index = 100 - (100÷ (1+Money Ratio))

Money Flow Index = 45.26

Interpretation

The Money Flow Index reading of under 20 indicates that the stock or shares are
oversold, and represents a possible buying opportunity. Conversely, a MFI value of over 80 is
considered to be an overbought indicator, and is a sign to consider selling. In addition, when it
comes to MFI interpretation, divergences are considered to be of importance. If the stock price
is trending upwards but MFI is trending down (or vice-versa) a price reversal may be imminent.

The March 2008 money flow index is 45. So the investors should hold their positions if
they have already bought the shares. The other methods has shown that the market has made a
large corrections, so the investors should look at the April 2008 index and to make the buy
decision when the index rises from 20 level after a fall back to 20.

4.9 RSI Indicator for Nifty

It is a momentum oscillator which is the price changes of a single particular stock or

security, not compare that individual stock to others or to a sector or the market as a whole. 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.
 51

TABLE 4.1.9

Date High Price Change

3-Mar-08 5223 -0.7

4-Mar-08 4977 -246.1
5-Mar-08 4937 -39.95
7-Mar-08 4918 -18.45
10-Mar-08 4815 -103.35
11-Mar-08 4889 73.55
12-Mar-08 5019 130.7
13-Mar-08 4869 -150.4
14-Mar-08 4759 -109.85
17-Mar-08 4745 -13.5
18-Mar-08 4618 -127.5
19-Mar-08 4718 100.45
24-Mar-08 4649 -68.95
25-Mar-08 4897 247.35
26-Mar-08 4912 15.5
27-Mar-08 4864 -48.55
28-Mar-08 4971 107.05
31-Mar-08 4947 -23.8

Calculation

Positive Price Change = 674.6

Negative Price Change = -951.1
Average Up Price = 37.48
Average Down Price = 52.84

Average up price change

Relative Strength =
Average down price change
 52

Relative Strength = 0.71

Relative Strength Index (RSI) = 100 - (100÷ (1+RS))

Relative Strength Index = 41.50

Interpretation

RSI can be used to identify when a stock or share is overbought or oversold. With a
30 days 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.

The relative strength index for the month March 2008 is found out and it is 42. It also shows
the investor’s has to wait for some times till the RSI come below the 30 mark, eventhough the
market and nifty has seen an major corrections. The corrections has not come to an end, so the
investors should wait till the market and nifty have an stable position and RSI comes below the
30 mark.

4.10 Moving Average Convergence Divergence Method for Nifty

It is based upon the principle of the moving average method. The MACD value is
calculated by simply the taking difference between 25 days and 12 days exponential moving
averages and plotted with 9 day Exponential moving average as a signal line.

TABLE 4.1.10

9 Day's EMA
Date 25 Day's EMA 12 Day's EMA MACD Value for MACD
Value
 53

3-Mar-08 5322 5138 184 194

4-Mar-08 5318 5135 182 193
5-Mar-08 5314 5133 180 193
7-Mar-08 5308 5130 179 193
10-Mar-08 5303 5126 177 193
11-Mar-08 5299 5124 175 193
12-Mar-08 5294 5121 173 193
13-Mar-08 5288 5116 172 192
14-Mar-08 5282 5112 170 192
17-Mar-08 5275 5106 168 192
18-Mar-08 5267 5101 167 192
19-Mar-08 5260 5095 165 191
24-Mar-08 5254 5090 163 191
25-Mar-08 5250 5088 162 191
26-Mar-08 5246 5086 160 191
27-Mar-08 5242 5083 158 190
28-Mar-08 5239 5082 157 190
31-Mar-08 5234 5078 155 190

FIGURE 4.1.8

MACD Chart
200

190
MACD Value

180

170

160

150

140
3/3/08 3/7/08 3/11/08 3/15/08 3/19/08 3/23/08 3/27/08 3/31/08
MACD ValueDate 9 Day's EMA for MACD Value
 54

Interpretation

When the MACD crosses over from below the signal and rises above the signal, this is a
sign to buy. Conversely, when the MACD crosses over from above and drops below the signal,
this is a sign to sell. If the MACD crosses the zero point and moves from below zero to above
zero, this is a buy signal. Again, the converse applies - crossing from above zero to below is a
sign to sell

The MACD value is falling down continuously from the signal line. So the investors
should wait till the MACD line gets reversal. The MACD line is falling down because of bear
market and the selling pressure. The substantial selling is taking place because of overbought
from January 2007 to December 2007. So the traders and investors should wait till the nifty
will obtain the true position.

4.11 Bollinger Band Method of Nifty for Investors

Bollinger bands are plotted above and below the simple moving average of the same
period. Then having calculated the 200 day standard deviation, the value of the standard
deviation is added to the value of the moving average, and plotted as today's point for the top
band and bottom band is formed by deducing the standard deviation with moving average.

TABLE 4.1.11

Date Nifty Position Top Band Bottom Band

3-Mar-08 4953 5932 4172

4-Mar-08 4864 5935 4176
5-Mar-08 4921 5937 4180
7-Mar-08 4772 5941 4184
 55

10-Mar-08 4800 5943 4187

11-Mar-08 4866 5945 4190
12-Mar-08 4872 5948 4193
13-Mar-08 4624 5950 4197
14-Mar-08 4746 5952 4199
17-Mar-08 4503 5954 4201
18-Mar-08 4533 5955 4202
19-Mar-08 4574 5957 4203
24-Mar-08 4610 5959 4204
25-Mar-08 4878 5962 4206
26-Mar-08 4829 5965 4210
27-Mar-08 4830 5969 4213
28-Mar-08 4942 5972 4217
31-Mar-08 4735 5976 4221

FIGURE 4.1.9

Bollinger Band Chart

6000
5750
5500
Nifty Position

5250
5000
4750
4500
4250
4000
08 08 /0
8
/0
8
/0
8
/0
8
/0
8
/0
8
3/ 7/ 1 5 9 3 7 1
3/ 3/ 3/
1
3/
1
3/
1
3/
2
3/
2
3/
3
Nifty Position Date Top Band Bottom Band

Interpretation
 56

Standard deviations is be used to identify extreme stock and share values, thus acting as
an overbought or oversold indicator. Standard Deviations should be considered secondary
signals rather than primary identifiers of whether to make a purchase or sale. Standard
deviations should be thought of as a measure of how extreme and abnormal the current price of
a stock or share is in comparison to its recent history.

The 200 day’s simple moving average line is well below the top band that means the
nifty position is facing the selling pressure. But the nifty position line is continuously falling
down towards the bottom band. So the investors should wait till the middle band breaches the
bottom band to attain the true price to make their investments.

4.12 Bollinger Band Method of Nifty for Traders

Bollinger bands are plotted above and below the simple moving average of the same
period. The 100 days simple moving average is calculated and plotted. Then 100 day standard
deviation is added and deduced with moving average for forming top band and bottom band

TABLE 4.1.12

Nifty Top Top Bottom Bottom

Date
Position Band1 Band2 Band1 Band2
3-Mar-08 4953 6061 6459 5049 4839
4-Mar-08 4864 6052 6449 5025 4838
5-Mar-08 4921 6038 6442 4995 4834
7-Mar-08 4772 6020 6429 4967 4832
10-Mar-08 4800 6001 6416 4933 4827
11-Mar-08 4866 5983 6405 4901 4822
12-Mar-08 4872 5961 6400 4871 4818
13-Mar-08 4624 5939 6397 4842 4814
14-Mar-08 4746 5916 6395 4803 4805
17-Mar-08 4503 5892 6386 4769 4799
18-Mar-08 4533 5866 6379 4725 4787
19-Mar-08 4574 5839 6369 4683 4776
 57

24-Mar-08 4610 5810 6356 4643 4766

25-Mar-08 4878 5781 6338 4605 4758
26-Mar-08 4829 5756 6321 4579 4755
27-Mar-08 4830 5729 6303 4551 4752
28-Mar-08 4942 5701 6286 4524 4748
31-Mar-08 4735 5679 6268 4501 4746

FIGURE 4.1.10

Multiple Bollinger Chart

6500
6250
6000
Nifty Position

5750
5500
5250
5000
4750
4500
4250
08 08 0 8 0 8 0 8 0 8 0 8 0 8
3/ 7/ 1/ 5/ 9/ 3/ 7/ 1/
3/ 3/ 3/
1
3/
1
3/
1
3/
2
3/
2
3/
3

Nifty Position Date Top Band1

Top Band2 Bottom Band1
Bottom Band2

Interpretation

Here instead of the usage of just a single standard deviation, multiples of the standard
deviation are used as the top and bottom band lines. The 50 days moving average line is first
level of bands. So the swing traders can use these bands to make their trade strategy. Here the
trader can purchase the nifty position when the middle band breaches the lower band 1 and sell
his positions when the nifty position is soaring above top band 1.
 58

The short term investors can keep the 100 days moving average for his investment
strategy. The purchase is made when the middle band comes below the bottom band 2 and sell
decision is made when the middle band rises above the top band 2.

Determination of Reliance Industries share price by Technical Analysis

4.13 Dow Theory for Reliance Industries

The behavior of the industrial average reflected the hopes and fears of the entire
market. The behavior patterns that he observed apply to markets throughout the world. There
are three types of trends which includes, bull trend which is identified by a series of rallies,
then each successive rally fails to penetrate the high point of the previous rally called bear
trend. 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).

TABLE 4.1.13

Month Share Price % Change

Jan-07 1362 7
Feb-07 1352 6
Mar-07 1372 8
Apr-07 1570 24
May-07 1760 39
Jun-07 1701 34
Jul-07 1899 50
Aug-07 1958 54
Sep-07 2297 81
Oct-07 2785 119
Nov-07 2846 124
Dec-07 2888 127
Jan-08 2495 96
 59

Feb-08 2434 92
Mar-08 2253 77

FIGURE 4.1.11

Dow Chart
3,600
3,200
Share price

2,800
2,400
2,000
1,600
1,200
Jul-07
Aug-07

Nov-07
Jun-07
Apr-07
May-07
Jan-07
Feb-07

Sep-07

Jan-08
Feb-08
Mar-07

Dec-07

Mar-08
Oct-07
Date Close
Price

Interpretation

The share price of reliance industries is in bull trend from January 2007 onwards to the
mid of January 2008 with minor corrections during this period along with nifty position.
Because of poor economic condition the market is falling in to the bear market from the middle
of January 2008.

Now the market is facing a selling pressure from the investors side because of
overbuying of shares from the investors side. The prediction of the Rangebound is also very
difficult during the large corrections. So the investors should wait till the discovery of true
price at the end of the bear trend.
 60

4.14 Trend Analysis of Reliance Industries

A stock in an uptrend will continue to rise until some change in value or conditions
occurs. Declining stocks will continue to fall until some change in value or conditions occurs.
Chart readers try to locate TOPS and BOTTOMS, which are those points where a rally or a
decline ends. Taking a position near a top or a bottom can be very profitable. There is no
apparent direction to the price movement on the stock chart and there will be LITTLE or NO
rate of price change.

TABLE 4.1.14

Date Share Price 200 Day's EMA 100 Day's EMA

Jan-07 1362 1120 1214

Feb-07 1352 1168 1246
Mar-07 1372 1198 1261
Apr-07 1570 1247 129
May-07 1760 1329 1371
Jun-07 1701 1400 1434
Jul-07 1899 1480 1507
Aug-07 1958 1547 1569
Sep-07 2297 1652 1670
Oct-07 2785 1838 1852
Nov-07 2846 2024 2036
Dec-07 2888 2166 2176
Jan-08 2495 2298 2306
Feb-08 2434 2336 2342
Mar-08 2253 2325 2330

FIGURE 4.1.12
 61

Trend Analysis Chart

3250
3000
2750
2500
Share Price

2250
2000
1750
1500
1250
1000
Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08
Month
Share Price 200 Day's EMA 100 Day's EMA

Interpretation

In an uptrend, a stock rallies often with intermediate periods of consolidation or

movement against the trend. In a downtrend, a stock declines often with intermediate periods of
consolidation or movement against the trend. Rangebound price swings back and forth for long
periods between easily seen upper and lower limits.

The 200 days EMA and 100 days EMA represents the uptrend since January 2007
regardless of uptrend followed by major corrections shown by share price line. So the investors
have the good opportunity to make the investments when the share price bounces back from the
bottom level.

4.15 Support Level for Reliance Industries

 62

Support level defines that level where buyers are strong enough to keep price from
falling further. In an uptrend, support is where a pullback from a rally should end. The two
support lines were drawn with 200 days and 100 days moving average. The exponential
moving average lines were drawn for the period of 15 months from January 2007 to March
2008.

TABLE 4.1.15

Date Share Price 200 Day's EMA 100 Day's EMA

Jan-07 1362 1120 1214

Feb-07 1352 1168 1246
Mar-07 1372 1198 1261
Apr-07 1570 1247 129
May-07 1760 1329 1371
Jun-07 1701 1400 1434
Jul-07 1899 1480 1507
Aug-07 1958 1547 1569
Sep-07 2297 1652 1670
Oct-07 2785 1838 1852
Nov-07 2846 2024 2036
Dec-07 2888 2166 2176
Jan-08 2495 2298 2306
Feb-08 2434 2336 2342
Mar-08 2253 2325 2330

FIGURE 4.1.13
 63

Support Level Chart

3250
3000
2750
2500
Share Price

2250
2000
1750
1500
1250
1000
Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08

Share Price Month

200 Day's EMA 100 Day's EMA

Interpretation

The share price line is moving upward with minor corrections from January 2007 to
December 2007 but during this period the share price has not fell below the 200 days EMA
line. But during this January and march corrections it has breached and is traded below the 200
days EMA line. So the investors should make their investment when it bounce back without
major corrections.

The investors should sell their position when the share price breaches and goes below
the 200 days EMA line without the bounce back. The investors are advised to avoid the
investment while the share has been traded below the 200 days EMA.

4.16 Price Volume Trend Method for Reliance industries

 64

(PVT) is a technical analysis indicator intended to relate price and volume in the stock
market. PVT is based on a running total volume added according to the percentage change in
closing price over the previous close. The starting point for the PVT total, i.e. the zero point, is
arbitrary.

TABLE 4.1.16

Date Share Price Volume PVT

3-Mar-08 2320 3028734 -141618

4-Mar-08 2258 4554609 -263336
5-Mar-08 2314 2937145 -190493
7-Mar-08 2230 3323902 -311153
10-Mar-08 2270 5243330 -217925
11-Mar-08 2342 3666369 -101052
12-Mar-08 2360 3195994 -76488
13-Mar-08 2255 4050878 -256546
14-Mar-08 2338 2736483 -155525
17-Mar-08 2174 4709376 -486522
18-Mar-08 2135 3965487 -557660
19-Mar-08 2150 3399737 -533774
24-Mar-08 2202 2985289 -461572
25-Mar-08 2322 3115010 -291817
26-Mar-08 2300 2331754 -313909
27-Mar-08 2300 4148373 -313729
28-Mar-08 2345 3944461 -236729
31-Mar-08 2253 3096566 -358611

FIGURE 4.1.14
 65

Price Volume Trend Chart

0

-100000 08 08 /0
8
/0
8
/0
8
/0
8
/0
8
/0
8
/3/ 7/ 11 15 19 23 27 31
3 3/ 3/ 3/ 3/ 3/ 3/ 3/
-200000
PVT Value

-300000

-400000

-500000

-600000
PVT
Date

Interpretation

PVT is interpreted in a way that volume is higher on days with a price move in the
dominant direction, for example in a strong uptrend more volume on up days than down days.
So when prices are going up, PVT should be going up too, and when prices make a new rally
high, PVT should too. If PVT fails to go past its previous rally high then this is a negative
divergence, suggesting a weak move.

The share price is decreasing from the beginning of March 2008 onwards to the 23 rd of
this month because of fell in volume of traders. The decrease in volume of traders creates the
selling pressure so the price of share decreases with decrease in volume. So the investors
should wait till the discovery of true price.

4.17 Moving Average Envelope Method of Reliance Industries for Investors

 66

Moving average envelopes are a pair of lines also known as trading bands. The 200
days exponential moving average is calculated for finding the investing bands. The top band is
formed by adding 6% to the moving average value. The bottom band is formed by deducing
6% from the moving average value.

TABLE 4.1.17

Date Share Price Top Band Bottom Band

3-Mar-08 2,306 2434 2159

4-Mar-08 2,243 2434 2158
5-Mar-08 2,293 2434 2158
7-Mar-08 2,248 2433 2158
10-Mar-08 2,275 2433 2158
11-Mar-08 2,348 2434 2158
12-Mar-08 2,375 2434 2159
13-Mar-08 2,243 2434 2158
14-Mar-08 2,323 2434 2159
17-Mar-08 2,180 2433 2157
18-Mar-08 2,151 2431 2156
19-Mar-08 2,159 2430 2155
24-Mar-08 2,200 2429 2154
25-Mar-08 2,314 2429 2154
26-Mar-08 2,299 2429 2154
27-Mar-08 2,271 2429 2154
28-Mar-08 2,352 2430 2155
31-Mar-08 2,266 2429 2154

FIGURE 4.1.15
 67

200 Day's EMA Envelope Chart

2,450
2,400
2,350
Share Price 2,300
2,250
2,200
2,150
2,100
08 08 /0
8
/0
8
/0
8
/0
8
/0
8
/0
8
3/ 7/ 1 5 9 3 7 1
3/ 3/ 3/
1
3/
1
3/
1
3/
2
3/
2
3/
3
Share Price Top
DateBand Bottom Band

Interpretation

The moving average envelopes can be helpful in identifying overbought or oversold

conditions, where stock or share prices hit the top or bottom of their trading range. The share
price of Reliance Industries is falling from the beginning of the March 2008 till it reaches the
bottom envelope. Then it bounces back from that level towards the true price.

The share price has been falling down because of heavy selling pressure due to
overbought occurred during the January to December 2007 period and due to poor economic
condition. So the investors should till the share discovers the true price to make their
investments.

4.18 Moving Average Envelope Method of Reliance Industries for Traders

 68

Moving average envelopes aim to identify a band within which a stock is trading. Here
the "trading band" is formed by calculating 100 days moving average and volatility of 2.5% is
taken for formation of trade bands.

TABLE 4.1.18

Date Share Price Top Band Bottom Band

3-Mar-08 2,306 2826 2609

4-Mar-08 2,243 2821 2604
5-Mar-08 2,293 2817 2600
7-Mar-08 2,248 2812 2596
10-Mar-08 2,275 2807 2591
11-Mar-08 2,348 2804 2588
12-Mar-08 2,375 2800 2585
13-Mar-08 2,243 2796 2581
14-Mar-08 2,323 2792 2577
17-Mar-08 2,180 2787 2572
18-Mar-08 2,151 2781 2567
19-Mar-08 2,159 2776 2562
24-Mar-08 2,200 2771 2558
25-Mar-08 2,314 2767 2554
26-Mar-08 2,299 2764 2551
27-Mar-08 2,271 2760 2547
28-Mar-08 2,352 2756 2544
31-Mar-08 2,266 2752 2541

FIGURE 4.1.16
 69

100 Day's EMA Envelope Chart

2,900
2,800
2,700
Share Price
2,600
2,500
2,400
2,300
2,200
2,100
08 0 8 0 8 0 8 0 8
3/ 0/ 7/ 4/ 1/
3/ 3/
1
3/
1
3/
2
3/
3

Share Price Date

Top Band Bottom Band

Interpretation

The share price of Reliance industries is trading below the bottom band of moving
envelope. The share price has breached the bottom band because of substantial selling pressure
due to poor economic condition of world.

The overbought of this share from January 2007 to December 2007 and the poor
performance of world share market results in bear market. So it is very risky to trade in this
type of volatile market. The traders should wait till the share price should come within the two
bands and by which the market is attaining the stability for trading.

4.19 Money Flow Index for Reliance Industries

 70

The Money Flow Index looks at each day's Money Flow by incorporating into the
calculations the volume of shares traded. The "typical price" for everyday is calculated and
compared with yesterday's typical price to find out whether today's Money Flow is positive or
negative.

TABLE 4.1.19

Money Flow
Date Typical Value Money Flow
Sign
3-Mar-08 2332 7062351462 Negative
4-Mar-08 2264 10310420214 Negative
5-Mar-08 2280 6696543743 Positive
7-Mar-08 2231 7415846955 Negative
10-Mar-08 2229 11685110460 Negative
11-Mar-08 2302 8441570198 Positive
12-Mar-08 2388 7630968341 Positive
13-Mar-08 2257 9141008751 Negative
14-Mar-08 2298 6287343341 Positive
17-Mar-08 2203 10373499494 Negative
18-Mar-08 2174 8619382543 Negative
19-Mar-08 2216 7535233749 Positive
24-Mar-08 2178 6503302822 Negative
25-Mar-08 2285 7116499929 Positive
26-Mar-08 2302 5367736571 Positive
27-Mar-08 2276 9442803181 Negative
28-Mar-08 2317 9140630957 Positive
31-Mar-08 2284 7071421336 Negative

Calculation

The formula for calculating Money Flow Index is

Positive money flow

Money Ratio =
Negative money flow
 71

Positive Money Flow = 58216526828

Negative Money Flow = 87625147220
Money Ratio = 0.66
Money Flow Index = 100 - (100÷ (1+Money Ratio))
Money Flow Index = 39.92

Interpretation

The Money Flow Index reading of under 20 is the indication that the stock or shares are
oversold, and represents a possible buying opportunity. Conversely, a MFI value of over 80 is
considered to be an overbought indicator, and is a sign to consider selling. If the stock price is
trending upwards but MFI is trending down (or vice-versa), a price reversal may be imminent.

The Reliance Industries share price is decreasing because of overbought from January
2007 to December 2007. So the selling pressure is created to discover the true price. Here the
Money Flow Index is around 40. it also represents the share is being in selling zone so the
investors should wait till the MFI of reliance industries share to come down to 20 mark to make
their new investments. The true share price is discovered only at the end of the volatile market.

4.20 Relative Index for Reliance Industries

It is a momentum oscillator which is based purely on the price changes of a single

particular stock, share or security. The positive price changes and negative price change are
added separately to find out the average up price and average down. Then Relative Strength is
calculated by dividing average up price by average down price.
 72

TABLE 4.1.20

Date Share Price Price Change

3-Mar-08 2,306 -157

4-Mar-08 2,243 -63
5-Mar-08 2,293 50
7-Mar-08 2,248 -45
10-Mar-08 2,275 26
11-Mar-08 2,348 73
12-Mar-08 2,375 27
13-Mar-08 2,243 -132
14-Mar-08 2,323 80
17-Mar-08 2,180 -142
18-Mar-08 2,151 -29
19-Mar-08 2,159 8
24-Mar-08 2,200 41
25-Mar-08 2,314 114
26-Mar-08 2,299 -14
27-Mar-08 2,271 -29
28-Mar-08 2,352 82
31-Mar-08 2,266 -87

Calculation

Average up price change

Relative Strength =
Average down price change

Average Up price = 27.77

Average Down price = 38.75
Relative Strength = 0.72

Relative Strength Index (RSI) = 100 - (100÷ (1+RS))

Relative Strength index = 41.75
 73

Interpretation

The RSI is a momentum oscillator, which measures the speed of directional price
movement. 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 30mark, it
indicates that the stock is oversold, so is a possible buy signal.

The relative strength index at the end of March 2008 is 41, so it represents the reliance
industries share is facing selling pressure due to overbought between January 2007 and
December 2007. The true price is discovered only at the end of bear market and obtaining of
stability. The overall market performance is also not good. The investors should wait till the
RSI should come at the level of 30 for making the investments.

4.21 MACD Method for Reliance Industries

It is based upon the principal of the moving average. Here the MACD value is obtained
by deducting the longer 50 days Exponential Moving Average from the shorter 25 days EMA
gives you the MACD value. Then 9 day Exponential moving average of the MACD value is
then calculated. This value is then plotted and is known as the signal line.

TABLE 4.1.21

Date MACD Value 9 Day's EMA

3-Mar-08 123 130

 74

4-Mar-08 122 130

5-Mar-08 121 130
7-Mar-08 120 130
10-Mar-08 119 129
11-Mar-08 117 129
12-Mar-08 116 129
13-Mar-08 115 129
14-Mar-08 114 129
17-Mar-08 113 129
18-Mar-08 112 129
19-Mar-08 111 128
24-Mar-08 109 128
25-Mar-08 108 128
26-Mar-08 107 128
27-Mar-08 106 128
28-Mar-08 105 127
31-Mar-08 104 127

FIGURE 4.17

MACD Chart
135
130
125
Share Price

120
115
110
105
100
08 08 /0
8
/0
8
/0
8
/0
8
/0
8
/0
8
3/ 7/ 1 5 9 3 7 1
3/ 3/ 3/
1
3/
1
3/
1
3/
2
3/
2
3/
3
Date
MACD Value 9 Day's EMA

Interpretation
 75

When the MACD crosses over from below the signal and rises above the signal, this is a
sign to buy. Conversely, when the MACD crosses over from above and drops below the signal,
this is a sign to sell. If the MACD crosses the zero point and moves from below zero to above
zero, this is a buy signal. Again, the converse applies - crossing from above zero to below is a
sign to sell.

The moving average convergence/divergence of reliance industries is continuously

coming down from the signal line, so the company is facing the selling pressure due to
overbought of reliance share between January 2007 and December 2007. The investors are
advised to stay away from buying activity because of continuous bear market. The investors
should take position only after the stability of the share price.

4.22 Fast Stochastics Method for Reliance Industries

Stochastics indicators measure the current position of a stock, share or other security in
relation to the highest high point and lowest low point over a set period of time. This
measurement is expressed as a percentage, with 100% being where a stock is at the very
highest point that it has reached during the period in question, 0 being the very lowest point.

TABLE 4.1.22

Date Fast % K Fast % D

3-Mar-08 17 72
4-Mar-08 2 49
5-Mar-08 19 25
7-Mar-08 9 13
10-Mar-08 23 10
11-Mar-08 44 17
12-Mar-08 49 25
 76

13-Mar-08 23 39
14-Mar-08 39 39
17-Mar-08 11 37
18-Mar-08 6 24
19-Mar-08 8 19
24-Mar-08 15 8
25-Mar-08 37 10
26-Mar-08 35 20
27-Mar-08 29 29
28-Mar-08 45 34
31-Mar-08 28 36

FIGURE 4.1.18

Fast stochastics Method

80
70
stochastics value

60
50
40
30
20
10
0
08 08 0 8
/0
8
/0
8
/0
8
/0
8
/0
8
3/ 7/ 1/ 5 9 3 7 1
3/ 3/ 3/
1
3/
1
3/
1
3/
2
3/
2
3/
3
Date Fast % K Fast % D

Interpretation

The buy signal occurs when the %K line crosses and rises above the %D line.
Conversely, a cross-over where the %K line drops below the %D is believed to be a sell sign. If
either the %K or %D fall below 20 and then starts to rise again above 20, this may be
 77

considered a buy sign. Similarly, a selling signal is thought to occur if the indicator rises above
80 and then begins to fall below 80.

The %K line and %D line are crossing several times in a month but the %K line is not
clearly rising above the %D line, so the market is very volatile and lack of confidence is clearly
seen from the crossing of these two lines. There is high risk associated during this month so the
investor should wait till the market becomes stable.

4.23 Slow Stochastics Method for Reliance Industries

The 3 days moving average of the fast stochastic's %K results in slow stochastic %K.
Then, once the slow stochastics %K value has been determined, the slow stochastics %D is
obtained by calculating a moving average of the slow stochastic %K (again, a 3 day period is
often used to calculate the moving average).

TABLE 4.1.23

Date Slow % K slow % D

3-Mar-08 72 78
4-Mar-08 49 79
5-Mar-08 25 67
7-Mar-08 13 49
10-Mar-08 10 29
11-Mar-08 17 16
12-Mar-08 25 13
13-Mar-08 39 17
14-Mar-08 39 27
17-Mar-08 37 34
18-Mar-08 24 38
19-Mar-08 19 33
 78

24-Mar-08 8 27
25-Mar-08 10 17
26-Mar-08 20 12
27-Mar-08 29 13
28-Mar-08 34 20
31-Mar-08 36 0

FIGURE 4.1.19

Slow Stochastics Method

90
80
Stochastics Value

70
60
50
40
30
20
10
0
08 08 /0
8
/0
8
/0
8
/0
8
/0
8
/0
8
3/ 7/ 11 15 9 3 7 1
3/ 3/ 3/ 3/ 3/
1
3/
2
3/
2
3/
3
Date Slow % K slow % D

Interpretation

The buying signal occurs when the %K line crosses and rises above the %D line.
Conversely, a cross-over where the %K line drops below the %D is believed to be a sell sign.
Divergences are also considered to be a buy signal, although may be more difficult to identify.
If the price is making a lower low, but the stochastic is making a higher low, some may
consider this to be a buy signal, and vice-versa.

The slow stochastics method is more accurate than fast stochastics method because the
fast stochastics method is more sensitive to price changes. This method has not given buy
signals on many occasions that the buy signal was given by fast stochastics method. This
 79

method is also not given the buy signal so the investor should wait for the clear signal buy
signal.

4.24 Bollinger Band Method of Reliance Industries for Investors

Standard deviation bands are plotted above and below the simple moving average of the
same period. Here for plotting 200 days standard deviation bands, firstly the 200 days simple
moving average is calculated and plotted. Then value of the standard deviation is added to the
moving average for top band and deduced with moving average for bottom band.

TABLE 4.1.24

200 Day's Standard

Date Share Price Top Band Bottom Band
SMA Deviation
3-Mar-08 2320 2303 652 2955 1652
4-Mar-08 2258 2306 651 2957 1655
5-Mar-08 2314 2308 650 2958 1659
7-Mar-08 2230 2311 649 2961 1662
10-Mar-08 2270 2314 648 2962 1665
11-Mar-08 2342 2317 648 2964 1669
12-Mar-08 2360 2320 647 2967 1673
13-Mar-08 2255 2323 646 2969 1676
14-Mar-08 2338 2325 645 2971 1680
17-Mar-08 2174 2328 645 2973 1683
18-Mar-08 2135 2330 644 2974 1686
19-Mar-08 2150 2332 644 2976 1689
24-Mar-08 2202 2335 643 2978 1691
25-Mar-08 2322 2337 643 2980 1694
26-Mar-08 2300 2341 642 2983 1698
27-Mar-08 2300 2344 642 2986 1702
28-Mar-08 2345 2347 642 2988 1705
31-Mar-08 2253 2350 641 2991 1709
 80

FIGURE 4.1.20

Bollinger Chart For Investors

3300
3100
2900
Share Price

2700
2500
2300
2100
1900
1700
1500
08 08 /0
8
/0
8
/0
8
/0
8
/0
8
/0
8
3/ 7/ 1 5 9 3 7 1
3/ 3/ 3/
1
3/
1
3/
1
3/
2
3/
2
3/
3
Share Price Top
DateBand Bottom Band

Interpretation

The share price of reliance industries is trading between the top band and bottom band
throughout the month of March 2008. It has not breached the top band or the bottom band on
any days of March 2008. The investments should be made only after discovering of true price.

Volatile stocks, shares and other securities are considered to be high-risk and high-
reward securities. If your investment strategy leans specifically toward an interest in investing
in low risk stocks, you may consider investing in a stock which, over a long term, has a
consistently small bandwidth (difference between the top and bottom Standard Deviation
bands). Conversely, if you have a higher risk/reward strategy, then stocks which have a
consistently wide bandwidth would be the type of investment you may be looking for.
 81

4.25 Bollinger Band Method of Reliance Industries for Traders

Standard deviations should be thought of as a measure of how extreme and abnormal

the current price of a stock or share is in comparison to its recent history. The more extreme a
price is away from its average the more likely it is that the price will head toward the average
soon. Here the bands are formed for 100 days and 50 days moving average.

TABLE 4.1.25

Top Band Bottom Bottom Band

Date Share Price Top Band 2
1 Band 1 2
3-Mar-08 2320 2954 3229 2419 2208
4-Mar-08 2258 2951 3222 2406 2209
5-Mar-08 2314 2947 3216 2389 2208
7-Mar-08 2230 2939 3209 2374 2209
10-Mar-08 2270 2931 3201 2355 2208
11-Mar-08 2342 2923 3193 2338 2207
12-Mar-08 2360 2914 3188 2324 2208
13-Mar-08 2255 2907 3186 2312 2209
14-Mar-08 2338 2899 3184 2296 2207
17-Mar-08 2174 2889 3178 2283 2208
18-Mar-08 2135 2878 3172 2262 2205
19-Mar-08 2150 2865 3166 2240 2201
24-Mar-08 2202 2850 3158 2218 2198
25-Mar-08 2322 2835 3147 2200 2197
26-Mar-08 2300 2821 3137 2186 2197
27-Mar-08 2300 2803 3127 2171 2197
28-Mar-08 2345 2781 3121 2156 2197
31-Mar-08 2253 2762 3113 2142 2197

FIGURE 4.1.21
 82

Multiple Bollinger Chart For Traders

3400
3200
Share Price 3000
2800
2600
2400
2200
2000
08 08 0 8 0 8 0 8 0 8 0 8 0 8
3/ 7/ 1/ 5/ 9/ 3/ 7/ 1/
3/ 3/ 3/
1
3/
1
3/
1
3/
2
3/
2
3/
3

Share Price Top Band

Date1 Top Band 2
Bottom Band 1 Bottom Band 2

Interpretation

The share price of reliance industries is hugging on the 100 days bottom band, so the
traders should treat this level as a support level and make their trade strategies. But the caution
should be a needed one because once the share price breaches the bottom band 2 the position
should be sold to minimize the risk.

Standard Deviations should be considered as a secondary signals rather than primary

identifiers of whether to make a purchase or sale. They shouldn't be used on their own as the
basis of a trading decision. This is mainly because sometimes, once a stock has reached the two
or three standard deviation band, it may hug the band for some time, rather than bounce back
off it.

CHAPTER 5
 83

FINDINGS AND SUGGESTIONS

Findings

 The trend of the nifty is identified as long term bull trend from last January 2007 to mid
of January 2008 with minor corrections during this period. From the last week of this
January the market is falling down along with nifty because of poor economic condition
spread across the world nations.

 Eventhough the market was bullish last year, now the market is showing the sign of
bear trend because of larger corrections from the last week of this January. The Nifty
had breached the 200 days exponential moving average during the last week of this
January and during this March 2008. The support level is being obtained for nifty from
the behavior of nifty and it is 4250.

 The accumulation/distribution index of nifty is also not showing the positive sign for
investors to take buying decision and the investment is made at the end of distribution.

 William’s %R method also showing the sign of selling pressure from the investor side.
The moving average envelope method also suggests that the nifty will fall down till the
discovery of true position.

 The Money Flow Index and relative strength index is showing the selling pressure due
to overbought during January 2007 and December 2007. The Moving Average
Convergence/Divergence represents the continuous selling pressure is happening till the
discovery of true price.

 The Bollinger band method also says that nifty is still not find out the stable position
because of lack of confidence among investors and nifty is on the decreasing side.
 84

 The trend of reliance industries was bullish from January 2007 to December 2007 with
minor corrections. But because of falling of all the indices of Indian share market the
share price of reliance industries is falling down because of state of confusion among
the investors.

 The support level is identified for reliance industries during this January and March fall
and it is found to be between 2000 to 2050. If this level is breached the share price will
face a continuous downtrend till it find the new support.

 The trend analysis method shows the selling pressure from the investors side from this
last week of this January because of overbought during the last year. The money flow
index and relative strength index are also not showing the positive sign for buyers.

 The stochastics method also represents high level of instability in the market and high
level of risk is associated with the investment during this period because of high level of
volatility.

 The Bollinger band method also represents share price of reliance industries is hugging
around the 200 days exponential moving average. Eventhough the market is falling
below the previous low.

Suggestions
 85

 The investor should wait till the end of the bear market to make their investment
strategy. The end of the bear market is identified by continuous rally without a pull back
from the rally shown by dow chart and by trend chart.

 The investors should sell their positions when there is a breach of support level for both
the nifty and the reliance industries. The new investment is made strictly when the nifty
position and reliance share price bounces back from the support level.

 The buying decision should be made only when the money flow index and relative
strength index is showing positive sign. The investors should wait till MFI and RSI
should come under 25 to make their investment strategy.

 The accumulation/Distribution chart also shows the nifty position is decreasing because
of CLV value is near to -1. So the investors should wait till the CLV value will be
closer to +1.

 At beginning of March 2008 the buy signal was given because W%R rises above 80%
but day over days it fells below 80%, so this method also shows the nifty is falling
down so avoiding investment till a clear rising of W%R value.

 The moving Average has also breached the lower bands, so it is a sign of bear trend.
The investor should make their investment only after the true position of nifty. The true
position is identified when the nifty line embraces with the moving average envelope.
 86

 The Price Volume Trend(PVT) is also decreasing along with price because of lack of
confident and confusion among the investors. PVT is the volume of trade of particular
share or stock for a particular day. So the investors should make the investment only
when the PVT value is stable and on way of increasing trend.

 The Moving Average Convergence/Divergence(MACD) is also not showing positive

sign, because the MACD value is continuously falling down from the signal line, so it
clearly shows the share price has breached its support level and the investors should
frame the investment strategy only when the share price bounce back from the signal
line.

 The fast stochastics value is around 40 and the buy decision is made only when
stochastics value is below 20 and the %K line is above %D line. Here the %K line is not
clearly above %D line. So this method says the investor should wait till the positive sign
from this method.

 The slow stochastics value is also around 40 and %K line of slow stochastics is clearly
below the %D line, so it is clearly shows the sign of selling pressure from the investors
side. The buying decision is made only when it reaches the true price.

 The Bollinger method shows the share price is between top band and the bottom band,
so it is not possible to find the true price at this level and it is also the situation of
volatility. The investment at this point of time is extremely risky. The best strategy is to
wait till the discovery of true price.
 87

CHAPTER 6

CONCLUSION

The trend of Index Nifty and Reliance Industries is showing the downward trend since
this March because of poor economic condition of some countries and overbought of shares
between January 2007 and December 2007. The Nifty includes fifty large capital companies
and reliance industries being one of company in the national stock exchange having large
market capitalization represents performance of all indices and all shares listed in the National
Stock Exchange. All other method used also suggests that the market is facing the bear trend.

The true position of the share market is determined through the technical analysis of
Index Nifty and Reliance Industries Scrip. The analysis says that nifty and reliance industries is
continuously facing the downtrend and seems technically week. So the Nifty and Reliance
Industries having the major contribution represents the whole National Stock Exchange is
facing the bear trend. So the investors should wait till the discovery of true position to make
their investment.