CLASSICAL TECHNICAL ANALYSIS

Presented By Aditi Bakshi (2541) Akanksha Walia (2555) Namrata Panwar (2565) Priyanka Kori (2536) Rashmi Beria (2543)

Outline
Introduction Tool of TA: Charts Indicators of TA Analysis of Real Estate Companies Analysis of Telecom Companies Analysis of Pharmaceutical Companies Analysis of Automobile Companies

Conclusion

Introduction
Two major types of analysis for predicting

the performance of a companys stock :

Fundamental
Technical

Fundamental Analysis
Determination of intrinsic value of stocks by analyzing

fundamental factors of economy, industry & company as a whole

Uses financial statements to determine intrinsic value of

stocks
Takes relatively long-term approach to analyzing the

market compared to technical analysis

Investment is the objective. Investors buy assets they

believe can increase in value

Technical Analysis
Technical analysis or charting is the study of historical

price movements of stocks and its volume of trade in financial markets in order to predict the future movements of stocks
It is based on three basic beliefs:
Price reflects everything Price tends to move in trends History tends to repeat itself

Tool of TA: Charts

Line Chart
Represents closing price of stocks
Over a period of time

Bar Chart

Tool of TA: Charts (Contd..)

Japanese Candlestick Chart

Types of Japanese Candlestick

Green - bullish pattern Hammer - Bullish pattern &

indicates reversal

Red - bearish pattern

Star - Reversal or indecision

Accumulation/Distribution Line
Measures the ratio of buying to selling by comparing price

movement of a period to volume of that period

Acc/Dist = [(Close - Low) - (High Close)] / (High - Low) * Period's Volume

Traders look for trends in this indicator to gain insight on

amount of purchasing compared to selling selling & vice versa

An upward trending line implies there is more buying than

Average Directional Index (ADX)

ADX measures strength of a current trend but not the

direction

It is a combination of two price movement measures:

positive directional indicator (+DI) negative directional indicator (-DI)

Plotted on a scale between zero and 100, readings below

20 signal a weak trend while readings above 40 signal a strong trend

Aroon
Aroon is a trending indicator used to measure whether a security is

in an uptrend or downtrend and magnitude of that trend

Also to predict when a new trend is beginning

Aroon-up line measures amount of time it has been since the highest price during the time period Aroon-down line measures amount of time since the lowest price during the time period

Aroon Oscillator
It plots the difference between the Aroon up and down lines

between a range of -100 and 100

This indicator is used to:

Determine the trend : Higher value of oscillator from the

centerline point indicates upward strength in security & vice versa centerline, it signals trend reversal

Show trend reversal : When oscillator crosses through the

Divergence in the oscillator also used to predict trend reversals. A reversal warning is formed when the oscillator and the price trend are moving in an opposite direction

Moving Average Convergence Divergence (MACD)

Comprised of two exponential moving averages (EMAs), which help to

measure momentum in the security MACD = 12-period EMA minus 26-period EMA
Signal line is 9-period EMA of MACD values MACD histogram: Each bar is the difference between MACD and MACD signal line

When MACD is above signal line: Buy Signal

When MACD is below signal line: Sell Signal

Relative Strength Index (RSI)

RSI is an oscillator that measures current price strength in relation to

previous prices
This indicator can be used to: Show overbought & oversold conditions Generate buy & sell signals Confirm price movement Warn of potential price reversals through divergences RSI uses 14 trading days as basis. The shorter the number of days used to calculate, the more volatile RSI

On-Balance Volume (OBV)

Combines price and volume to determine whether

price movements are strong or are weak and lacking conviction

On an up day, the volume is added to the previous day's OBV
On a down day, the volume is subtracted from the previous

day's OBV

Focus on the trend in the OBV more than the actual

value of the OBV measure

Stochastic Oscillator
It is a momentum indicator that shows the location of the close

relative to the high-low range over a set number of periods

Uptrend: price closes near the highs of trading range, signaling upward momentum Downtrend: price closes near the lows , signaling downward momentum

Plotted within a range of zero and 100 and signals overbought conditions above 80 and oversold conditions below 20 Normally uses past 14 trading periods for calculation

REAL ESTATE SECTOR

-Technical Analysis

Real Estate
In India, it is the second largest employer, next to

agriculture, growing at about 30% per annum. 5% of countrys GDP is contributed by the real estate sector. The companies taken for the analysis are: DLF limited Unitech Ansal API The analysis has been done by taking last 6 months, i.e, Sep11 onwards.

DLF Limited:
It is the largest commercial real estate developer

in India.
CURRENT FINANCIAL STATUS OF THE COMPANY (for quarter ending Dec11): Sales: Rs.753.54cr

Operating profit margin: 125.59% Net profit: Rs.355.70cr EPS: Rs.2.09 PE ratio: 22.4times Current Share price: Rs.196.30

MACD:
A buy signal is generated when the MACD (blue

line) crosses above the MACD Signal Line (red line). Similarly, when the MACD crosses below the MACD Signal Line a sell signal is generated.
When the MACD histogram is below the zero line and begins to converge towards the zero line, it gives a buy signal. Conversely, When the MACD

histogram is above the zero line and begins to converge towards the zero line, it gives sell signal.

RSI:
Buy when the RSI crosses above the oversold line (30). Sell when the RSI crosses below the overbought line (70).

Money Flow Index:

Below 20 is considered oversold; look for buying opportunities. Above 80 is in overbought territory; look for sell signals.

ADX:
Below 20: Non-trending market. Crosses above 20: Signal that a trend might be emerging; consider initiating buy or sell short in direction of prevailing stock, future, or currency price movement. Between 20 & 40: If ADX is increasing between 20 and 40, then it is further confirmation of emerging trend. Buy or shortsell in the direction of the current market direction. Above 40: Very strong trend.

Unitech Limited:
It is India's second largest real estate investment

company.
CURRENT FINANCIAL STATUS OF THE COMPANY (for quarter ending Dec11): Sales: Rs.254.42cr

Operating profit margin: 70.85% Net profit: Rs.73.01cr EPS: Rs.0.28 PE ratio: 21.94times Current Share price: Rs.29.40

Omaxe Limited:
The company has its operations in Integrated townships, Group housing, SEZs, Shopping malls & commercial complexes and hotels. CURRENT FINANCIAL STATUS OF THE COMPANY (for quarter ending Dec11): Sales: Rs.331.09cr Operating profit margin: 14.84% Net profit: Rs.11.90cr EPS: Rs.0.69 PE ratio: 53.26times Current Share price: Rs.153.40

Results:
MACD: The MACD line is below the signal line in all the 3 companies which indicates a selling signal. RSI: All the 3 companies stocks are lying in the middle of the 30-70 line which suggests there isnt any overbuying or overselling. MFI: In case of Omaxe, the MFI line touched the 20-line

(overselling), hence traders would be advised to buy which would result in rising MFI line. ADX: It provides trends in the market. In case of DLF, it is above 40 showing a very strong trend in the market. It can be witnessed by the continuously falling prices of DLF stocks. In case of Unitech, it just crosses 20, showing that a trend might be emerging. In case of Omaxe, it is rising between 20-40, confirming further

of emerging trend.

TELECOM SECTOR
-Technical Analysis

TELECOM SECTOR
It is one of the prime support services needed for rapid growth and modernization of various sectors of the economy. Indian Telecommunications network is the third largest in the world. The sector is growing at a speed of 45% during the recent years. India has the world's second-largest mobile phone users with over 903 million as of January 2012. It has the world's third-largest Internet users with over 121 million as of December 2011. India has become the world's most competitive and one of the fastest growing telecom markets. The total revenue of the Indian telecom sector grew by 7% to 283,207 crore for 2010-11 financial year. The companies taken for the analysis are: RELIANCE COMMUNICATIONS IDEA CELLULAR TATA COMMUNICATIONS The analysis has been done by taking last 6 months, i.e, Sep11 onwards.

RELIANCE COMMUNICATIONS
Reliance communications is the flagship company of Anil

Dhirubai Ambani group of companies. It is Indias leading integrated telecommunication company with over 77 million customers. It encompasses a complete range of telecom service covering mobile and fixed line telephony. It includes broadband, national and international long distance services. It has a reliable, high capacity ,integrated and convergent (voice, data, video) digital network.

TYPE HEADQUARTERS INDUSTRY PRODUCTS

PRIVATE MUMBAI TELECOMMUNICATION TELECOM SERVICES,BROADBAND,MO BILE,DATA SERVICES http://www.rcom.co.in

WEBSITE

FINANCIALS(for quarter ending Dec 11)

Sales income Operating profit margin Net profit margin Net profit 2787 11.95% 3.7% 1862 (in Rs. Crore)

Earning per share Price earning ratio

Share price for the year 2011

0.0 33.1115 times

92.21

Please note that Historical charts are generated on weekly basis.

A buy signal is generated when the MACD (blue line) crosses above the MACD Signal Line (red line). Similarly, when the MACD crosses below the MACD Signal Line a sell signal is generated. When the MACD histogram is below the zero line and begins to converge towards the zero line, it gives a buy signal. Conversely, When the MACD histogram is above the zero line and begins to converge towards the zero line, it gives sell signal.

RELATIVE STRENGTH INDEX

Buy when the RSI crosses above the oversold line (30). Sell when the RSI crosses below the overbought line (70).

AVERAGE DIRECTIONAL MOVEMENT INDEX

Below 20: Non-trending market. Crosses above 20: Signal that a trend might be emerging; consider initiating buy or sell short in direction of prevailing stock, future, or currency price movement. Between 20 & 40: If ADX is increasing between 20 and 40, then it is further confirmation of emerging trend. Buy or shortsell in the direction of the current market direction.. Above 40: Very strong trend. Crosses above 50: Extremely strong trend. Crosses above 70: "Power Trend"; very rare occurrence

MONEY FLOW INDEX

Below 20 is considered oversold; look for buying opportunities. Above 80 is in overbought territory; look for sell signals.

IDEA CELLULAR
Idea Cellular, usually referred to as Idea, is an Indian mobile network operators based in Mumbai, India. Idea is the 4th largest wireless carrier in Indian market with over 100 million customers and also provides broadband Internet to its customers.

TYPE HEADQUARTERS INDUSTRY PRODUCTS

PRIVATE MUMBAI TELECOMMUNICATION TELECOM SERVICES,BROADBAND,MO BILE,DATA SERVICES http://www.ideacellular.com/

WEBSITE

FINANCIALS(for quarter ending Dec 11)

Sales income Operating profit margin Net profit margin Net profit 4957.29 23.16% 3.29% 162.89(in Rs. Crore)

Earning per share Price earning ratio

Share price for the year 2011

o.51 40.3 times

78.75

TATA COMMUNICATIONS
Tata Communications is a leading global provider of a new world of communications and is a part of the $83.3 billion Tata Companies. Its portfolio includes transmission, IP, converged voice, mobility, managed network connectivity, hosted data center, communications solutions and business transformation services to global and Indian enterprises & service providers as well as, broadband and content services to Indian consumers.

TYPE HEADQUARTERS INDUSTRY PRODUCTS

PRIVATE MUMBAI TELECOMMUNICATION TELECOM SERVICES,BROADBAND,MO BILE,DATA SERVICES http://www.rcom.co.in

WEBSITE

FINANCIALS(for quarter ending Dec 11)

Sales income Operating profit margin Net profit margin Net profit 1019.23 25.71% 2.89% 2948(in Rs. Crore)

Earning per share Price earning ratio

Share price for the year 2011

1.03 33.67 times

RESULTS :
MACD: The MACD line is below the signal line for reliance and tata communications which indicates a selling signal. Conversely, a buying signal is indicated in case of idea cellular. RSI: RCOM and Tata communications stocks are lying in the middle of the 30-70 line which suggests there isnt any overbuying or overselling. But the RSI graph for idea cellular suggests a sell signal because it is very close to the overbought line . ADX: The current values for RCOM as well as Tata Communications signal a trend that might be emerging; consider initiating buy or sell short in direction of prevailing stock, future, or currency price movement. For IDEA it is currently below 20 which suggests a non trending market. MFI: For RCOM the MFI line touched 20 in Dec 2011, which indicates overselling and more stocks to buy would be the suggestion. During the month of January it was in the overbought territory so one should look for sell opportunities at such times. For idea it was in the overbought category in February indicating a sell signal. Tata communications- It has been in the overbought territory for quite some periods so one should look for sell opportunities at such times.

PHARMACEUTICAL COMPANIES

 Indian pharma industry (IPI) is one of the largest and

most advanced among the developing countries. It has over the years made significant progress in infrastructure development, technological capability and hence produced a wide range of products The Pharmaceutical industry in India is the world's third-largest in terms of volume and stands 14th in terms of value. Sale of all types of medicines in the country is expected to reach aroundUS$19.22 billion by the end of 2012. Three of the major pharmaceutical companies are Ranbaxy, Sun pharma and P fizer.

 The companies analysed are:

-Ranbaxy Laboratories limited -Sun Pharmaceutical Industries Ltd. -Pfizer Inc

Ranbaxy:
Market Cap (Rs cr) 16955.46 Sale(Dec 2011)(Rs lakh) 388772 EPS (Trailing 12 mnths,Rs)-72.32

SunPharma:
Market Cap (Rs cr)57392.96
Sale(Dec 2011) 101185 EPS (Trailing 12 mnths,Rs) 15.44

Pfizer:
Market ap (Rs cr) 3658.39
Sale(Dec 2011)26198 EPS (12 mnths,Rs) 0.00

RANBAXY, SUN PHARMA AND PFIZER

Sell

MACD
Sell

Buy Buy

Sell

Sell Sell

Buy

Buy

Buy

Sell Sell Buy Buy

Ranbaxy, sun pharma and Pfizer RSI

Buy

Sell

Buy

Buy when the RSI crosses above the oversold line (30).

Sell when the RSI crosses below the overbought line (70).

Ranbaxy, sun pharma and Pfizer ADX

Ranbaxy, sun pharma and Pfizer MFI

Overselling

Overselling

Overbuying

Overbuying

Summary

As per macd, currently there is buy signal for ranbaxy and sell signal for sun pharma. As per RSI, all the 3 companies stocks usually stayed in the middle of the 30-70 line which suggests there isnt any overbuying or overselling. As per ADX, In march 2012, for ranbaxy and sunpharma, it crosses 20 showing that a trend might be emerging. For Pfizer, it is between 20 40 showing further of emerging trend.
Very strong trend(crossing 40) was shown - in nov 2011 by ranbaxy. - in dec 2011 by Pfizer.

As per MFI, for ranbaxy and Pfizer mfi line touched 20 in Dec 2011, which indicates overselling and more stocks to buy would be the suggestion. Pfizer was above 80 from mid Oct to mid Nov and from mid feb to mid march indicating overbuying, one should look for sell opportunities at such times.

AUTOMOBILE SECTOR

 The Indian Automobile Industry manufactures over 11 million vehicles and exports about 1.5

million each year. Contributes about 9% to the GDP. The industry has a turnover of more than USD $35 billion and provides direct and indirect employment to over 13 million people. The companies analyzed areTata Motors Maruti Suzuki

Maruti Suzuki Ltd

Maruti Suzuki is leading the passenger vehicle segment with a market share of 46%. Market Cap : 19790.64 Cr Sales: Rs. 8588.83 cr Operating profit margin: 7.48% Net profit: 2.66% EPS: Rs. 7.12 PE ratio: 23.9894 Current Share price: Rs. 1374.35 Listed on-The Stock Exchange, Mumbai, National Stock Exchange of India Ltd.

 The MACD is above the signal line for most of the period hence depicting a BUY signal however currently there is a SELL signal. There have been 4 cross-overs. 2 bullish and 2 bearish.
There have been 2 Zero cross-overs.

MACD histogram depicts a sell signal.

 The Accumulation line shows an upward trending

line upto Jan indicating buying after which a sell pattern is depicted. The ADX indicates a weak trend ,however the upward trend is stronger than the downward trend. Buy or shortsell in the direction of the current market direction is indicated.

 A sell stock signal is given by the RSI as it is

very close to the Overbought Line. High Volume trade is depicted by the OBV. It also signals higher price movement. The Stochastic Oscillator is close to 80 signaling overbought conditions.

Tata Motors
Tata Motors is leading the commercial vehicle segment with a market share of about 64% Market Cap-Rs.16156.65cr Sales: Rs. 14479.81 cr Operating profit margin: 5.98% Net profit: 1.31% EPS: Rs. 0.53 PE ratio: 17.6165 Current Share price: Rs. 283.45 Listed on- the Bombay Stock Exchange and the New York Stock Exchange.

 The MACD is above the signal line for most of

the period hence depicting a BUY signal. There have been 2 bearish cross-overs. There have been one Zero cross-over. MACD histogram depicts a sell signal but the results are very insignificant .

 An erractic Accumulation Line depicts an initial buying pattern followed by a sell pattern. The ADX has been between 20-40 most part of the period confirming an emerging trend which is confirmed by the crossing over 40 in March. A buy or shortsell is a good option.

 A sell stock signal is given by the RSI as it is very

close and even crossing the Overbought Line. High Volume trade is depicted since January by the OBV. It also signals higher price movement which is depicted in the price movement chart. The Stochastic Oscillator is above 80 signaling overbought conditions. Prices are tending to make higher highs, and the settlement price is in the upper end of that time period's trading range

Bollinger Bands
MARUTI Bollinger Upper Band1393.78 Bollinger Middle Band-1320.31 Bollinger Lower Band1246.85 TATA MOTORS Bollinger Upper Band292.13 Bollinger Middle Band-274.71 Bollinger Lower Band257.29

 The bands are far apart and thus a period of high volatility in price is indicated. The use of Bollinger Bands varies widely among traders. Some traders buy when price touches the lower Bollinger Band and exit when price touches the moving average in the center of the

bands. Other traders buy when price breaks above the upper Bollinger Band or sell when price falls below the lower Bollinger Band. However, traders are often inclined to use Bollinger Bands with other indicators to see if there is confirmation.

Conclusion - Pros
Technical analysis only focuses on charts and tools and takes no

account of feelings or any other less precise factors.

With technical analysis, it must be pointed out that trading rules are

picking up patterns in the data not accounted for by standard statistical models and that the excess returns thus generated are not simply a risk premium.
With technical analysis your prime concern will be the actual price to

decide what the action of a currency pair might be. You will only concern with what the market is doing, not with what it might do.
One of the great advantages of technical analysis is that it can assist

you in the basics of currency trading. It will also help you to decide how and when to enter the market, how many lots to trade at any one time, how much money to risk on each trade, etc.
Technical indicators can sometimes point to the end of a trend

before it shows up in the market. This will help you hold on to your

Cons
Classic chart-reading is too subjective Few TA indicator signals are supported by research

Technical Analysis deals mainly with direction

Effectiveness of indicators changes as market behavior

changes The same indicators are used to analyze very different markets: for instance, stock market and bond market, Forex and commodity market Why do we all construct only straight trend lines? In many cases, however, movements of highs and lows are approximated by a curve

 It can be dangerous to depend totally on the assumption

that today's prices predict future prices. They often do, but not necessarily. Relying on charts completely will not help you to pick up the signals about the changing of a trend until the change has actually taken place. This means you could miss up to one-third of the fluctuations in currency trading. It is also possible in currency trading to act on a pattern prematurely or in a bit of a panic. If a large number of currency traders do this, it can create a self-fulfilling prophecy.

Thank You