You are on page 1of 43

Introduction: Professional investor will make more money & less loss than, who let their heart

rule. Their head eliminate all emotions for decision making. Be ruthless & calculating, you are out to make money. Decision should be based on actual movement of share price measured both in money & percentage term & nothing else. Greed must be avoided patience may be a virtue, but impatience can frequently be profitable. In Equity Analysis anticipated growth, calculations are based on considered facts & not on hope. Equity analysis is basically a combination of two independent analyses, namely fundamental analysis & Technical analysis. The subject of Equity analysis, i.e. the attempt to determine future share price movement &

its reliability by references to historical data is a vast one, covering many aspect from the calculating various financial ratios, indicators. A general investor can apply the principles by using the simplest of tools: pocket calculator, pencil, ruler, chart paper & your cautious mind, watchful attention. It should be pointed out that, this equity analysis does not discuss how to buy & sell shares, but does discuss a method which enables the investor to arrive at buying & selling decision. The financial analysts always need yardsticks to evaluate the efficiency & performances of any business unit at the time of investment. Fundamental analysis is useful in long term investment decision. In Fundamental analysis company s goodwill, its performances, liquidity, leverage, turnover, profitability & financial health was checked & analysis with the help of ratio analysis for the purpose of long term successful investment. Technical analysis refers to the study of market generated data like prices & volume to determine the future direction of prices movements. Technical analysis mainly seeks to predict the short term price travels. The focus of technical analysis is mainly on the internal market data, i.e. prices & volume data. It appeals mainly to short term traders. It is the oldest approach to equity investment dating back to the late 19th century. plotting of charts to extremely sophisticated

Assumptions for the Equity Analysis. 1. Works only in normal share-market conditions with great reliability, it also abnormal share-market conditions, but with low reliability. 2. Equity analysis is purely based on the investment philosophy, so the investment object has vital importance associated to return along with risk. 3. Cash management gets the magnitude role, because the scenario of equity analysis is revolving around the term money 4. Portfolio management, risk management was up to the investors knowledge. 5. Capital market trend is always a friend, whether it is short run or long run. 6. You are buying stock & not companies, so don t be curious or panic to do post-mortem of companies performances. 7. History repeats: investors & speculators react the same way to the same types of events homogeneously. 8. Capital market has a typical market psychology along with other issues like; perceptions, the crowd Vc the individual, tradition s & trust. 9. An individual perceptions about the investment return & associated risk may differ from individual to individual. 10. Although the equity analysis is art as well as sciences so, it also has some exceptions. works in

EQUITY ANALYSIS.

ENVIRONMENT & ECONOMICAL ANALYSIS.

FUNDAMENTAL ANALYSIS Technical analysis:-

TECHNICAL ANALYSIS

Technical analysis refers to the study of market generated data like prices & volume to determine the future direction of prices movements. Technical analysis mainly seeks to predict the short term price travels. It is important criteria for selecting the company to invest. It also provides the base for decision-making in investment. The one of the most frequently used yardstick to check & analyze underlying price progress. For that matter a verity of tools was consider. This Technical analysis is helpful to general investor in many ways. It provides important & vital information regarding the current price position of the company. Technical analysis involves the use of various methods for charting, calculating & interpreting graph & chart to assess the performances & status of the price. It is the tool of financial analysis, which not only studies but also reflecting the numerical & graphical relationship between the important financial factors. The focus of technical analysis is mainly on the internal market data, i.e. prices & volume data. It appeals mainly to short term traders. It is the oldest approach to equity investment dating back to the late 19th century. It uses charts and computer programs to study the stocks trading volume and price movements in the hope of identifying a trend. In fact the decision made on the basis of technical analysis is done only after inferring a trend and judging the future movement of the stock on the basis of the trend. Technical Analysis assumes that the market is efficient and the price has already taken into consideration the other

factors related to the company and the industry. It is because of this assumption that many think technical analysis is a tool, which is effective for short-term investing. History of Technical Analysis: Technical Analysis as a tool of investment for the average investor thrived in the late nineteenth century when Charles Dow, then editor of the Wall Street Journal, proposed the Dow theory. He recognized that the movement is caused by the action/reaction of the people dealing in stocks rather than the news in itself. Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity. Just as there are many investment styles on the fundamental side, there are also many different types of technical traders. Some rely on chart patterns, others use technical indicators and oscillators, and most use some combination of the two. In any case, technical analysts' exclusive use of historical price and volume data is what separates them from their fundamental counterparts. Unlike fundamental analysts, technical analysts don't care

whether a stock is undervalued the only thing that matters is a security's past trading data and what information this data can provide about where the Security might move in the future. Basic premises of technical analysis: 1. Market prices are determined by the interaction of supply & demand forces. 2. Supply & demand are influenced by variety of supply & demand affiliated factors both rational & irrational. 3. These include fundamental factors as well as psychological factors. 4. Barring minor deviations stock prices tend to move in fairly persistent trends. 5. Shifts in demand & supply bring about change in trends.

6. This shift s can be detected with the help of charts of manual & computerized action, because of the persistence of trends & patterns analysis of past market data can be used to predict future prices behaviors. Drawbacks / limitations of technical analysis: 1. Technical analysis does not able to explain the rezones behind the employment or selection of specific tool of Technical analysis. 2. The technical analysis failed to signal an uptrend or downtrend in time. 3. The technical analysis must be a self defeating proposition. As more & more people use, employ it the value of such analysis trends to reduce. Why we use Technical Analysis? 1) Technical analysis provides information on the best entry and exit points for a trade. 2) On a chart, the trader can see where momentum is rising, a trend is forming, a price is dipping or other events are developing that show the best entry point and time for the most profitable trade. With the constant movement of various currencies against each other in the Forex market, most traders will focus on using technical indicators to find and place their trades. Is Technical Analysis difficult? 1) Technical analysis is not difficult, but it requires studying different types of charts such as the hourly or daily charts, knowing which technical indicators to use and how to use them. 2) Computers and the Internet have made this process much easier. Most brokers provide basic charts and technical indicators for free or at a very low cost. 3) One way to avoid getting frustrated by all the lines, colors, and graphics is to focus on using only a few indicators that will provide you with the information needed. Try not to clutter your chart with too much information .

Fundamental vs. Technical Analysis Technical analysis and fundamental analysis are the two main schools of thought in the financial markets. As we've mentioned, technical analysis looks at the price movement of a security and uses this data to predict its future price movements. Fundamental analysis, on the other hand, looks at economic factors, known as fundamentals. Fundamental analysis takes a relatively long-term approach to analyzing the market compared to technical analysis. While technical analysis can be used on a timeframe of weeks, days or even minutes, fundamental analysis often looks at data over a number of years. The future can be found in the past If prices are based on investor expectations, then knowing what a security should sell for (i.e., fundamental analysis) becomes less important than knowing what other investors expect it to sell for. That's not to say that knowing what a security should sell for isn't important--it is. But there is usually a fairly strong consensus of a stock's future earnings that the average investor cannot disprove. Technical analysis is the process of analyzing a security's historical prices in an effort to determine probable future prices. This is done by comparing current price action (i.e., current expectations) with comparable historical price action to predict a reasonable outcome. The devout technician might define this process as the fact that history repeats itself while others would suffice to say that we should learn from the past. Usually the following tools & instruments are used to do the technical analysis: Price Fields Technical analysis is based almost entirely on the analysis of price and volume. The fields which define a security's price and volume are explained below. Open - This is the price of the first trade for the period (e.g., the first trade of the day). When analyzing daily data, the Open is especially important as it is the consensus price after all interested parties were able to "sleep on it."

High - This is the highest price that the security traded during the period. It is the point at which there were more sellers than buyers (i.e., there are always sellers willing to sell at higher prices, but the High represents the highest price buyers were willing to pay). Low - This is the lowest price that the security traded during the period. It is the point at which there were more buyers than sellers (i.e., there are always buyers willing to buy at lower prices, but the Low represents the lowest price sellers were willing to accept). Close - This is the last price that the security traded during the period. Due to its availability, the Close is the most often used price for analysis. The relationship between the Open (the first price) and the Close (the last price) are considered significant by most technicians. This relationship is emphasized in candlestick charts. Volume - This is the number of shares (or contracts) that were traded during the period. The relationship between prices and volume (e.g., increasing prices accompanied with increasing volume) is important. Open Interest - This is the total number of outstanding contracts (i.e., those that have not been exercised, closed, or expired) of a future or option. Open interest is often used as an indicator. Bid - This is the price a market maker is willing to pay for a security (i.e., the price you will receive if you sell). Ask - This is the price a market maker is willing to accept (i.e., the price you will pay to buy the security). Price Styles Price in a chart can be displayed in four styles: 1. Bar Chart. 2. Line Chart. 3. Candlestick Chart. 4. Point and Figure Charts

1) Bar Charts : The highs and lows of a foreign currency are plotted in a diagram and the points are joined with vertical lines (bars). A small horizontal tick to the left denotes the opening level while a small horizontal tick to the right represents the closing price of each interval.

2) Line Chart. It gives the detailed information about every aspect. The exchange rates for each time period are plotted in a diagram and the points are joined. Prices on the y-axis, time on the x-axis. The line chart chooses for example the closing price of consecutive time periods, but can also work with daily, official fixings. The relatively easy handling of line charts is a great advantage. Line charts do not show price movements within a time period. This can be a problem because important information for exchange rate analysis can be lost. This problem was remedied with the development of bar charts that represent a more sophisticated form of line chart.

3) Candlestick Chart. A candlestick is black if the closing price is lower than the opening price. A candlestick is white if the closing price is higher than the opening price. In the 1600s, the Japanese developed a method of technical analysis to analyze the price of rice contracts. This technique is called candlestick charting. Steven Nison is credited with popularizing candlestick charting and has become recognized as the leading expert on their interpretation. Candlestick charts display the open, high, low, and closing prices in a format similar to a modern-day barchart, but in a manner that extenuates the relationship between the opening and closing prices. Candlestick charts are simply a new way of looking at prices, they don't involve any calculations. Because candlesticks display the relationship between the open, high, low, and closing prices, they cannot be displayed on securities that only have closing prices, nor were they intended to be displayed on securities that lack opening prices.

The interpretation of candlestick charts is based primarily on patterns. The most popular patterns are explained below.. Bullish Patterns 1) Long white (empty) line. This is a bullish line. It occurs when prices open near the low and close significantly higher near the period's high.

2) Hammer. This is a bullish line if it occurs after a significant downtrend. If the line occurs after a significant up-trend, it is called a Hanging Man. A Hammer is identified by a small real body (i.e., a small range between the open and closing prices) and a long lower shadow (i.e., the low is significantly lower than the open, high, and lose). The body can be empty or filled-in.

3) Piercing line. This is a bullish pattern and the opposite of a dark cloud cover. The first line is a long black line and the second line is a long white line. The second line opens lower than the first line's low, but it closes more than halfway above the first line's real body.

4) Bullish engulfing lines. This pattern is strongly bullish if it occurs after a significant downtrend (i.e., it acts as a reversal pattern). It occurs when a small bearish (filled-in) line is engulfed by a large bullish (empty) line.

5) Morning star. This 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.

6) Bullish doji star. A "star" indicates a reversal and a doji indicates indecision. Thus, this pattern usually indicates a reversal following an indecisive period. You should wait for a confirmation (e.g., as in the morning star, above) before trading a doji star. The first line can be empty or filled in.

Bearish Patterns 1) Long black (filled-in) line. This is a bearish line. It occurs when prices open near the high and close significantly lower near the period's low.

2) Hanging Man. These lines are bearish if they occur after a significant uptrend. If this pattern occurs after a significant downtrend, it is called a Hammer. They are identified by small real bodies (i.e., a small range between the open and closing prices) and a long lower shadow (i.e., the low was significantly lower than the open, high, and close). The bodies can be empty or filled-in.

3) Dark cloud cover. This is a bearish pattern. The pattern is more significant if the second line's body is below the center of the previous line's body (as illustrated).

4) Bearish engulfing lines. This pattern is strongly bearish if it occurs after a significant uptrend (i.e., it acts as a reversal pattern). It occurs when a small bullish (empty) line is engulfed by a large bearish (filled-in) line.

5) Evening star. This is a bearish pattern signifying a potential top. The "star" indicates a possible reversal and the bearish (filled-in) line confirms this. The star can be empty or filled in.

6) Doji star. A star indicates a reversal and a doji indicates indecision. Thus, this pattern usually indicates a reversal following an indecisive period. You should wait for a confirmation (e.g., as in the evening star illustration) before trading a doji star.

7) Shooting star. This pattern suggests a minor reversal when it appears after a rally. The star's body must appear near the low price and the line should have a long upper shadow.

Trends in Technical Analysis: The Use of Trends One of the most important concepts in technical analysis is that of trend. The meaning in finance isn't all that different from the general definition of the term - a trend is really nothing more than the general direction in which a security or market is headed. Take a look at the chart below:

Isnt it hard to see that the trend is up. However, it's not always this easy to see a trend: There are lots of ups and downs in this chart, but there isn't a clear indication of which direction this security is headed. A More Formal Definition Unfortunately, trends are not always easy to see. In other words, defining a trend goes well beyond the obvious. In any given chart, you will probably notice that prices do not tend to move in a straight line in any direction, but rather in a series of highs and lows. In technical analysis, it is the movement of the highs and lows that constitutes a trend. For example, an uptrend is classified as a series of higher highs and higher lows, while a downtrend is one of lower lows and lower highs.

It is an example of an uptrend. Point 2 in the chart is the first high, which is determined after the price falls from this point. Point 3 is the low that is established as the price falls from the high. For this to remain an uptrend each successive low must not fall below the previous lowest point or the trend is deemed a reversal. Types of Trend There are three types of trend: 1. Uptrend

2. Downtrend 3. Sideways/Horizontal Trends

As the names imply, when each successive peak and trough is higher, it's referred to as an upward trend. If the peaks and troughs are getting lower, it's a downtrend. When there is little movement up or down in the peaks and troughs, it's a sideways or horizontal trend. If you want to get really technical, you might even say that a sideways trend is actually not a trend on its own, but a lack of a well-defined trend in either direction. In any case, the market can really only trend in these three ways: up, down or nowhere. Trend Lengths Along with these three trend directions, there are three trend classifications. A trend of any direction can be classified as a long-term trend, intermediate trend or a short-term trend. In terms of the stock market, a major trend is generally categorized as one lasting longer than a year. An intermediate trend is considered to last between one and three months and a near-term trend is anything less than a month. A long-term trend is composed of several intermediate trends, which often move against the direction of the major trend. If the major trend is correction in price upward and there is a downward

movement followed by a continuation of the uptrend, the correction is

considered to be an intermediate trend. The short-term trends are components of both major and intermediate trends. Take a look a Figure to get a sense of how these three trend lengths might look.

When analyzing trends, it is important that the chart is constructed to best reflect the type of trend being analyzed. To help identify long-term trends, weekly charts or daily charts spanning a five-year period are used by chartists to get a better idea of the long-term trend. Daily data charts are best used when analyzing both intermediate and short-term trends. It is also important to remember that the longer the trend, the more important it is; for example, a one-month trend is not as significant as a five-year trend. Trend Lines A trend line is a simple charting technique that adds a line to a chart to represent the trend in the market or a stock. Drawing a trend line is as simple as drawing a straight line that follows a general trend. These lines are used to clearly show the trend and are also used in the identification of trend reversals. An upward trend line is drawn at the lows of an upward trend. This line represents the support the stock has every time it moves from a high to a low. Notice how the price is propped up by this support. This type of trend line helps traders to anticipate the point at which a stock's price will begin moving upwards again. Similarly, a downward trend line is drawn at the highs of the

downward trend. This line represents the resistance level that a stock faces every time the price moves from a low to a high. Channels A channel, or channel lines, is the addition of two parallel trend lines that act as strong areas of support and resistance. The upper trend line connects a series of highs, while the lower trend line connects a series of lows. A channel can slope upward, downward or sideways but, regardless of the direction, the interpretation remains the same. Traders will expect a given security to trade between the two levels of support and resistance until it breaks beyond one of the levels, in which case traders can expect a sharp move in the direction of the break. Along with clearly displaying the trend, channels are mainly used to illustrate important areas of support and resistance. A descending channel on a stock chart; the upper trend line has been placed on the highs and the lower trend line is on the lows. The price has bounced off of these lines several times, and has remained range-bound for several months. As long as the price does not fall below the lower line or move beyond the upper resistance, the range-bound downtrend is expected to continue.

The Importance Of Trend It is important to be able to understand and identify trends so that you can trade with rather than against them. Two important sayings in technical analysis are "the trend is your friend" and "don't buck the trend," illustrating how important trend analysis is for technical traders Chart Patterns: A chart pattern is a distinct formation on a stock chart that creates a trading signal, or a sign of future price movements. Chartists use these patterns to identify current trends and trend reversals and to trigger buy and sell signals. In the first section of this tutorial, we talked about the three assumptions of technical analysis, the third of which was that in technical analysis, history repeats itself. The theory behind chart patters is based on this assumption. The idea is that certain patterns are seen many times, and that these patterns signal a certain high probability move in a stock. Based on the historic trend of a chart pattern setting up a certain price movement, chartists look for these Patterns to identify trading opportunities. While there are general ideas and components to every chart pattern, there is no chart pattern that will tell you with 100% certainty where a security is headed. This creates some leeway and debate as to what a good pattern looks like, and is a major reason why charting is often seen as more of an art than a science. There are two types of patterns within this area of technical analysis, reversal and continuation. A reversal pattern signals that a prior trend will reverse upon completion of the pattern. A continuation pattern, on the other hand, signals that a trend will continue once the pattern is complete. These patterns can be found over charts of any timeframe. In this section, we will review some of the more Popular chart patterns. 1. Head And Shoulders This is one of the most popular and reliable chart patterns in technical analysis. Head and shoulders is a reversal chart pattern that when formed, signals that the security is likely to move against the previous trend. As you can see , there are two versions of the head and shoulders chart pattern. Head and shoulders top (shown on the left) is a chart pattern that is formed at the

high of an upward movement and signals that the upward trend is about to end. Head and shoulders bottom, also known as inverse head and shoulders (shown on the right) is the lesser known of the two, but is used to signal a reversal in a downtrend.

Head and shoulders top is shown on the left. Head and shoulders bottom, or inverse head and shoulders, is on the right. Both of these head and shoulders patterns are similar in that there are four main parts: two shoulders, a head and a neckline. Also, each individual head and shoulder is comprised of a high and a low. For example, in the head and shoulders top image shown on the left side, the left shoulder is made up of a high followed by a low. In this pattern, the neckline is a level of support or resistance. Remember that an upward trend is a period of successive rising highs and rising lows. The head and shoulders chart pattern, therefore, illustrates a weakening in a trend by showing the deterioration in the successive movements of the highs and lows. 2. Cup And Handle A cup and handle chart is a bullish continuation pattern in which the upward trend has paused but will continue in an upward direction once the pattern is confirmed. The price pattern forms what looks like a cup, which is preceded by an upward trend. The handle follows the cup formation and is formed by a generally

downward/sideways movement in the security's price. Once the price movement pushes above the resistance lines formed in the handle, the upward trend can continue.

3. Double Tops And Bottoms This chart pattern is another well-known pattern that signals a trend reversal - it is considered to be one of the most reliable and is commonly used. These patterns are formed after a sustained trend and signal to chartists that the trend is about to reverse. The pattern is created when a price movement tests support or resistance levels twice and is unable to break through. This pattern is often used to signal intermediate and long-term trend reversals. A double top pattern is shown on the left, while a double bottom pattern is shown on the right.In the case of the double top pattern, the price movement has twice tried to move above a certain price level. After two unsuccessful attempts at pushing the price higher, the trend reverses and the price heads lower. In the case of a double bottom (shown on the right), the price movement has tried to go lower twice, but has found support each time. After the second bounce off of the support, the security enters a new trend And heads upward.

4. Triangles Triangles are some of the most well-known chart patterns used in technical analysis. The three types of triangles, which vary in construct and implication, are the symmetrical triangle, ascending and descending triangle. These chart patterns are considered to last anywhere from a couple of weeks to several months. The symmetrical is a pattern in which two trend lines converge toward each other. This pattern is neutral in that a breakout to the upside or downside is a confirmation of a trend in that direction. In an ascending triangle, the upper trend line is flat, while the bottom trend line is upward sloping. This is generally thought of as a bullish pattern in which chartists look for an upside breakout. In a descending triangle, the lower trend line is flat and the upper trend line is descending. This is generally seen as a bearish pattern where chartists look for a downside breakout.

5. Flag And Pennants These two short-term chart patterns are continuation patterns that are formed when there is a sharp price movement followed by a generally sideways price movement. This pattern is then completed upon another sharp price movement in the same direction as the move that started the trend. The patterns are generally thought to last from one to three weeks. There is little difference between a pennant and a flag. The main difference between these price movements can be seen in the middle section of the chart pattern. In a pennant, the middle section is characterized by converging trend lines, much like what is seen in a symmetrical triangle. The middle section on the flag pattern, on the other hand, shows a channel pattern, with no convergence between the trend lines. In both cases, the trend is expected to continue when the price moves above the upper trend line

6. Wedge The wedge chart pattern can be either a continuation or reversal pattern. It is similar to a symmetrical triangle except that the wedge pattern slants in an upward or downward direction, while the symmetrical triangle generally shows a sideways movement. The other

difference is that wedges tend to form over longer periods, usually between three and six months. The fact that wedges are classified as both continuation and reversal patterns can make reading signals confusing. However, at the most basic level, a falling wedge is bullish and a rising wedge is bearish. We have a falling wedge in which two trend lines are converging in a downward direction. If the price was to rise above the upper trend line, it would form a continuation pattern, while a move below the lower trend line would signal a reversal pattern

7. Triple Tops And Bottoms Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis. These are not as prevalent in charts as head and shoulders and double tops and bottoms, but they act in a similar fashion. These two chart patterns are formed when the price movement tests a level of support or resistance three times and is unable to break through; this signals a reversal of the prior trend. Confusion can form with triple tops and bottoms during the formation of the pattern because they can look similar to other chart patterns. After the first two support/resistance tests are formed in the price movement, the pattern will look like a double top or bottom, which could lead a chartist to enter a reversal position too soon.

8. Rounding Bottom A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that signals a shift from a downward trend to an upward trend. This pattern is traditionally thought to last anywhere from several Months to several years. A rounding bottom chart pattern looks similar to a cup and handle pattern but without the handle. The long-term nature of this pattern and the lack of a confirmation trigger, such as the handle in the cup and handle, make it a difficult pattern.

SUPPORT AND RESISTANCE:Once you understand the concept of a trend, the next major concept is that of support and resistance. You'll often hear technical analysts talk about the ongoing battle between the bulls

and the bears, or the struggle between buyers (demand) and sellers (supply). This is revealed by the prices a security seldom moves above (resistance) or below (support). Support is the price level through which a stock or market seldom falls (illustrated by the blue arrows). Resistance, on the other hand, is the price level that a stock or market seldom surpasses (illustrated by the Red Arrows). These support and resistance levels are seen as important in terms of market psychology and supply and demand. Support and resistance levels are the levels at which a lot of traders are willing to buy the stock (in the case of a support) or sell it (in the case of resistance). When these trend lines are broken, the supply and demand and the psychology behind the stock's movements is thought to have shifted, in which case new levels of support and resistance likely be established. The Importance Of Support And Resistance Support and resistance analysis is an important part of trends because it can be used to make trading decisions and identify when a trend is reversing. Support and resistance levels both test and confirm trends and need to be monitored by anyone who uses technical analysis. As long as the price of the share remains between these levels of support and resistance, the trend is likely to continue. It is important to note, however, that a break beyond a level of support or resistance does not always have to be a reversal. For example, if prices moved above the resistance levels of an upward trending channel, the trend have accelerated, not reversed. This means that the price appreciation is expected to be faster than it was in the channel. Being aware of these important support and resistance points should affect the way that you trade a stock. Traders should avoid placing orders at these major points, as the area around them is usually marked by a lot of volatility. If you feel confident about making a trade near a support or resistance level, it is important that you follow this simple rule: do not place orders directly at the support or resistance level. This is because in many cases, the price never actually reaches the whole number, but flirts with it instead. So if you're bullish on a stock that is moving toward an important support level, do not place the trade at the support level. Instead, place it above the

support level, but within a few points. On the other hand, if you are placing stops or short selling, set up your trade price at or below the level of support.

Indian Automobile Sector The Automobile sector in India has witnessed tremendous growth in last few years. After the economic liberalization in 1991, the automobile sector has attracted a lot of investments including FDI. The Indian consumer has at his disposal, many choices of global automobile brands, manufactured in India. This sector has also contributed to Indian Economy in past years. The increase in Joint Ventures in this sector has given boost to the performance of the sector. Indias Tata Motors launched the Nano, the worlds first low-cost car, in 2009. India is on the verge of becoming a hub for small car manufacture.

HISTORY Globally the first passenger automobile was manufactured by Karl Benz in 1885 in Germany. He is called as Inventor of Modern Automobiles. In 1898 the first car rolled on streets of Mumbai. After that period Indian Automobile Industry has witnessed drastic change. Post-independence, in 1953, the Government of India and

the private sector had put combined efforts in creating an automotive component manufacturing industry to supply to the automobile industry in India. But the growth was relatively slow in the 1950s and 1960s due to Nationalisation and the license raj which hampered the Indian private sector. After 1970, the automotive industry started to grow, but the growth was mainly in tractors, commercial vehicles and scooters. Cars were still not being concentrated on. The history of the Indian Automobile industry can be divided into 3 stages. They are:

Liberalization 1990s In the early 90's some Protectionism Early 1980s Strict licensing, Restrictive tariff structure Limited avenues for expansion Advent of foreign technology was with JV of MUL Main drawbacks were the high cost & long waiting period Japanese manufacturers entered auto sector. Automobile sector delicensed in 1991 & Passenger vehicles in 1993. demand increased on abolition of many controls. Decrease in customs and excise duties made automobiles affordable. The entry of foreign banks which offered many attractive auto finance schemes. But market was still ruled by the sellers.

Globalization-2000s Government started framing policies to boost exports. Automotive Research and Development was established in 2003 for encouraging R&D activities Foreign manufactures started looking at India for sourcing auto components. Buyers started ruling the market due to the availability of choices in the form of models, price points and brands.

Technical Analysis of M&M and Tata Motors:

The double bottom is formed when a downtrend sets a new low in the price movement. This downward move will find support, which prevents the security from moving lower. Upon finding support, the security will rally to a new high, which forms the security's resistance point. The next stage of this pattern is another sell-off that takes the security down to the previous low. These two support tests form the two bottoms in the chart pattern. But again, the security finds support and heads back up. The pattern is confirmed when the price moves above the resistance the security faced on the prior move up.

Remember that the security needs to break through the support line to signal a reversal in the downward trend and should be done on higher volume. As in the double top, do not be surprised if the price returns to the breakout point to test the new support level in the upward trend.

Price

Objective

and

Adjustments

It's important to get an idea as to the size of the resulting move once the signal has been formed. In both the double top and double bottom, the initial price objective can be measured by taking the price distance between the support and resistance levels or the range that chart pattern trades.

Often in technical analysis and chart patterns, we're presented with an ideal chart setup; but in reality the pattern doesn't always look as perfect as it's supposed to. In double tops and double bottoms one thing to remember is that the price on the second test does not always need to reach the same distance as the first test.

Another problem that can occur is the second testing point, where the top or bottom actually breaks the level that the first top or bottom test created. If this occurs, it can give a signal that the previous trend will continue - instead of reverse - as the pattern suggests. However, dont be too quick to abandon the pattern as it could still materialize.

If the price does, in fact, move above the prior test, look to see if the move was accompanied by large volume, suggesting a trend continuation. For example, if on the second test of a double bottom the price falls below the support line on heavy volume, it is a good sign the downward trend will continue and not reverse. If the volume is very weak, it could just be a last attempt to continue the downward trend, but the trend will ultimately reverse.

The double tops and double bottoms are strong reversal patterns that can provide trading opportunities. But it is important to be careful with these patterns as the price can often move either way. Consequently, it's important that the trade is implemented once the support/resistance line is broken.

In Chart: We can find the first trough on 18-3-2011 and then the price rose. After that we can see that price is being lowered which leads to second trough on 20-6-2011. It forms a double bottom from 18th of March to 20th June and the trend continues.

Head And Shoulders This is one of the most popular and reliable chart patterns in technical analysis. Head and shoulders is a reversal chart pattern that when formed, signals that the security is likely to move against the previous trend. There are two versions of the head and shoulders chart pattern. Head and shoulders top is a chart pattern that is formed at the high of an upward movement and signals that the upward trend is about to end. Head and shoulders bottom, also known as inverse head and shoulders is the lesser known of the two, but is used to signal a reversal in a downtrend.

Head and shoulders top is shown on the left. Head and shoulders bottom, or inverse head and shoulders, is on the right. Both of these head and shoulders patterns are similar in that there are four main parts: two shoulders, a head and a neckline. Also, each individual head and shoulder is comprised of a high and a low. For example, in the head and shoulders top image shown on the left side, the left shoulder is made up of a high followed by a low. In this pattern, the neckline is a level of support or resistance. Remember that an upward trend is a period of successive rising highs and rising lows. The head and shoulders chart pattern, therefore, illustrates a weakening in a trend by showing the deterioration in the successive movements of the highs and lows. In chart:

MACD

Buy

and

Sell

Signals:

This stands for Moving Average Convergence Divergence. It has three ways it can give a buy or sell signal. It can give buy signals in an up trend when the lines cross each other and turn upward (green boxes). It can give sell signals in a downtrend when the lines cross and head lower (red box). You can also get a buy signal as the MACD lines rise upward above the zero line (yellow box on the left) and you can also get a MACD sell signal when the lines head downward below the zero line (yellow box on the right). (Note: Only take MACD buy signals when the stock is in an up trend. Take sell signals only when the stock is in a downtrend. When the stock price is stuck in a range, you can take buy signals when the lines cross and turn upward and sell signals when the lines cross and turn downward.) The final way you can get a signal from the MACD is by divergences between the actual price and the indicator (blue lines). Notice the MACD starts to have lower highs, yet the price action just levels off. This can be a powerful tipping of the hand of things to come once the price confirms this by breaking down below its trend line. The most common period used on the MACD is 12,26 and 9 (all used together and in that order).

In Chart: Date 9-1-2012 27-2-2012 Action Buy Sell Price(INR) 663.06 696.65

MACD Divergence: MACD Divergence is one of the most famous and strongest trading signals that MACD generates. MACD Divergence forms when the price goes up and makes higher highs and at the same time, MACD bars go down and make lower highs. The rule says, the price will finally follow the MACD direction and will break down. However, the problem is, you never know when the price will follow the MACD direction. So, if you rush and take a short position right when you see a MACD Divergence, it may keep on going up for several more candles. You should go short when MACD Divergence is followed by a good sell signal by the candles and/or a support break down. This is safer. MACD Divergence can be seen at the end of uptrends. What does it mean? It means if you are a trend trader, you should not go long when you see that a MACD Divergence is formed. It can collapse at any time.

In Chart: