SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

TECHINICAL ANALYSIS OF HERO HONDA

SUBMITTED TO
Prof. AVIJAN DUTTA

Submitted by:

NAME: NISHANT LOMASH
ROLL NO: 07/MBA/45

DEPARTMENT OF MANAGEMENT STUDIES

NATIONAL INSTITUTE OF TECHNOLOGY
DURGAPUR

INDEX
1. INTRODUCTION………………………………………………………………………………………..………………..3
2. SUPPORT AND RESISTANCE ………..………………………………………………………………………………4
3. CANDLE STICKS……………………………………………………………………………………………………………5
4. MOVING AVERAGES………………………………………………………………………………………….…….….9
a. SIMPLE MOVING AVERAGE……………………………………………………………..............………………9
b. EXPONENTIAL MOVING AVERAGE………………………………………………………………………………13
b. BUYING AND SELLING POINTS…………………………………………………………………………………….14
5 .VOLUME …………………………………………………………………………………………………………………….17
6. MOVING AVERAGES CONVERGENCE/ DIVERGENCE (MACD)………………………………..….…20
7. %K & %D…………………………………………………………………………………………………………..………..28
8. RSI………………………………………………………………………………………………………………..…….……...31
9. COMBINING VARIOUS FACTORS …………………………………………………….……………………….....32
10.PORTFOLIO…………………………………………………………………………………………………………...…...34
11. RESULTS…………………………………………………………………………………………………………………….39

INTRODUCTION:

Technical Analysis of Hero Honda is based on stock price of Sensex data
from August 2004 till 17th October 2008. In this techinical analysis
various methods and variables are used to analyse the market
conditions. And multiple components are also used to analyse the
market trends and position of buy ,sell or hold the share.

SUPPORT AND RESISTANCE:
Fig: Price chart 2007-2008 using F-chart

From the above figure obtained we can see that there is a strong
resistence at a range at alevel of 765-785 during the year 2007 and
sustained till April -2008. The resistence got broken in April-2008 this
could be the effect of budget speach as it was very positive for the year
2008-2009. We can even see that the new resistance was formed at
Rs850-885 level from May-October 2008. We even find a strong
support at Rs.625-635 level which after the budget moved on to
Rs.635-650 level.
In the budget speech there was a decleration of cut in Excise duty for
two-wheelers from 16% to 12%. And special advantages for batery run
vehicles. Apart from this More corpus provided for rural infrastructure
development fund will ultimately become beneficial to Auto-mobile
industry as improved infrastructure activities like developed roads,
bridges, etc will benefit to Auto-mobile industry.
We can see a trend of heavy bull in the month for July-August 2008.
The share price have increase from Rs.635 to Rs 886 in these two
months.

CANDLE STICK CHARTS:

In the above diagram we can see that after heavy fall in MarchAugust2006, Nov-2006 to April 2007 and May-June2008 there is a
bullish trend in July- August 2008. This is shown by the trend lines. Also
we see a heavy bull in July-September 2008.
There is a range in month of May 2007-April 2008. The trading can be
done in these to range. The values lying out of the top range are
signifying over bought shares and below the bottom line is signifying
bottom over sold.
Fig: July-October 08 candle sticks:

Gravestone
doji.

Black
umbrella

Longlegged
doji.

Star

In the above candle stick charts we can see the various types of candle
stick and pattern known.
Long-legged doji line often signifies a turning point. It occurs when the
open and close are the same, and the range between the high and low
is relatively large.
Gravesrone doji line also signifies a turning point. It occurs when the
open, close, and low are the same, and the high is significantly higher
than the open, low, and closing prices.
Stars indicate reversals. A star is a line with a small real body that
occurs after a line with a much larger real body, where the real bodies
do not overlap. The shadows may overlap.
Star is a bullish pattern signifying a potential bottom. The "star"
indicates a possible reversal and the bullish (empty) line confirms this.
The star can be empty or filled-in.

MOVING AVERAGE:
SMA:
200 days:
The graph below shows the two lines one is of 200 days moving
average and other of sensex daily data. The SMA chart shows that some
buy and sell signals in this graph.

This share price of hero Honda is showing a sell signal after 29th march
2006 and after that a buy signal on 29th Sept 2007 and once again a sell
signal on 29th oct-2007 . After this in recent months a strong buy signal
on 3rd Feb. 2008. A sell signal on 1st march 2008. Then a strong buy
signal 10th may 2008 and a sell signal on 29th June 2008. Again a buy
signal on 29th July 2008.

10 days:

In this graph for 10 days we can see that 23rd jan we can see that there
is a buy signal at 668.86 but on a later stage at 728.25 on 5th Feb
2008.again on 14th feb there is a buy signal at 714.54 and sell at 10th
march 755.305. once again a buy signal at at 25th march 2008 at 705.6
and a sell at 7th may at 817.34. Apart from this on 18th july 2008 there is
a buying signal at 679.35 and a sell signal at 811.29 on 12th aug 2008.
There is another buy signal on 25th Aug at 804.25 and 10 sep at 842.35
points.

9 DAYS SMA:
Fig: SMA using F Charts

According to the above figure we can see that one can buy at Rs.636 on
16July 2008 and it is over bought at Rs.883 on 6th october 2008 where
the share can be sold.

EXPONENTIAL MOVING AVERAGE:
Fig: Exponential moving averages

This is figure showing various buy and sell signals, in the figure we the
EMA 13 days line is crossing for many times the daily price line.

BUYING AND SELLING:
Fig:Outliers using F-charts

In the above figure there are various buy and sell points given through
lines and arrows marked. We can even see the broken resistance on
24th April 2008 at Rs.765 . the new resistance level formed by this level
was at Rs.835. The line at top shows various selling points and line at
bottom indicates various buying points.
Fig: Entry and exit points

From the green arrows shown we can find various entry(buying) and
exit(selling) points from the period of Feb 2008 to october 2008. Here
the red line shows SMA (simple moving average) and helps in finding
out if the share is over or under priced.
Using SMA as an indicator we can find buying and selling points. There
are green arrows indicating entry and exit points for maximum gain.
The SMA helps in kowing if the share is over valued or under valued.

VOLUME:

Indecisive

Trend change
Accumulation

Volume is another important indicator of details of share prices. As the
volume is very low then it tells that either the traders are indecisive or
there can be accumulating the shares for coming peeks or bulls.
If the volumes are very low (nearing to zero) then it even shows that
there can be a change in trend expected very soon. Accumulation of
shares also takes place only when investors expect high raise in prices.

Heavy
trading

Fig: Accumulation using F-charts

Low
volumes

Accumulation of shares

In the figure we can see accumulation of shares as volumes are low and
prices is decreasing a little for the coming bullish trend and short sell in
future. The two boxes in which first there is bull and then accumulation
takes place and once again bullish trend starts. At this point in April and
August 2008 the volumes are also quite low.
All together this even explains MACD were not too diverging at the
point of accumulation and in later stage it got diverge where prices
were too high and then correction took place. Most of the traders were
holding and not selling shares at this point of time.

MACD:
Fig: MACD graph as leading indicator.

In the above figure forms F-chart using circle there are marked MACD
signal at zero and at all these points the prices are either very high or
very low, and it is seen that the trend reversal takes place after this
point when MACD is near to zero. And also MACD is leading indicator of
change and price variations takes place later. This is considered to be a
very important indicator of share prices evaluation on a short term
bases (i.e. for Technical analysis).
The above figure shows that the zero MACD indicators in the diagram
shown a week ahead the trend is going to change. This trend reversal is
shown by the lines joining (black line form MACD to share prices) the
share price of Hero Honda and the MACD signal line (Red line) at zero.
As on 17th October 2008 the value of MACD is going to be zero the
trend is once again going to change but still it is expected to take one or
two days as the value of MACD is not so close to zero.

Fig: Showing change in trend using MACD

Indicating
change in
trend

Indicating change in
trend is soon going
to take place

In the figure on previous page we can see that, there are lines where
the MACD signal is moving in opposite direction of the stock prices
which particularly means that trend is going to change very soon.
This is because the share is either highly over bought or over sold and
hence is bullish or bearish phase is going to be finished soon.

Fig: 2yrs graph for MACD buy and sell signal

Fig: 1 yr graph for buy and sell

SELL

BUY

MACD is a very good indicator of buy and sell signal too. As the
averaged center line MACD (blue line) crosses the MACD signal (red
line) from bottom to top it gives a buy signal as an assumption that the
prices will start rising. And as the line crosses from top to bottom then
it’s a sell signal.
Both the buy and sell signal are indicated in the figure given above. The
MACD indicator is accurate to 80% only so there can be chance of
failure in buy-sell signal given by MACD, 20% of the times. This is the
reason never only one indicator is to be looked in for trading. For
increasing the profit one can even look on these graphs of MACD to
find Convergence and divergence, which show if he price is to bullish or
bearish at this point of time. It is shown on the next page figure.

Fig: over priced and under price indications using divergence

VERY UNDER
PRICED

VERY OVER PRICED

These arrows used to mark high divergence and so the price of stock
here is either too high or too low. This gives the point of short buying or
selling at various points of times in a year.

%K & %D:
FAST %K AND %D:
The graph of fast %K and %D gives frequent buy and sell signals for
trading of the share. The data given below in blue lines (series 1)
represent %K and red line (series 2) %D line.
Fig: 2008 data

In the data given is of the year 2008 where the arrows represent the
buy and sell signal. To one from bottom represent the buy signal and
other from top represent sell signal. In the similar manner there is slow
%K and %D line obtained.

SLOW %K and %D:

It is considered to be a general rule that when %K is above 80 one
should sell the share and when %K is below 20 one can buy the share so
according to the graph on 12th September one can buy the Hero Honda
share. In slow %K and %D the buy and sell signals are not so frequent.

RSI:
Fig: RSI using F-charts

As we can see that on 17th October 2008 from the figure that RSI is very
low that is 34.78 and is very much below 50 so it is not favorable to by
the stock at this point of time when RSI is even below EMA(46.69). This
means that share is over sold when compared but from the previous
data we can see that it will still go much lower below this value so it is
not right time to buy this share and still can be given some more time.
All the points above 70 RSI tells over bought situations and all below 30
show over sold situation in this figure.

COMBINING VARIOUS FACTORS:

It seems that a buy signal is going to come soon (in 1or 2 days) seeing a
combined aspect of various indicators of price, volume, MACD and RSI
curves. As on 15th October RSI was 30 and on 17th October RSI is 37 and
MACD was on zero on 15th. Apart from this volume were lower and
prices are low. Keeping in mind various indicators one should have
bought this share for trading purpose on 15th October.

PORTFOLIO:
Now taking 3 companies in portfolio we have to make an effective port
folio using the data. The three companies are Ultra tech , Airtel and
Hero honda.

Maximum return of portfolio is 47% with Risk Sd = 8.28
With Ultratech weight = 0
Airtel Weight = 1
Hero honda weight = 0
Minimum Risk of Portfolio is 7.40% with return = 42.9%
With Ultratech weight = 0.1
Airtel Weight = 0.6
Hero honda weight = 0.3
Weighage
Ultratech

Airtel

Portfolio
Return in
%

Portfolio
Risk
(var)

Portfolio
Risk (Sd)

Return

Hero Honda

Airtel

Ultratech

Hero Honda

0
0

0
0.1

1
0.9

0.27
0.27

0.42
0.42

0.31
0.31

31.27033
32.35838

88.21268
78.40301

9.392161
8.854547

0
0

0.2
0.3

0.8
0.7

0.27
0.27

0.42
0.42

0.31
0.31

33.44643
34.53449

70.33574
64.01088

8.386641
8.00068

0

0.4

0.6

0.27

0.42

0.31

35.62254

59.42841

7.708983

0
0
0

0.5
0.6
0.7

0.5
0.4
0.3

0.27
0.27
0.27

0.42
0.42
0.42

0.31
0.31
0.31

36.71059
37.79864
38.88669

56.58835
55.49069
56.13543

7.522523
7.449207
7.492358

0

0.8

0.2

0.27

0.42

0.31

39.97475

58.52257

7.650004

0
0
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.2
0.2
0.2
0.2
0.2
0.2
0.2

0.9
1
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
0
0.1
0.2
0.3
0.4
0.5
0.6

0.1
0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
0.8
0.7
0.6
0.5
0.4
0.3
0.2

0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27

0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42

0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31

41.0628
42.15085
30.83858
31.92664
33.01469
34.10274
35.19079
36.27884
37.3669
38.45495
39.543
40.63105
30.40684
31.49489
32.58294
33.67099
34.75905
35.8471
36.93515

62.65211
68.52405
81.5677
72.75553
65.68576
60.35839
56.77342
54.93085
54.83069
56.47292
59.85756
64.98459
77.51223
69.69756
63.62528
59.2954
56.70793
55.86286
56.76019

7.915308
8.277925
9.031484
8.529685
8.104675
7.769066
7.534814
7.411535
7.404775
7.514847
7.736767
8.061302
8.804103
8.348506
7.976546
7.700351
7.530467
7.474146
7.533936

0.2
0.2
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.5
0.5
0.5
0.5
0.5
0.5
0.6
0.6
0.6
0.6
0.6
0.7
0.7
0.7

0.7
0.8
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0
0.1
0.2
0.3
0.4
0.5
0.6
0
0.1
0.2
0.3
0.4
0.5
0
0.1
0.2
0.3
0.4
0
0.1
0.2

0.1
0
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
0.6
0.5
0.4
0.3
0.2
0.1
0
0.5
0.4
0.3
0.2
0.1
0
0.4
0.3
0.2
0.1
0
0.3
0.2
0.1

0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.27

0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42

0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31
0.31

38.0232
39.11125
29.97509
31.06314
32.15119
33.23925
34.3273
35.41535
36.5034
37.59145
29.54334
30.6314
31.71945
32.8075
33.89555
34.9836
36.07166
29.1116
30.19965
31.2877
32.37575
33.46381
34.55186
28.67985
29.7679
30.85595
31.94401
33.03206
28.2481
29.33616
30.42421

59.39992
63.78205
76.04626
69.22908
64.1543
60.82192
59.23195
59.38437
61.27919
64.91642
77.1698
71.35011
67.27283
64.93794
64.34546
65.49538
68.3877
80.88283
76.06064
72.98086
71.64347
72.04848
74.1959
87.18537
83.36068
81.27839
80.9385
82.34101
96.07742
93.25022
92.16542

7.707134
7.986367
8.720451
8.320402
8.009638
7.798841
7.696229
7.706125
7.828103
8.057073
8.784634
8.4469
8.202001
8.058408
8.021562
8.092922
8.269686
8.993488
8.721275
8.542883
8.464247
8.488138
8.613704
9.337311
9.130207
9.015453
8.996582
9.074195
9.801909
9.656615
9.600282

0.7

0.3

0

0.27

0.42

0.31

31.51226

92.82303

9.634471

0.8

0

0.2

0.27

0.42

0.31

27.81636

107.559

10.37106

0.8

0.1

0.1

0.27

0.42

0.31

28.90441

105.7293

10.28247

0.8

0.2

0

0.27

0.42

0.31

29.99246

105.642

10.27823

0.9
0.9
1

0
0.1
0

0.1
0
0

0.27
0.27
0.27

0.42
0.42
0.42

0.31
0.31
0.31

27.38461
28.47266
26.95286

121.63
120.7978
138.2906

11.0286
10.99081
11.7597

Variance -Covariance Matrix
Ultratech Hero Honda
Ultratech
Hero Honda

Airtel

Airtel

138.29
44.98

44.98
68.52

48.51
34.81

48.51

34.81

88.21

Covariance
Utech-hero Utec-Air Air-Hero H
6.43453753

Date

44.98449

0.477984481

Return w.r.t Close Price (%)
Ultratech Airtel
Hero H

Sep-04
Oct-04
Nov-04
Dec-04
Jan-05
Feb-05
Mar-05
Apr-05
May-05
Jun-05
Jul-05
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07

0.244407
13.93473
-2.81481
15.27778
1.013811
8.290909
-4.75487
-5.96531
-2.54949
8.479532
8.029508
15.31188
6.206582
-14.6151
13.02273
-5.07778
21.39764
8.089866
22.11418
25.59719
-29.5702
23.86655
-3.71358
6.494945
15.88427
-1.19509
2.072686
22.05
-9.40833

4.469074008
7.665982204
10.33057851
24.22932872
6.841372913
-2.27914044
-8.10750777
0.145032632
8.158339368
8.390984155
16.57401688
11.42705758
10.47709621
-7.41750359
10.81667442
-3.31422179
2.863754701
1.602924634
14.26792139
-1.18687175
-10.2953793
1.106708567
3.472972973
7.352749118
14.07542579
13.0745441
18.87201735
-0.21421771
12.50695714

2.649727
-26.8376
3.528216
3.407976
3.29566
3.190512
3.091866
2.999136
2.911807
2.82942
2.751567
-25.1635
3.578314
3.454694
3.33933
3.231422
3.13027
3.035258
2.945844
2.861548
-23.3594
3.629854
3.502711
3.384173
3.273395
3.169641
3.072261
2.980686
-21.4094

Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08

Average
Var (N)
Var (N-1)
Sd (N)
Sd (N-1)

-10.325
-13.5394
6.470245
0.816774
8.833132
3.566469
-1.2498
13.26
-4.16287
-1.176
2.74
-15.17
5.897049
-14.4291
-2.41072
-14.5588
-16.2092
5.377627
2.812854
-4.20125

1.590106007
6.184347826
6.400681342
4.402438274
-1.39773531
8.074645613
-2.60667441
6.966700761
6.948576286
-6.67097159
5.865133855
-13.081293
-4.49418706
0.060562016
8.800387362
-2.48664887
-17.6621598
10.73927804
4.761308891
-6.22909699

3.682901
3.552081
3.430236
3.316473
3.210014
3.110177
-19.2951
3.737521
3.602863
3.477571
3.3607
3.251429
-16.9948
3.793785
3.655118
3.52623
3.406122
-14.4828
3.85177
3.708911

2.246072
138.2906
141.1716
11.7597
11.88157

3.919838166
68.52404998
69.95163436
8.277925464
8.363709366

-0.17599
75.30574
76.87461
8.677888
8.767817

SINGLE INDEX MODEL

Variables Entered/Removedb

Model
1

Variables

Variables

Entered

Removed

Method

market returna

. Enter

a. All requested variables entered.
b. Dependent Variable: maruti return

Model Summary
Change Statistics

Model
1

R
.632a

R Square

Adjusted R

Std. Error of

R Square

Square

the Estimate

Change

.400

a. Predictors: (Constant), market return

.389

5.98903

.400

F Change
35.995

df1

df2
1

Sig. F Change
54

.000

ANOVAb
Model
1

Sum of Squares

df

Mean Square

Regression

1291.084

1

1291.084

Residual

1936.900

54

35.869

Total

3227.984

55

F

Sig.

35.995

a

.000

a. Predictors: (Constant), market return
b. Dependent Variable: hero honda return

Coefficientsa
Standardized
Unstandardized Coefficients
Model
1

B
(Constant)
market return

Std. Error
-1.303

.921

.880

.147

a. Dependent Variable: Hero Honda return

Coefficients
Beta

95% Confidence Interval for B
t

.632

Sig.

Lower Bound

Upper Bound

-1.414

.163

-3.150

.544

6.000

.000

.586

1.174

The independent variable can explain only 40% of the dependent variable. i.e only 40% of the Hero
Honda return can be explained by the market return. And the remaining 60% is not explained. The value
only gives the strength of association between the Hero Honda return and the market return. In the
anova table we got a significance value of 0.000 which indicates that the independent variable can
reliably predict the value of dependent variable.

RESULTS:
Price
Target Price
Short sell
Investment Period

Rs826
Rs875
Rs885-895
12 days

Stock Info
Sector
Market Cap
Beta
52 WK
Avg Daily Volume
Face Value
BSE Code
NSE Code
Reuters Code
Bloomberg Code

Automobile
(Rs cr) 16,495
0.4
High / Low 895/561
69681
(Rs) 2
500182
HEROHONDA
HROH.BO
HH IN

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