EXECUTIVE SUMMARY The project undertaken is A Study on Technical Analysis of S&P CNX NIFTY stocks.

The project emphasizes on Technical Analysis of stocks. The Chart patterns and indicators used as a part of the Technical Analysis are described in detail. Further, the project also highlights the S&P CNX NIFTY stocks performance. The project also provides an insight into the different components of Securities Market in India like Primary Market, Secondary Market and Derivative market. The project also highlights certain other vital aspects pertaining to the securities market like the Role of regulatories, IPO process etc. The CNX NIFTY is a well diversified 50 stock index accurately reflecting the overall market conditions. The reward to risk ratio of CNX Nifty is higher than other leading indices, making it a more attractive portfolio hence offering similar returns, but at lesser risk.CNX Nifty is based upon solid economic research and is well respected internationally as a pioneering effort in better understanding how to make a stock market index. CNX Nifty Index is computed using free float market capitalization method, wherein the level of the index reflects the total free float market value of all the stocks in the index relative to particular base market capitalization value. CNX Nifty can be used for a variety of purposes such as benchmarking fund portfolios, launching of index funds, ETFs and structured products. Index Variants are CNX Defty, CNX Nift y Total Return Index and CNX Nifty Dividend Index. The Objectives of the study include understanding the Securities market in India. To analyze the role of Equities in Indian financial system and to determine the best stocks amongst the NIFTY 50 stocks for investment. The project taken up can be divided into various phases. In the early phase of the project the entire structure of the Indian Securities market was studied. Next, study was on how technical analysis of stocks is done. Then, the analysis of the CNX NIFTY stocks was done using certain selected indicators of Technical Analysis. Since the project carried out is descriptive and analytical in nature, various documents were referred. The data collection was done through secondary sources like websites and also from personal interaction with the guide and other officials. At the same time related articles, magazines, in-house journals of the India Bulls were referred.

INTRODUCTION

1.1 OVERVIEW OF THE INDIAN SECURITIES MARKET INTRODUCTION The Indian securities market, considered one of the most promising emerging markets, is among the top eight markets of the world. The Stock Exchange, Mumbai, which was established in 1875 as The Native Share and Stockbrokers Association (a voluntary non-profit making association), has evolved over the years into its present status as the premier Stock Exchange in the country. At present 24 stock exchanges operate all over India. These stock exchanges provide facilities for trading securities, Securities markets provide a common platform for transfer of funds from the person who has excess funds to those who need them. Securities market is regulated by the Securities& Exchange Board of India (SEBI).

COMPONENTS OF SECURITY MARKET The major components of the securities market are listed below: Securities-Shares, Bonds, Debentures, Futures, Options, Mutual Fund Units Intermediaries-Brokers, Sub brokers, Custodians, Share transfer agents, Merchant Bankers Issuers of securities-Companies, Bodies corporate, Government, Financial Institutions, Mutual funds, Banks Investors-Individuals, Companies, Mutual funds, Financial Institutions, Foreign Institutional Investors Market Regulators-SEBI, RBI (to some extent), Department of Company Affairs

TYPES OF SECURITIES MARKETS

In the contest of equity products, which this publication seeks to cover in depth, the following markets could be defined: Primary Market Secondary Market Derivatives market

Markets can also be broadly classified into equity and debt markets. Debt markets are characterized Currently by a large institutional presence, though an attempt is being made to attract retail participation in recent times. Debt markets trade in Government securities, Treasury Bills, Corporate Bonds and other debt instruments while Equity markets deal mainly in equity shares and to a limited extent in preference shares and company debentures. Futures and Options in indices and equity shares are of a relatively recent origin and form part of equity markets.

INTERMEDIARIES Intermediaries provide various services to investors and issuers and have grown to become among both powerful and knowledgeable due to due to substantial growth of securities markets over the last century. A large variety and number of intermediaries provide intermediation services in the Indian securities market.

ISSUERS OF SECURITIES Every organisation, whether if be a company, institution or a Government body needs funds for various operations. Organisations issue securities in the primary market depending on their needs. The Securities market in India is an important source for corporate and government. The corporate sector does depend significantly on equity and debt markets for meeting its funding requirements though the share of equity markets has been decreasing over the recent years in view of the rather dull primary market.

INVESTORS Investors are those who have excess funds with them and want to employ it for returns. Indian securities market has more than 20 million investors, comprising Individuals, Companies, Mutual funds, Financial Institutions, Foreign Institutional Investors.

A review of shareholding pattern of all BSE Companies shows that, more than 50% of the shares are held by the promoters of companies, whereas 15% by Institutional Investors.

After liberalization of the economy investments by foreign institutional investors have shown a steady increase. Foreign direct investment has increased from Rs. 174 crores in 1990-91 to Rs. 10,686 crores in 2000-01. Portfolio Investment has shown a faster growth. It is increased from Rs 11 crores in 1990-91 to Rs. 12,609 crores in 2000-2001.

MARKET REGULATORS Securities market is regulated by following governing bodies: 1. Securities and Exchange Board of India (SEBI) 2. Department of Economic Affairs (DEA) 3. Department of Company Affairs (DCA) 4. Reserve Bank of India 5. Stock exchanges

Significant among the legislations for the securities market are the following: 1.The SEBI Act, 1992, which establishes SEBI to protect investors and development and regulate securities market. All the powers under this act are exercised by SEBI. 2.The Companies Act, 1956 which set out the code of conduct for the corporate sector in relation to issue, allotment and transfer of securities, disclosures to be made in public issues and nonpayment of dividend. Powers under this Act are exercised by SEBI in case of listed public companies and public companies proposing to get their securities listed. 3.The Securities Contract (Regulation) Act, 1956, which provide for regulation of transaction ins ecurities through control over stock exchanges, Most of lthe powers under this act are exercised by Department of Economic Affairs (DEA), some are concurrently exercised by DEA and SEBI and a few powers by SEBI. 4.The Depository Act, 1996, which provides for electronic maintenance and transfer of ownership of demateralised securities, SEBI administers the rules and regulation under this Act.

The Securities and Exchange Board of India was established in 1988 to regulate and develop the growth of the capital market. SEBI regulates the working of stock exchanges and intermediaries such as stock brokers and merchant bankers, accords approval for mutual funds, and registers Foreign Institutional Investors who wish to trade in Indian scrips. Section 11(1) of the Sebi Act

provides that it shall be the duty of the Board to protect the interests of investors securities and ot promote the development of, and to regulate the securities market, by such measures as it thinks fit.

SEBI regulates the business in stock exchanges and any other securities markets and the working of collective investment schemes, including mutual funds, registered by it. SEBI promotes investors education and training of intermediaries of securities market. It prohibits fraudulent and unfair trade practices relating to securities markets, and insider trading in securities, with the imposition of monetary penalties, on erring market intermediaries, It also regulates substantial acquisition of shares and takeover of companies and can call for information from, carry out inspection, conduct inquiries and audits of the stock exchanges and intermediaries and self regulatory organizations in the securities market.

SEBI has introduced various reforms including improved transparency, computerisation, enactments against insider trading, improved capital adequacy, imposed restrictions on forward trading, and enacted provisions to encourage corporate membership in the stock exchanges.

Stock exchanges have also laid down strict compliance measures covering detection of irregular trading practices through sophisticated surveillance systems, margining, trading volume controls and set up investor protection funds, Stock exchanges ensure compliance of brokers on a continuous basis through inspection and other measures.

PRIMARY MARKET A market that issues new securities on an exchange. Companies, governments and other groups obtain financing through debt or equity based securities. Primary markets are facilitated by underwriting groups, which consist of investment banks that will set a beginning price range for a given security and then oversee its sale directly to investors.

Also known as "new issue market" (NIM).

hMethods of issuing securities in the primary market are:

Initial public offering; Rights issue (for existing companies) Preferential issue

Kinds of issues The different kinds of issues which can be made by an Indian company in India: a) Public Issue i. ii. Initial Public Offer Further Public Offer

b) Right Issue c) Bonus Issue d) Private Placement

PUBLIC ISSUE i) INITIAL PUBLIC OFFERING

An Initial Public Offering (IPO) is the selling of securities to the public in the primary market. It is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. This paves way for listing and trading of the issuers securities. The sale of securities can be either through book building or through normal public issue. Reasons for IPO 1. Need for funds 2. Disinvestments of public sector units 3. Banks to enhance their capital adequacy 4. Expansion or diversification 5. Finance specific projects for a specific objective BENEFITS OF GOING PUBLIC The potential advantages that seem to prod companies to go public are as follows: 1) Access to Capital The principal motivation for going public is to have access to larger capital. A company that does not tap the public financial market may find it difficult to grow beyond a certain point for want of capital. 2) Respectability Many entrepreneurs believe that they have arrived in some sense if their

company goes public because a public company may command greater respectability. Competent and ambitious executives would like to work for growth. Other things being equal, public companies offer greater growth potential compared to non-public companies. Hence, they can attract superior talent. 3) Window of Opportunity As suggested by Jay Ritter and others that there are periods in which stocks are overpriced. Hence, when a non-public company recognizes that other companies in its industry are overpriced, it has an incentive to go public and exploit that opportunity. 4) Benefit of Diversification When a firm goes public those who have investment in it original owners, investors, managers, and others can cash out of the firm and build a diversified portfolio. 5) Signals from the Market Stock prices represent useful information to the managers. Every day, investors render judgments about the prospects of the firms. Although the market may not be perfect, it provides a useful reality check. 6) Complements Product Marketing: Going public attracts media attention. Newspapers and magazines are most likely to focus on public companies on which information is readily available. This publicity can be harnessed and used towards marketing the product of the company. 7) Competitive position: Many companies use their increased availability of capital as a public company to enhance their competitive position. Additional capital available to a public company permits greater market penetration. 8) Expands Business Relationship: Once a company is public company, information on that company is readily available. Prospective suppliers, distributors and partners could easily garner information and forge a relationship with such company. 9) Ability to take advantage of market price fluctuations: Once public, a company can take advantage of market price fluctuations to sell stock when the markets are hot, buy back the stock when the market is cold. This can often be an effective and low cost way to raise significant capital.

IPO PROCESS

1) Appointment of Investing Banker When a company is aiming to go public, at first it hires an investment bank to do the underwriting, the way of raising money through equity or debt, functions associated with the issue. Although, a company itself also may sell its shares but, usually an investment bank is selected for that purpose. Underwriters act as intercessors between the public, who are investing, and the companies. The investment bank and the company will first initiate the process of deal negotiation. The main discussing issues are the money amount that the company is going to raise, security type to be issued and all the other details involved with the underwriting agreement.

2) Preparation of Red Herring Prospectus Once the deal gets finalized, the investment bank sets a registration statement called Red Herring Prospectus which will be submitted to the Securities and Exchange Commission. The registration statement consists of information regarding the offering and also other companys information like, background of the management, financial statements, legal issues etc. There is no price or issue size stated in the Red Herring. It is updated several times before being called the final prospectus. It is called so because it contains a passage in red that states the company is not attempting to sell its shares before the registration is approved by the SEC (Stock Exchange Commission).

3) SEBI Approval Then the Securities and Exchange Commission (SEC) needs a cooling off period during which it will examine all the submitted documents and make sure that all information regarding the deal have been given to them. After getting the SEC's approval, a date is going to be fixed on which the company will offer the stock to the public.

4) Deciding on price band and share number Then the company and the underwriter meet to decide the price of the stock. The price of the share is determined through book building process. This decision depends highly on the current market condition. Book building process is defined as the process by which an underwriter attempts to determine

at what price to offer an IPO based on demand from institutional investors. An underwriter "builds a book" by accepting orders from fund managers indicating the number of shares they desire and the price they are willing to pay.

5) Making shares available to public The stocks are sold in the market and money is raised from the investors. ii) FURTHER PUBLIC OFFER

When already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, it is called FPO. RIGHTS ISSUE A rights issue is a way in which a company can sell new shares in order to raise capital. Shares are offered to existing shareholders in proportion to their current shareholding, respecting their pre-emption rights. The price at which the shares are offered is usually at a discount to the current share price, which gives investors an incentive to buy the new shares if they do not, the value of their holding is diluted. A rights issue to fund expansion can usually be regarded somewhat more optimistically, although, as with acquisitions, shareholders should be suspicious because management may be empire-building at their expense (the usual agency problem with expansion). The rights are normally a tradable security themselves (a type of short dated warrant). This allows shareholders who do not wish to purchase new shares to sell the rights to someone who does. Whoever holds a right can choose to buy a new share (exercise the right) by a certain date at a set price. Some shareholders may choose to buy all the rights they are offered in the rights issue. This maintains their proportionate ownership in the expanded company, so that an x% stake before the rights issue remains an x% stake after it. Others may choose to sell their rights, diluting their stake and reducing the value of their holding. If rights are not taken up the company may (and in practice does) sell them on behalf of the rights holder.

BONUS SHARES

The term bonus means an extra dividend paid to shareholders in a joint stock company from surplus profits. When a company has accumulated a large fund out of profits - much beyond its needs, the directors may decide to distribute a part of it amongst the shareholders in the form of bonus. Bonus can be paid either in cash or in the form of shares. Cash bonus is paid by the company when it has large accumulated profits as well as cash to pay dividend. Many a time, a company is not in a position to pay bonus in cash in spite of sufficient profits because of unsatisfactory cash position or because of its adverse effects on the working capital of the company. In such a position, the company pays a bonus to its shareholders in the form of shares; a free share thus issued is known as a bonus share. A bonus share is a free share of stock given to current/existing shareholders in a company, based upon the number of shares that the shareholder already owns at the time of announcement of the bonus. While the issue of bonus shares increases the total number of shares issued and owned, it does not increase the value of the company. Although the total number of issued shares increases, the ratio of number of shares held by each shareholder remains constant. Whenever a company announces a bonus issue, it also announces a "Book Closure Date" which is a date on which the company will ideally temporarily close its books for fresh transfers of stock. Read "Book Closure" for a better understanding. An issue of bonus shares is referred to as a bonus issue. Depending upon the constitutional documents of the company, only certain classes of shares may be entitled to bonus issues, or may be entitled to bonus issues in preference to other classes. bonus share is free share in fixed ratio to the shareholders. for exp..reliance ind. ltd. issue bonus share in 1:1 ratio and Rs.13.00 as dividend/share Sometimes a company will change the number of shares in issue by capitalizing its reserve. In other words, it can convert the right of the shareholders because each individual will hold the same proportion of the outstanding shares as before. Main reason for issuance is the price of the existing share has become unwieldy. Purpose: Usually bonus shares are issued with the intent of rewarding the investor, although having said that the ex-bonus (post bonus) price of the share is adjusted to bonus ratio. So for e.g, if the price of a share before bonus is Rs.100 and a bonus of 1:1 is issued, then ex-bonus share price would adjust to Rs. 50, which means that the total market value will remain the same. There is generally a case where the price of the share increases after bonus effect is incorporated.

Ratios' Impact: The main financial effect of bonus share is that it increases the number of shares outstanding and reduces the earnings per share (EPS). Basic EPS = (Net Profit after tax / no. of equity shares outstanding). PRIVATE PLACEMENT Private placement occurs when a company makes an offering of securities not to the public, but directly to an individual or a small group of investors. Such offerings do not need to be registered with the Securities and Exchange Commission (SEC) and are exempt from the usual reporting requirements. Private placements are generally considered a cost-effective way for small businesses to raise capital without "going public" through an initial public offering (IPO). "Although most business owners dream of taking their company public someday, many have had to wait years for a traditional public offering," Gary D. Zeune and Timothy R. Baer explained in an article for Corporate Cashflow Magazine. "For them, a private placement of equity or debt has been a quicker, less expensive way to raise a limited amount of capital from a limited number of investors. A private placement has been appropriate when a company still lacks the financial strength or reputation to appeal to a broad base of investors and cannot afford the expense of a public offering."

Advantages and Disadvantages Private placements offer small businesses a number of advantages over IPOs. Since private placements do not require the assistance of brokers or underwriters, they are considerably less expensive and time consuming. In addition, private placements may be the only source of capital available to risky ventures or start-up firms. "With loan criteria for commercial bankers and investment criteria for venture capitalists both tightening, the private placement offering remains one of the most viable alternatives for capital formation available to companies," Andrew J. Sherman wrote in his book The Complete Guide to Running and Growing Your Business. A private placement may also enable a small business owner to hand-pick investors with compatible goals and interests. Since the investors are likely to be sophisticated business people, it may be possible for the company to structure more complex and confidential transactions. If the investors are themselves entrepreneurs, they may be able to offer valuable assistance to the company's management. Finally, unlike public stock offerings, private placements enable small

businesses to maintain their private status. Of course, there are also a few disadvantages associated with private placements of securities. Suitable investors may be difficult to locate, for example, and may have limited funds to invest. In addition, privately placed securities are often sold at a deep discount below their market value. Companies that undertake a private placement may also have to relinquish more equity, because investors want compensation for taking a greater risk and assuming an illiquid position. Finally, it can be difficult to arrange private placement offerings in multiple states. Fresh issues of shares and other securities are effected though the Primary market. It provides issuers opportunity to issue securities, to raise resources to meet their requirements of business. Equity issues can be effected at face value or at discount/premium. Issues at discounts are rare and almost unheard of. Issuers can issue the securities in domestic market and/or international market through ADR/GDR/ECB route.

SECONDARY MARKET The secondary market is the financial market for trading of securities that have already been issued in an initial private or public offering. Alternatively, secondary market can refer to the market for any kind of used goods. In the secondary market, securities are sold by and transferred from one investor or speculator to another. It is therefore important that the secondary market be highly liquid and transparent. Before electronic means of communications, the only way to create this liquidity was for investors and speculators to meet at a fixed place regularly.

ROLE OF THE SECONDARY MARKET For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equity markets serve as a monitoring and control conduitby facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating-information(via price discovery) that guides management decisions.

LISTING OF SECURITIES

Listing means admission of securities of an issuer to trading privileges (dealings) on a stock exchange through a formal agreement. The prime objective of admission to dealings on the exchange is to provide liquidity and marketability to securities, as also to provide a mechanism for effective control and supervision of trading.

TRADING OF SECURITIES Trading securities is the act of buying and selling securities with the intention of making a quick profit. Brokerage firms and investment advisers recommend buying securities for the anticipated long-term appreciation of the company. Trading securities involve the same stocks and bonds available to all investors on public exchanges. The difference is trading securities are timed by investors to buy low and sell high in short time frames. While all securities can be traded in this fashion, some securities have a natural ebb and flow that can be traded more regularly. For example, retail store chains expect higher fourth-quarter earnings as a result of holiday shopping that may lead investors to time early fourth quarter buying to be sold in the early first quarter. Investor has the right to sell the securities investor hold at a price and time investor may choose. Investor can do so personally with another person or through a recognized stock exchange. Similarly, investor has the right to buy securities from anyone or through a recognized stock exchange at a mutually acceptable price and time. Whether it is a sale or purchase of securities, affected directly by investor or through an exchange, all trades should be executed by a valid, duly completed and stamped transfer deed. If investor chooses to deal (buy or sell) directly with another person, investor is exposed to counter party risk, that is, the risk of non-performance by that party. However, if investor deals through a stock exchange, this counter party risk is reduced due to trade/settlement guarantee offered by the stock exchange mechanism. Further, investor also has some protection against defaults by investor broker. When investor operates through an exchange, investor has the right to receive the best price prevailing at that time for the trade and the right to receive the money or the shares on time. Investor also has the right to receive a contract note from the broker confirming the trade and indicating the time of execution of the order and other necessary details of the trade. Investor also has the right to receive good delivery and the right to insist on rectification of bad delivery. If investor has a dispute with investor broker, investor can resolve it through arbitration

under the aegis of the exchange. If investor decides to operate through an exchange, investor has to avail the services of a SEBI registered broker/sub-broker. Investor has to enter into a broker-client agreement and file a client registration form. Since the contract note is a legally enforceable document, investor should insist on receiving it. Investor has the obligation to deliver the shares in case of sale or pay the money in case of purchase within the time prescribed. In case of bad delivery of securities by investor, investor has the responsibility to rectify them or replace them with good ones.

Advantages of Secondary Market 1) Mobilize savings 2) Investment Opportunities 3) Investment Advice 4) Improves Corporate Governance

SETTLEMENT PROCESS 1) Trade details from Exchange to NSCCL (National Securities Clearing Corporation Ltd) 2) NSCCL gives complete trade details to custodian / clearing member who affirm back. Based on the affirmation NSCCL applies multilateral netting and determines obligations. 3) After determining the obligations, the pay in advice of funds / securities takes place 4) If the transaction is related to funds, clearing banks will complete the transaction 5) If it is a shares related transaction, the instructions to depositories will be given to perform the necessary transaction through depositary participants 6) Pay-in of securities (NSCCL advises depository to debit pool account of custodians/CMs and credit its account and depository does it) 7) Pay-in of funds(NSCCL advises Clearing Banks to debit account of custodians/CMs and credit its account and clearing bank does it) 8) Pay-out of securities (NSCCL advises depository to credit pool account of custodians/CMs and debit its account and depository does it)

9) Pay-out of funds (NSCCL advises Clearing Banks to credit account of custodians/CMs and debit its account and clearing bank does it) 10) Depository informs custodians/CMs through DPs. 11) Clearing Banks inform custodians/CMs.

DERIVATIVES MARKET A derivative picks a risk or volatility in a financial asset, transaction, market rate, or contingency, and creates a product the value of which will change as per changes in the underlying risk or volatility. The idea is that someone may either try to safeguard against such risk (hedging), or someone may take the risk, or may engage in a trade on the derivative, based on the view that they want to execute. The risk that a derivative intends to trade is called underlying. A derivative is a financial instrument, whose value depends on the values of basic underlying variable. In the sense, derivatives is a financial instrument that offers return based on the return of some other underlying asset, i.e the return is derived from another instrument. The best way will be take examples of uncertainties and the derivatives that can be structured around the same. Stock prices are uncertain - Lot of forwards, options or futures contracts are based on movements in prices of individual stocks or groups of stocks. Prices of commodities are uncertain - There are forwards, futures and options on commodities. Interest rates are uncertain - There are interest rate swaps and futures. Foreign exchange rates are uncertain - There are exchange rate derivatives. Weather is uncertain - There are weather derivatives, and so on.

Derivative products initially emerged as a hedging device against fluctuations in commodity prices, and commodity linked derivatives remained the sole form of such products for almost three hundred years. It was primarily used by the farmers to protect themselves against fluctuations in the price of their crops. From the time it was sown to the time it was ready for harvest, farmers would face price uncertainties. Through the use of simple derivative products, it was possible for the farmers to partially or fully transfer price risks by locking in

asset prices. From hedging devices, derivatives have grown as major trading tool. Traders may execute their views on various underlings by going long or short on derivatives of different types.

MAJOR TYPES OF DERIVATIVES Derivative contracts have several variants. Depending upon the market in which they are traded, derivatives are classified as 1) exchange traded and 2) over the counter. The most common variants are forwards, futures, options and swaps. Forwards: A forward contract is a customized contract between two entities, where settlement takes place as a specific date in the future at todays predetermined price. Ex: On 1st June, X enters into an agreement to buy 50 bales of cotton for 1st December at

Rs.1000 per bale from Y, a cotton dealer. It is a case of a forward contract where X has to pay Rs.50000 on 1st December to Y and Y has to supply 50 bales of cotton. Futures: A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash. The futures markets are characterized by the ability to use very high leverage relative to stock markets. Options: Options are of two types call and put. Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date. Puts give the buyer the right, but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date.

Derivatives trading commenced in India in June 2000 after SEBI granted the final approval to this effect in May 2000 for trading in index futures, Currently, the Indian markets provide equity derivatives of the following types: Index Futures-Two Indices

 Stock Futures-Twenty Nine stocks Index Options-Two Indices Stock Options-Twenty Nine Stocks

Derivatives help to improve market efficiencies because risks can be isolated and sold to those who are willing to accept them at the least cost. Using derivatives breaks risk into pieces that can be managed independently. Corporations can keep the risks they are most comfortable managing and transfer those they do not want to other companies that are more willing to accept them. From a market-oriented perspective, derivatives offer the free trading of financial risks.

Financial derivatives have changed the face of finance by creating new ways to understand, measure, and manage financial risks. Ultimately, derivatives offer organizations the opportunity to break financial risks into smaller components and then to buy and sell those components to best meet specific risk-management objectives. Moreover, under a market-oriented philosophy, derivatives allow for the free trading of individual risk components, thereby improving market efficiency. Using financial derivatives should be considered a part of any businesss riskmanagement strategy to ensure that value-enhancing investment opportunity can be pursued.

EQUITY MARKET Publicly traded equities form a significant source of capital for firms, and equity markets are a key part of the process of allocating capital among competing uses in our economy, Through issuance of equities, companies enable a broad set of investors to share in the risk and reward of economic activities.

This market in which shares are issued and traded, either through exchanges or over-the-counter markets. Also known as the stock market, it is one of the most vital areas of a market economy because it gives companies access to capital and investors a slice of ownership in a company with the potential to realize gains based on its future performance.

Blue Chip: A nationally recognized, well-established and financially sound company. Blue chips generally sell high-quality, widely accepted products and services. Blue chip companies are

known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth.

CONCEPT OF DEMATERIALIZATION Dematerialization is the process by which a client can get physical certificates converted into electronic balances. An investor intending to dematerialize its securities needs to have an account with a DP (Depositary Participant). The client has to deface and surrender the certificates registered in its name to the DP. After intimating NSDL (National Securities Depositary Limited) electronically, the DP sends the securities to the concerned Issuer/ R&T agent. NSDL in turn informs the Issuer/ R&T agent electronically, using NSDL Depository system, about the request for dematerialization. If the Issuer/ R&T agent finds the certificates in order, it registers NSDL as the holder of the securities (the investor will be the beneficial owner) and communicates to NSDL the confirmation of request electronically. On receiving such confirmation, NSDL credits the securities in the depository account of the Investor with the DP.

The client (registered owner) will submit a request to the DP in the Dematerialization Request Form for dematerialization, along with the certificates of securities to be dematerialized. Before submission, the client has to deface the certificates by writing "SURRENDERED FOR DEMATERIALIZATION".

The DP will verify that the form is duly filled in and the number of certificates, number of securities and the security type (equity, debenture etc.) are as given in the DRF. If the form and security count is in order, the DP will issue an acknowledgement slip duly signed and stamped, to the client.

The DP will scrutinize the form and the certificates. This scrutiny involves the following
o

Verification of Client's signature on the dematerialization request with the specimen signature (the signature on the account opening form). If the signature differs, the DP should ensure the identity of the client.

o o o

Compare the names on DRF and certificates with the client account. Paid up status ISIN (International Securities Identification Number)

o o

Lock - in status Distinctive numbers

In case the securities are not in order they are returned to the client and acknowledgment is obtained. The DP will reject the request and return the DRF and certificates in case:
o o

A single DRF is used to dematerialize securities of more than one company. The certificates are mutilated, or they are defaced in such a way that the material information is not readable. It may advise the client to send the certificates to the Issuer/ R&T agent and get new securities issued in lieu thereof.

Part of the certificates pertaining to a single DRF is partly paid-up; the DP will reject the request and return the DRF along with the certificates. The DP may advise the client to send separate requests for the fully paid-up and partly paid-up securities.

Part of the certificates pertaining to a single DRF is locked-in, the DP will reject the request and return the DRF along with the certificates to the client. The DP may advise the client to send a separate request for the locked-in certificates. Also, certificates locked-in for different reasons should not be submitted together with a single DRF

In case the securities are in order, the details of the request as mentioned in the form are entered in the DPM (software provided by NSDL to the DP) and a Dematerialization Request Number (DRN) will be generated by the system.

The DRN so generated is entered in the space provided for the purpose in the dematerialization request form.

A person other than the person who entered the data is expected to verify details recorded for the DRN. The request is then released by the DP which is forwarded electronically to DM (DM - Depository Module, NSDL's software system) by DPM.

The DM forwards the request to the Issuer/ R&T agent electronically. The DP will fill the relevant portion viz., the authorisation portion of the demat request form.

The DP will punch the certificates on the company name so that it does not destroy any material information on the certificate.

The DP will then despatch the certificates along with the request form and a covering

letter to the Issuer/ R&T agent.

The Issuer/ R&T agent confirms acceptance of the request for dematerialization in his system DPM (SHR) and the same will be forwarded to the DM, if the request is found in order.

The DM will electronically authorise the creation of appropriate credit balances in the client's account.

The DPM will credit the client's account automatically. The DP must inform the client of the changes in the client's account following the confirmation of the request.

The issuer/ R&T may reject dematerialization request in some cases. The issuer or its R&T Agent will send an objection memo to the DP, with or without DRF and security certificates depending upon the reason for rejection. The DP/Investor has to remove reasons for objection within 15 days of receiving the objection memo. If the DP fails to remove the objections within 15 days, the issuer or its R&T Agent may reject the request and return DRF and accompanying certificates to the DP. The DP, if the client so requires, may generate a new dematerialization request and send the securities again to the issuer or its R&T Agent. No fresh request can be generated for the same securities until the issuer or its R&T Agent has rejected the earlier request and informed NSDL and the DP about it.

RISKS Many long-term financial advisers liken trading securities for the average investor to gambling. The investor may be lucky once or twice, but more than likely does not have the resources or time to follow the international market and how it affects domestic securities for well-timed trades. Ultimately, the possibility of high returns is slapped with the reality of extremely fast losses. Additionally, the constant buying and selling, even for successful investors, may have a good portion of profits eaten up by capital gains taxes. Any investment in stocks or bonds comes with the following types of risks.

Market Risk Industry Risk

Regulatory Risk Business Risk

MARKET RISK The market risk defines the overall risk involved in the capital market investments. The stock market rises and falls depending on a number of issues. The collective view of the investors to invest in a particular stock or bond plays a significant role in the stock market rise and fall. Even if the company is going through a bad phase, the stock price may go up due to a rising stock market. While conversely, the stock price may fall because the market is not steady even if the investor's company is doing well. Hence, these are the market risks that the stocks investors generally face.

INDUSTRY RISK The industry risk affects all the companies of a certain industry. Hence the stocks within an industry fall under the industry risk. Industry risk refers to the dangers to a particular stock that stem not from problems with the company but rather from far more wide ranging issues involving the entire industry that the company belongs to.

REGULATORY RISK The regulatory risk may affect the investors if the investor's company comes under the obligation of government implemented new regulations and laws. BUSINESS RISK The business risk may affect the investors if the company goes through some convulsion depending on management, strategies, market share and labor force.

Types of Analysis: Fundamental and Technical.

FUNDAMENTAL ANALYSIS Fundamental analysis calculates future price movements by looking at a businesss economic factors, known as fundamentals. It includes economic analysis, industry analysis and company analysis. This type of investing assumes that the short-term market is wrong, but that stock price will correct itself in the long run. Profits can be made by purchasing a mispriced security and

then waiting for the market to recognize its mistake. It is used by buy and hold investors and value investors, among others. Fundamental analysis looks at financial statements, including balance sheets, cash flow statements and income statements, to determine a companys intrinsic value. If the price of stock falls below this intrinsic value, its purchase is considered a good investment. The most common model for valuing stock is the discounted cash flow model, which uses dividends received by the investor, along with the eventual sales price, the earnings of the company or the companys cash flows. It also considers the current amount of debt using the debt to equity ratio. TOOLS USED IN FUNDAMENTAL ANALYSIS Earnings per Share EPS Price to Earnings Ratio P/E Price to Sales P/S Price to Book P/B Dividend Payout Ratio Dividend Yield Book Value Return on Equity

1) Earnings Per Share (EPS) EPS = Net Earnings / Outstanding Shares The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. 2) Price to earnings ratio (P/E) P/E Ratio = Market Price of Share / Earnings per Share A measure of determining the value of a share. May also be used to measure the rate of return expected by investors. 3) Price to Sales (P/S) P/S = Market cap / Revenues Or P / S = Stock price / Sales price per share Much like P/E, the P/S number reflects the value placed on sales by the market. The lower the P/S, the better the value, at least thats the conventional wisdom.

4) Price to Book (P/B) P/B = Share price / Book value per share Like the P/E, the lower the P/B, the better the value. Value investors would use a low P/B is stock screens 5) Dividend Payout Ratio (DPR) DPR= Dividend per share / EPS The DPR (it usually doesnt even warrant a capitalized abbreviation) measures what a companys pays out to investors in the form of dividends. 6) Dividend Yield Dividend yield = Annual dividend per share / stocks price per share This measurement tells you what percentage return a company pays out to shareholders in the form of dividends. Older, well-established companies tend to payout a higher percentage then do younger companies and their dividend history can be more consistent. 7) Book Value Book Value = Assets Liabilities A company that is a viable growing business will always be worth more than its book value for its ability to generate earnings and growth. Book value appeals more to value investors who look at the relationship to the stock's price by using the Price to Book ratio. To compare companies, you should convert to book value per share, which is simply the book value divided by outstanding shares. 8) Return on Equity Return on Equity (ROE) is one measure of how efficiently a company uses its assets to produce earnings. ROE = Net Income / Shareholders Equity The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

TECHNICAL ANALYSIS

Technical Analysis: Introduction Technical analysis takes a completely different approach; it doesn't care one bit about the "value" of a company or a commodity. Technicians (sometimes called chartists) are only interested in the price movements in the market.

Despite all the fancy and exotic tools it employs, technical analysis really just studies supply and
demand

in a market in an attempt to determine what direction, or trend, will continue in the future.

In other words, technical analysis attempts to understand the emotions in the market by studying the market itself, as opposed to its components. If you understand the benefits and limitations of technical analysis, it can give you a new set of tools or skills that will enable you to be a better trader or investor. Technical Analysis: The Basic Assumptions What Is Technical Analysis?

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.

The field of technical analysis is based on three assumptions:

1. The market discounts everything.

2. Price moves in trends. 3. History tends to repeat itself.

1. The Market Discounts Everything A major criticism of technical analysis is that it only considers price movement, ignoring the fundamental factors of the company. However, technical analysis assumes that, at any given time, a stock's price reflects everything that has or could affect the company - including
fundamental factors.

Technical analysts believe that the company's fundamentals, along with

broader economic factors and market psychology, are all priced into the stock, removing the need to actually consider these factors separately. This only leaves the analysis of price movement, which technical theory views as a product of the supply and demand for a particular stock in the market.

2. Price Moves in Trends In technical analysis, price movements are believed to follow trends. This means that after a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it. Most technical trading strategies are based on this assumption.

3. History Tends To Repeat Itself

Another important idea in technical analysis is that history tends to repeat itself, mainly in terms of price movement. The repetitive nature of price movements is attributed to market psychology; in other words, market participants tend to provide a consistent reaction to similar market stimuli over time. Technical analysis uses chart patterns to analyze market movements and understand trends. Although many of these charts have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves.

Not Just for Stocks Technical analysis can be used on any security with historical trading data. This includes stocks,

futures

and commodities, fixed-income securities, forex, etc. In this tutorial, we'll usually analyze

stocks in our examples, but keep in mind that these concepts can be applied to any type of security. In fact, technical analysis is more frequently associated with commodities and forex, where the participants are predominantly traders.

Technical Analysis: Technical vs. Fundamental 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. Let's get into the details of how these two approaches differ, the criticisms against technical analysis and how technical and fundamental analysis can be used together to analyze securities. The Differences Charts vs. Financial Statements At the most basic level, a technical analyst approaches a security from the charts, while a fundamental analyst starts with the financial statements. (For further reading, see Introduction To
Fundamental Analysis

and Advanced Financial Statement Analysis.)

By looking at the balance sheet, cash flow statement and income statement, a fundamental analyst tries to determine a company's value. In financial terms, an analyst attempts to measure a company's intrinsic value. In this approach, investment decisions are fairly easy to make - if the price of a stock trades below its intrinsic value, it's a good investment. Although this is an oversimplification (fundamental analysis goes beyond just the financial statements) for the purposes of this tutorial, this simple tenet holds true. Technical traders, on the other hand, believe there is no reason to analyze a company's fundamentals because these are all accounted for in the stock's price. Technicians believe that all the information they need about a stock can be found in its charts. Time Horizon 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 different timeframes that these two approaches use is a result of the nature of the investing

style to which they each adhere. It can take a long time for a company's value to be reflected in the market, so when a fundamental analyst estimates intrinsic value, a gain is not realized until the stock's market price rises to its "correct" value. This type of investing is called value investing and assumes that the short -term market is wrong, but that the price of a particular stock will correct itself over the long run. This "long run" can represent a timeframe of as long as several years, in some cases. Furthermore, the numbers that a fundamentalist analyzes are only released over long periods of time. Financial statements are filed quarterly and changes in earnings per share don't emerge on a daily basis like price and volume information. Also remember that fundamentals are the actual characteristics of a business. New management can't implement sweeping changes overnight and it takes time to create new products, marketing campaigns, supply chains, etc. Part of the reason that fundamental analysts use a long-term timeframe, therefore, is because the data they use to analyze a stock is generated much more slowly than the price and volume data used by technical analysts. Trading Versus Investing Not only is technical analysis more short term in nature that fundamental analysis, but the goals of a purchase (or sale) of a stock are usually different for each approach. In general, technical analysis is used for a trade, whereas fundamental analysis is used to make an investment. Investors buy assets they believe can increase in value, while traders buy assets they believe they can sell to somebody else at a greater price. The line between a trade and an investment can be blurry, but it does characterize a difference between the two schools.

The Critics Some critics see technical analysis as a form of black magic. Don't be surprised to see them question the validity of the discipline to the point where they mock its supporters. In fact, technical analysis has only recently begun to enjoy some mainstream credibility. While most analysts on Wall Street focus on the fundamental side, just about any major brokerage now employs technical analysts as well. Much of the criticism of technical analysis has its roots in academic theory - specifically the
efficient market hypothesis

(EMH). This theory says that the market's price is always the correct one

- any past trading information is already reflected in the price of the stock and, therefore, any

analysis to find undervalued securities is useless. There are three versions of EMH. In the first, called weak form efficiency, all past price information is already included in the current price. According to weak form efficiency, technical analysis can't predict future movements because all past information has already been accounted for and, therefore, analyzing the stock's past price movements will provide no insight into its future movements. In the second, semi-strong form efficiency, fundamental analysis is also claimed to be of little use in finding investment opportunities. The third is strong form efficiency, which states that all information in the market is accounted for in a stock's price and neither technical nor fundamental analysis can provide investors with an edge. The vast majority of academics believe in at least the weak version of EMH, therefore, from their point of view, if technical analysis works, market efficiency will be called into question. (For more insight, read What Is Market
Efficiency?

and Working Through The Efficient Market Hypothesis.)

There is no right answer as to who is correct. There are arguments to be made on both sides and, therefore, it's up to you to do the homework and determine your own philosophy.

Can They Co-Exist? Although technical analysis and fundamental analysis are seen by many as polar opposites - the oil and water of investing - many market participants have experienced great success by combining the two. For example, some fundamental analysts use technical analysis techniques to figure out the best time to enter into an undervalued security. Oftentimes, this situation occurs when the security is severely
oversold.

By timing entry into a security, the gains on the

investment can be greatly improved Alternatively, some technical traders might look at fundamentals to add strength to a technical signal. For example, if a sell signal is given through technical patterns and indicators, a technical trader might look to reaffirm his or her decision by looking at some key fundamental data. Oftentimes, having both the fundamentals and technicals on your side can provide the best-case scenario for a trade. While mixing some of the components of technical and fundamental analysis is not well received by the most devoted groups in each school, there are certainly benefits to at least understanding both schools of thought. .

1.3 MAJOR FACTORS THAT AFFECT STOCK PRICE IN STOCK MARKET GLOBALLY When you wish to invest in the stock market, then you should always make a good survey of the whole market. As you know that you cannot predict the stock market, so in that case you need to know the functioning of the market. There are some major factors that affect stock price. So let us discuss about the different factors affecting the stock price in this article. Demand and supply One of the major factors affecting stock price is demand and supply. The trend of the stock market trading directly affects the price. When people are buying more stocks, then the price of that particular stock increases. On the other hand if people are selling more stocks, then the price of that stock falls. So, you should be very careful when you decide to invest in the Indian stock market.

Market Cap Never try to guess the worth of a company simply by comparing the price of the stock. You should always keep in mind that it is not the stock but the market capitalization of the company that determines the worth of the company. So market cap is another factor that affects stock price.

Lower interest rates Lower interest rates can make shares more attractive for two reasons. Lower interest rates help boost economic growth making firms more profitable. Also lower interest rates make shares relatively more attractive than saving money in a bank or holding bonds. If

bond yields fall, it may encourage investors to switch into shares which give a relatively better dividend. Stability Stock markets dislike shocks that could threaten economic stability and future growth. Therefore, they will tend to fall on news of terrorist attacks or spikes in the price of oil. They will also dislike political instability which may make it difficult to pursue strong economic policies. Earning/Price Ratio Another important factor affecting stock price is the earning/price ratio. This gives you a fair idea of a companys share price when it is compared to its earnings. The stock becomes undervalued if the price of the share is much lower than the earnings of a company. But if this is the case, then it has the potential to rise in the near future. The stock becomes overvalued if the price is much higher than the actual earning.

Economic growth Higher economic growth or better prospects for growth will help firms be more profitable because there will be more demand for goods and services. This will help boost company dividends and therefore share prices.

Confidence and expectations A key factor is the mood of investors. If they receive economic news that gives optimism then they are more likely to buy shares. If they receive bad news they will sell. This is why in the depth of a recession, stock markets can start to rise. Investors are always

trying to predict the future. Therefore if they feel the worst is over the stock market can rally even when economic fundamentals remain poor. Bandwagon effect At times the stock market seems to over-react to certain events. For example, in 1987, relatively little bad news caused the stock market to fall 25%. Even today it remains a little mystery why the stock market fell so much there was no economic problem. In fact the stock market soon recovered its lost ground. Part of the issue is that people follow the mood. When prices fall, people may feel the need to follow suit and get out of the market. Related markets Often investors have choices. For example, rather than investing in stock market, they could buy government bonds or commodities. If investors feel government bonds are overpriced and likely to fall, then the stock market can benefit as people move into shares.

1.4 OBJECTIVES OF STUDY: To determine the best stocks amongst the NIFTY 50 stocks for investment To determine whether to sell, buy or retain a particular NIFTY 50 stock To know the different indicators and chart patterns used in Technical Analysis To understand about the Securities market in India To analyze the role of Equities in Indian financial system

1.5 SCOPE OF THE STUDY:

The study is limited to Equities with special reference to stocks in the NIFTY 50 index. The other stocks listed in the NSE, BSE or any other international stock exchange are not considered. The study is purely based on the Technical Analysis of the selected stocks. The Fundamental analysis of the stocks is not considered. In the Technical Analysis though may Indicators and chart patterns exist, only few of the indicators and chart patterns are considered. These are selected because; they are considered to be widely used indicators and patterns of study of equities as a part of technical analysis. Many other factors which usually impact the stocks like the economic conditions, the impact of currency and the international markets are not considered here. This is due to lack of time.

1.6 METHODOLOGY Inorder to do the technical analysis of the NIFTY 50 stocks, the secondary data was considered. The data of the stocks for the past one year was taken. Various books and articles from the web have been referred to gain an insight into Technical Analysis. To study the performance of the stocks using Technical Indicators and chart patterns, the websites like Moneycontrol.com and Nseindia.com were used. Also, NSE India, NSE guide websites provided extensive information , for understanding the Equity Market in India .

LITERATURE REVIEW Fernando Fernandez Rodriguez, Simon Sosvilla Rivero, Julian Andrada Felix (1999) assessed whether some simple forms of technical analysis can predict stock price movement in the Madrid stock exchange, covering thirty-one-year period from Jan 1966 Oct 1997.the results provide strong support for profitability of those technical trading rules. By making use of bootstrap techniques the author shows the returns obtained from these trading rules are not consistent with several null models frequently used in finance. C. L. Osler (2001) provides a microstructural explanation for the success of two familiar

predictions from technical analysis: (1) trends tend to be reversed at predictable support and resistance levels, and (2) trends gain momentum once predictable support and resistance levels are crossed. The explanation is based on a close examination of stop-loss and take-profit orders at a large foreign exchange dealing bank. Take-profit orders tend to reflect price trends and stoploss Technical Analysis on Selected Stocks of Energy Sector orders tend to intensify trends. The requested execution rates of these orders are strongly clustered at round numbers, which are often used as support and resistance levels. Significantly, there are marked differences between the clustering patterns of stop-loss and take-profit orders, and between the patterns of stop-loss buy and stop-loss sell orders. These differences explain the success of the two predictions. Gupta, (2003) examined the perceptions about the main sources of his worries concerning the stock market. A sample comprise of middle-class households spread over 21 sates/union territories. The study reveals that the foremost cause of worry for household investors is fraudulent company management and in the second place is too much volatility and in the third place is too much price manipulation. Ravindra and Wang (2006) examine the relationship of trading volume to stock indices in Asian markets. Stock market indices from six developing markets in Asia are analyzed over the 34 month period ending in October 2005. In the South Korean market, the causality extends from the stock indices to trading volume while the causality is the opposite in the Taiwanese market. Eugene F.Fama (1965) has answered the questions to what extend can the past history of a common stock price can be used to make meaningful predictions concerning the future prices of the stock? The theory of random walk on stock prices is studied with two hypotheses. They are i) Successive price changes are independent and ii) The price changes conform to some probability distribution. The data for this study consists of daily prices for each of the thirty stocks of the Dow Jones industrial average. This study concludes that there is strong and voluminous evidence in favor of random walk theory. Cooter (1962) found that the stock prices move at random when studied at one week interval. The data for his study was week-end prices of forty five stocks from New York stock exchange. He tested randomness of share by means of a mean square successive difference test. He concluded that there was not one random walk model. He concluded that the share price trends could be predicted when studied at fourteen-week interval. But in total the stock prices followed a random walk at weekly intervals.

METHODOLOGY

The data pertaining to the all the 50 of the S&P CNX NIFTY has been collected

The data of the stocks has been collected for the period of one year. It is from 1st February , 2012 till 30th January, 2013

For the sake Analysis, six different tools were considered. They are the chart patterns and indicators like Simple Moving Average, Moving Average Crossover, Relative Strength Index, Moving Averege Convergence & Divergence, Volume.

The bullish or bearish nature of the stock is analyzed by considering the results given by each indicator considered for every stock.

The final decision regarding each stock has been made when majority of the indicators gave a similar result i.e.

The data has been collected through certain secondary sources like Nseindia.com, Moneycontrol.com, stockezy.com etc. Some other books and documents were also referred to collect the data.

Assumptions The evaluation of stocks only technical analysis is done. No other fundamental analysis or any other external factors have been considered. For the purpose of analysis only certain indicators of technical analysis have been used.

DATA PRESENTATION AND ANALYSIS

HOW TO USE TECHNICAL ANALYSIS 1) Identify the trend of the market 2) Measure the strength of the trend 3) Look for the low risk entry into that trend 4) Use Money Management to determine the size of any position

5) Use an appropriate stop loss 6) Keep following trend till market proves it has reversed 7) Keep out of the market when the market is not showing significant trend one way or the other

DOW THEORY The ideas of Charles Dow, the first editor of the Wall Street Journal, form the basis of technical analysis today. Charles 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. Markets fluctuate in more than one time frame at the same time The first is the daily variation due to local causes and the balance of buying and selling at that particular time (Ripple). The secondary movement covers a period ranging from days to weeks, averaging probably between six to eight weeks (Wave). The third move is the great swing covering anything from months to years, averaging between 6 to 48 months. (Tide). Bull markets are broad upward movements of the market that may last several years, interrupted by secondary reactions. Bear markets are long declines interrupted by secondary rallies. These movements are referred to as the primary trend. Primary Phases of Movements

Secondary movements normally retrace from one-third to two thirds of the primary trend since the previous secondary movement. Daily fluctuations are important for short-term trading, but are unimportant in analysis of broad market movements. Primary Movements have Three Phases 1. Bull markets o Bull markets commence with reviving confidence as business conditions improve. o 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 result. 2. Bear markets o Bear markets start with abandonment of the hopes and expectations that sustained inflated prices. o Prices decline in response to disappointing earnings. o Distress selling follows as speculators attempt to close out their positions and securities are sold without regard to their true value. 3. Ranging Markets

o A secondary reaction may take the form of a line, which may endure for several weeks. o Price fluctuates within a narrow range of about five percent. o Breakouts from a range can occur in either direction. o Advances above the upper limit of the line signal accumulation and higher prices; o Declines below the lower limit indicate distribution and lower prices; o Volume is used to confirm price breakouts. Bull Trends A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally. The decline, between rallies, ends above the lowest point of the previous decline. Successive higher highs and higher lows

The start of an uptrend is signaled when price makes a higher low (trough), followed by a rally above the previous high (peak): Start = higher Low + break above previous High. The end is signaled by a lower high (peak), followed by a decline below the previous low (trough): End = lower High + break below previous Low.

Bear Trends: A bear trend starts at the end of a bull trend: when a rally ends with a lower peak and then retreats below the previous low. The end of a bear trend is identical to the start of a bull trend. Each successive rally fails to penetrate the high point of the previous rally. Each decline terminates at a lower point than the preceding decline. Successive lower highs and lower lows

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).

A bull trend starts when price rallies above the previous high, A bull trend ends when price declines below the previous low,

A bear trend starts at the end of a bull trend (and vice versa). CHART PATTERN 1 Candlestick charting: Candlestick charts have been around for hundreds of years. They are often referred to as Japanese candles because the Japanese would use them to analyze the price of rice contracts. Similar to a bar chart, candlestick charts also display the open, close, daily high and daily low. The difference is the use of color to show if the stock went up or down over the day.

The chart below is an example of a candlestick chart for AT&T (T). Green bars indicate the stock price rose, red indicates a decline:

Figure: Candlestick charting Investors seem to have a "love/hate" relationship with candlestick charts. People either love them and use them frequently or they are completely turned off by them. There are several patterns to look for with candlestick charts - here are a few of the popular ones and what they mean.

This is a bullish pattern - the stock opened at (or near) its low and closed near its high

The opposite of the pattern above, this is a bearish pattern. It indicates that the stock

opened at (or near) its high and dropped substantially to close near its low.

Known as "the hammer", this is a bullish pattern only if it occurs after the stock price has dropped for several days. A small body along with a large range identifies a hammer. This pattern indicates that a reversal in the downtrend is in the works. Known as a "star. For the most part, stars typically indicate a reversal and or indecision. There is a possibility that after seeing a star there will be a reversal or change in the current trend. 2 Line Chart: The most basic of the four charts is the line chart because it represents only the closing prices over a set period of time. The line is formed by connecting the closing prices over the time frame. Line charts do not provide visual information of the trading range for the individual points such as the high, low and opening prices. However, the closing price is often considered to be the most important price in stock data compared to the high and low for the day and this is why it is the only value used in line charts.

Figure: Line Chart 3 Support and resistance: Support and resistance are price levels at which movement should stop and reverse direction. Think of support/resistance (S/R) as levels that act as a floor or a ceiling to future price movements. Support - A price level below the current market price, at which buying interest should be able to overcome selling pressure and thus keep the price from going any lower. Resistance - A price level above the current market price, at which selling pressure should be strong enough to overcome buying pressure and thus keep the price from going any higher. One of two things can happen when a stock price approaches a support/resistance level. On the one hand, it can act as a reversal point: in other words, when a stock price drops to a support level, it

will go back up. On the other hand, S/R levels may reverse roles once they are penetrated. For example - When the market price falls below a support level, that former support level will then become a resistance level when the market later trades back up to that level.

Figure: Support and resistance This chart shows an excellent example of support and resistance levels for General Electric (GE). Notice that once the stock price penetrated below the support level in December, it became the resistance level. You also need to understand that S/R levels vary in strength, leading to certain price levels being designated as major or minor S/R levels. For example -- A five-year high on a bar chart would be a much more significant and useful resistance level than a one-month resistance level. 4 Cup and Handle: This is a pattern on a bar chart that can be as short as seven weeks and as long as 65 weeks. The cup is in the shape of a "U". The handle has a slight downward drift. The right-hand side of the pattern has low trading volume. As the stock comes up to test the old highs, the stock will incur selling pressure by the people who bought at or near the old high. This selling pressure will make the stock price trade sideways with a tendency towards a downtrend for anywhere from four days to four weeks, then it will take off. This pattern looks like a pot with a handle. It is one of the easier patterns to detect; and investors

have made a lot of money using it. Figure: Cup and Handle 5 Head and Shoulders: This is a chart formation resembling an "M" in which a stock's price: o Rises to a peak and then declines, then o Rises above the former peak and again declines, and then o Rises again but not to the second peak and again declines. The first and third peaks are shoulders, and the second peak forms the head. This pattern is considered a very bearish indicator.

Figure: Head and Shoulders 6 Double Bottom: This pattern resembles a "W" and occurs when a stock price drops to a similar price level twice within a few weeks or months. You should buy when the price passes the highest point in the handle. In a perfect double bottom, the second decline should normally go slightly lower than the first decline to create a shakeout of jittery investors. The middle point of the "W" should not go into new high ground. This is a very bullish indicator.

Figure: Double Bottoms The belief is that, after two drops in the stock price, the jittery investors will be out and the longterm investors will still be holding on. 7 Double Tops: Double tops point out a weakness of the uptrend and warn for a change of trend generally a selling crazy starts when this formation is indicates.

Figure: Double Tops 8 Falling wedges: Falling wedges are opposite of the rising wedges and pull back reactions during the up trends. Sellers continue to believe the securities in their hand do not want to sell so, volume decreases significantly. When the upper line is broken, generally a rally starts. So this formation is a chance to buy security available prices in an uptrend.

Figure: Falling wedges 9 Symmetrical Triangles: All triangles formations are consolidation formations. In symmetrical triangle direction of the trend is not known. It is only can be identified after one of the line broken. Prices go up if upper line broken. And go down if lower line broken. Volume is very important for triangle formations. Volume should decrease during the formations.

Figure: Symmetrical Triangles 10 Descending triangles: It is a signal for down trend. Price target can be found approximately by drawing a parallel line to descending line.

Figure: Descending triangles

11 Ascending Triangles: It is a signal for uptrend. By drawing a parallel line to descending line, price target can be calculated approximately.

Figure: Ascending triangle INDICATORS OF THE STUDY Exponential Moving Average (EMA) Are calculated by applying a percentage of todays closing price to yesterdays moving average value. Use an exponential moving average to place more weight on recent prices. This moving average calculation uses a smoothing factor to place a higher weight on recent data points and is regarded as much more efficient than the linear weighted average. Having an understanding of the calculation is not generally required for most traders because most charting packages do the calculation for you. The most important thing to remember about the exponential moving average is that it is more responsive to new information relative to the simple moving average. This responsiveness is one of the key factors of why this is the moving average of choice among many technical traders. As you can see in Figure 2, a 15-period EMA raises and falls faster than a 15-period SMA. This slight difference doesnt seem like much, but it is an important factor to be aware of since it can affect returns.

Figure: Exponential Moving Averages (EMA) Moving Average Convergence Divergence (MACD) Common, the MACD is a trend following, momentum indicator that shows the relationship between two moving averages of prices. To Calculate the MACD subtract the 26-day EMA from a 12-day EMA. A 9-day dotted EMA of the MACD called the signal line is then plotted on top of the MACD. There are 3 common methods to interpret the MACD: Crossover When the MACD falls below the signal line it is a signal to sell. Vice versa when the MACD rises above the signal line. Divergence When the security diverges from the MACD it signals the end of the current trend. Overbought/Oversold When the MACD rises dramatically (shorter moving average pulling away from longer term moving average) it is a signal the security is overbought and will soon return to normal levels. Other less common moving averages include triangular, variable, and weighted moving average. All of them being slight deviations from the++ ones above and are used to detect different characteristics such as volatility, and weighting different time spans. One of the easiest indicators to understand, the moving average, shows the average value of a securitys price over a period of time. To find the 50-day moving average, you would add up the closing prices (but not always explain later) from the past 50 days and divide them by 50. Because prices are constantly changing, the moving average will move as well. It should also be noted that moving averages are most as well. It should also be noted that moving averages are most often used then compared or used in conjunction with other indicators such as moving average convergence divergence (MACD) and exponential moving (E M A). The most commonly used moving averages are 20, 30, 50,100 and 200 days. Each moving average provides a different interpretation on what the stock will do-there is not one right time frame. The longer the time spans, the less sensitive the moving average will be to daily price changes. Moving averages are used to emphasize the direction of a trend and smooth out price and volume fluctuations that can confuse interpretation. Here is a visual example using stock price

Figure: Moving Average Convergence Divergences (MACD)

Notice that back, in September the stock price dropped well below its 50-day average (the green line) there has been a steady downward trend since then and no really strong divergence until the end of December when it rose above its 50-days average and continued to rise for several weeks. Typically, when a stock price moves below its moving average it is a bad sign because the stock is moving on a negative trend. The opposite is true for stock that exceed their moving average-in this case, hold on for the ride. BOLLINGER BANDS WIDTH Developed by John Bollinger, Bollinger Bands are an indicator that allows users to compare volatility and relative price levels over a period time. The indicator consists of three bands designed to encompass the majority of a security's price action. The purpose of Bollinger Bands is to provide a relative definition of high and low. By definition prices are high at the upper band and low at the lower band. This definition can aid in rigorous pattern recognition and is useful in comparing price action to the action of indicators to arrive at systematic trading decisions. Bollinger Bands consist 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 were used for the average. The default parameters, 20 periods and two standard deviations, may be adjusted to suit your purposes: Middle Bollinger Band = 20-period simple moving average Upper Bollinger Band = Middle Bollinger Band + 2 * 20-period standard deviation Lower Bollinger Band = Middle Bollinger Band - 2 * 20-period standard deviation Standard deviation is a statistical unit of measure that provides a good assessment of a price plot's volatility. Using the standard deviation ensures that the bands will react quickly to price movements and reflect periods of high and low volatility. Sharp price increases (or decreases), and hence volatility, will lead to a widening of the bands.

Figure: Bollinger Bands Width The center band is the 20-day simple moving average. The upper band is the 20-day simple moving average plus 2 standard deviations. The lower band is the 20-day simple moving average less 2 standard deviations. On-Balance Volume The on-balance volume (OBV) indicator is well-known technical indicators that reflect movements in volume. It is also one of the simplest volume indicators to compute and understand. Joe Granville introduced the On Balance Volume (OBV) indicator in his 1963 book, Granville's New Key to Stock Market Profits. This was one of the first and most popular indicators to measure positive and negative volume flow. The concept behind the indicator: volume precedes price. OBV is a simple indicator that adds a period's volume when the close is up and subtracts the period's volume when the close is down. A cumulative total of the volume additions and subtractions form the OBV line. This line can then be compared with the price chart of the underlying security to look for divergences or confirmation. Calculation As stated above, OBV is calculated by adding the day's volume to a running cumulative total when the security's price closes up, and subtracts the volume when it closes down. For example, if today the closing price is greater than yesterday's closing price, then the new

OBV = Yesterday's OBV + Today's Volume

If today the closing price is less than yesterday's closing price, then the new

OBV = Yesterday's OBV - Today's Volume

If today the closing price is equal to yesterday's closing price, then the new

OBV = Yesterday's OBV

Use The idea behind the OBV indicator is that changes in the OBV will precede price changes. A rising volume can indicate the presence of smart money flowing into a security. Then once the public follows suit, the security's price will likewise rise. Like other indicators, the OBV indicator will take a direction. A rising (bullish) OBV line indicates that the volume is heavier on up days. If the price is likewise rising, then the OBV can serve as a confirmation of the price uptrend. In such a case, the rising price is the result of an increased demand for the security, which is a requirement of a healthy uptrend. However, if prices are moving higher while the volume line is dropping, a negative divergence is present. This divergence suggests that the uptrend is not healthy and should be taken as a warning signal that the trend will not persist. The numerical value of OBV is not important, but rather the direction of the line. A user should concentrate on the OBV trend and its relationship with the security's price.

Figure: On-Balance Volumes This chart shows how the OBV line can be used as confirmation of a price trend. The peak in September was followed by lower price movements that corresponded with volume spikes, thus implying that the downtrend was going to continue. Aroon Oscillators The Aroon indicator is a relatively new technical indicator that was created in 1995. The Aroon is a trending indicator used to measure whether a security is in an uptrend or downtrend and the magnitude of that trend. The indicator is also used to predict when a new trend is beginning. The indicator is comprised of two lines, an "Aroon up" line (blue line) and an "Aroon down" line (red dotted line). The Aroon up line measures the amount of time it has been since the highest price during the time period. The Aroon down line, on the other hand, measures the amount of

time since the lowest price during the time period. The number of periods that are used in the calculation is dependent on the time frame that the user wants to analyze.

Figure: Aroon Up And Down Oscillator An expansion of the Aroon is the Aroon oscillator, which simply plots the difference between the Aroon up and down lines by subtracting the two lines. This line is then plotted between a range of -100 and 100. The centerline at zero in the oscillator is considered to be a major signal line determining the trend. The higher the value of the oscillator from the centerline point, the more upward strength there is in the security; the lower the oscillator's value is from the centerline, the more downward pressure. A trend reversal is signaled when the oscillator crosses through the centerline. For example, when the oscillator goes from positive to negative, a downward trend is confirmed. Divergence is also used in the oscillator to predict trend reversals. A reversal warning is formed when the oscillator and the price trend are moving in an opposite direction. The Aroon lines and Aroon oscillators are fairly simple concepts to understand but yield powerful information about trends. This is another great indicator to add to any technical trader's arsenal. Money Flow Index The Money Flow Index (MFI) is a momentum indicator that is similar to the Relative Strength Index (RSI) in both interpretation and calculation. However, MFI is a more rigid indicator in that it is volume-weighted, and is therefore a good measure of the strength of money flowing in and out of a security. It compares "positive money flow" to "negative money flow" to create an indicator that can be compared to price in order to identify the strength or weakness of a trend. Like the RSI, the MFI is measured on a 0 - 100 scale and is often calculated using a 14 day period. The "flow" of money is the product of price and volume and shows the demand for a security and a certain price. The money flow is not the same as the Money Flow Index but rather is a

component of calculating it. So when calculating the money flow, we first need to find the average price for a period. Since we are often looking at a 14-day period, we will calculate the typical price for a day and use that to create a 14-day average. Typical Price = (Day high + Day low + Day close) / 3 Money Flow = (Typical Price) X Volume The MFI compares the ratio of "positive" money flow and "negative" money flow. If typical price today is greater than yesterday, it is considered positive money. For a 14-day average, the sum of all positive money for those 14 days is the positive money flow. The MFI is based on the ratio of positive/negative money flow (Money Ratio). Money Ratio = positive money flow / Negative money flow Finally, the MFI can be calculated using this ratio: Money Flow Index- 100-(100 / (1 + money ratio)) The fewer number of days used to calculate the MFI, the more volatile it will be. The MFI can be interpreted much like the RSI in that it can signal divergences and overbought/oversold conditions. Positive and negative divergences between the stock and the MFI can be used as buy and sell signals respectively, for they often indicate the imminent reversal of a trend. If the stock price is falling, but positive money flow tends to be greater than negative money flow, then there is more volume associated with daily price rises than with the price drops. This suggests a weak downtrend that threatens to reverse as money flowing into the security is "stronger" than money flowing out of it. As with the RSI, the MFI can be used to determine if there is too much or too little volume associated with a security. A stock is considered "overbought" if the MFI indicator reaches 80 and above (a bearish reading). On the other end of the spectrum, a bullish reading of 20 and below suggests a stock is "oversold".

Figure: Money Flow Index Rate of change indicators (ROC) It is a very popular oscillator which measures the rate of change of the current price as compared to the price a certain number of days or weeks back. The ROC has to be used along with price chart. The buying and selling signals indicated by the ROC should also be confirmed by the price chart.

Figure: Rate of change Relative strength index (RSI) There are a few different tools that can be used to interpret the strength of a stock. One of these is the Relative Strength Index (RSI), which is a comparison between the days that a stock finishes up and the days it finishes down. This indicator is a big tool in momentum trading.

The RSI is a reasonably simple model that anyone can use. It is calculated using the following formula. RSI = 100 - [100/(1 + RS)] RS = (Avg. of n-day up closes)/(Avg. of n-day down closes) n = days (most analysts use 9 - 15 day RSI) The RSI ranges from 0 to 100. At around the 70 levels, a stock is considered overbought and you should consider selling. In a bull market some believe that 80 is a better level to indicate an overbought stock since stocks often trade at higher valuations during bull markets. Likewise, if the RSI approaches 30, a stock is considered oversold and you should consider buying. Again, make the adjustment to 20 in a bear market. The smaller the number of days used, the more volatile the RSI is and the more often it will hit extremes. A longer term RSI is more rolling, fluctuating a lot less. Different sectors and industries have varying threshold levels when it comes to the RSI. Stocks in some industries will go as high as 75-80 before dropping back, while others have a tough time breaking past 70. A good rule is to watch the RSI over the long term (one year or more) to determine at what level the historical RSI has traded and how the stock reacted when it reached those levels. The RSI is a great indicator that can help you make some serious money. Be aware that big surges and drops in stocks will dramatically affect the RSI, resulting in false buy or sell signals. Most investors agree that the RSI is most effective in "backing up" or increasing confidence before making an investment decision - don't invest simply based on the RSI numbers.

Figure: Relative Strength Index (RSI) Above, we have an RSI chart for AT&T. The RSI is the green line, and its scale is the numbers on the right hand side that go from 0 to 100. Notice the RSI was approaching the 60-70 level in December and January, and then the stock (blue line) sold off. Also, notice that when the RSI

dropped to 25 around October the stock climbed up nearly 30% in just a couple of weeks. Using the moving averages, trend lines divergence, support and resistance lines along with the RSI chart can be very useful. Rising bottoms on the RSI chart can produce the same positive trend results as they would on the stock chart. Should the general trend of the stock price tangent from the RSI, it might spark a warning that the stock is either over- or under bought. Momentum The momentum is certainly the easiest one to compute. The momentum is the difference between today's price and the one of n days before. With: Pt today's price. Pt-n the price at the date t-n The momentum is: MOt = Pt - Pt-nrf TRIX (Triple exponential) "Trix (or TRIX) is a technical analysis oscillator developed in the 1980s by Jack Huston, editor of Technical Analysis of Stocks and Commodities magazine. It shows the slope (i.e. derivative) of a triple-smoothed exponential moving average. The name Trix is from "triple exponential Trix is calculated with a given N-day period as follows: o Smooth prices (often closing prices) using an N-day exponential moving average o Smooth a third time, using a further N-day EMA o Calculate the percentage difference between today's and yesterday's value in that final smoothed series Like any moving average, the triple EMA is just a smoothing of price data and therefore is trendfollowing. A rising or falling line is an uptrend or downtrend and Trix shows the slope of that line, so it's positive for a steady uptrend, negative for a downtrend, and a crossing through zero is a trend-change, i.e. a peak or trough in the underlying average. The triple-smoothed EMA is very different from a plain EMA. In a plain EMA the latest few days dominate and the EMA follows recent prices quite closely; however, applying it three times results in weightings spread much more broadly, and the weights for the latest few days are in fact smaller than those of days further past. The following graph shows the weightings for an N=10 triple EMA (most recent days at the left). Graph shows the weightings for an N=10 triple EMA (most recent days at the left).

Figure: TRIX (Triple exponential) Triple exponential moving average weightings, N=10 (percentage versus days ago) Note that the distribution's mode will lie with pN-2's weight, i.e. in the graph above p8 carries the highest weighting. An N of 1 is invalid. The easiest way to calculate the triple EMA based on successive values is just to apply the EMA three times, creating single-, then double-, then triple-smoothed series. The triple EMA can also be expressed directly in terms of the prices as below, with p0 today's close, p1 yesterday's, etc, and with (as for a plain EMA).

The coefficients are the triangle numbers, n (n+1)/2. In theory, the sum is infinite, using all past data, but as f is less than 1 the powers fn become smaller as the series progresses, and they decrease faster than the coefficients increase, so beyond a certain point the terms are negligible. Williams %R Developed by Larry Williams, Williams % R is a momentum indicator that works much like the Stochastic Oscillator. It is especially popular for measuring overbought and oversold levels. The scale ranges from 0 to -100 with readings from 0 to -20 considered overbought, and readings from -80 to -100 considered oversold. William %R, sometimes referred to as %R, shows the relationship of the close relative to the high-low range over a set period of time. The nearer the close is to the top of the range, the nearer to zero (higher) the indicator will be. The nearer the close is to the bottom of the range, the nearer to -100 (lower) the indicator will be. If the close equals the high of the high-low range, then the indicator will show 0 (the highest reading). If the close equals the low of the high-low range, then the result will be -100 (the lowest reading). Calculation %R = [(highest high over? periods - close) / (highest high over? periods - lowest low over? periods)] * -100 Typically, Williams % R is calculated using 14 periods and can be used on intraday, daily, weekly or monthly data. The time frame and number of periods will likely vary according to desired sensitivity and the characteristics of the individual security. Use It is important to remember that overbought does not necessarily imply time to sell and oversold does not necessarily imply time to buy. A security can be in a downtrend, become oversold and remain oversold as the price continues to trend lower. Once a security becomes overbought or oversold, traders should wait for a signal that a price reversal has occurred. One method might be to wait for Williams %R to cross above or below -50 for confirmation. Price reversal confirmation can also be accomplished by using other indicators or aspects of technical analysis in conjunction with Williams %R. One method of using Williams %R might be to identify the underlying trend and then look for trading opportunities in the direction of the trend. In an uptrend, traders may look to oversold readings to establish long positions. In a downtrend, traders may look to overbought readings to

establish short positions.

Figure: Williams % R The chart of Weyerhaeuser with a 14-day and 28-day Williams % R illustrates some key points:
o o

14-day %R appears quite choppy and prone to false signals. 28-day %R smoothed the data series and the signals became less frequent and more reliable.

When the 28-day %R moved to overbought or oversold levels, it typically remained there for an extended period and the stock continued its trend.

Some good entry signals were given with the 28-day %R by waiting for a move above or below -50 for confirmation.

EVALUATION OF TECHNICAL ANALYSIS: Technical analysis appears to be a highly controversial approach to security analysis. It has its ardent votaries: it has its severe critics. The advocates of technical analysis offer the following interrelated arguments in support of their position: Under the influence of crowed psychology, trend persists for quite some time. Tools of technical analysis that help in identifying these trends early are helpful aids in investment decision making. Shift in demand and supply are gradual rather than instantaneous. Technical analysis helps in detecting these shifts rather early and hence provides clues to future price movement.

 Fundamental information about a company is absorbed and assimilated by the market over a period. Hence, the price movement tends to continue in more or less the same direction until the information is assimilated in the stock price.

Charts provide what has happened in the past and hence give a sense of volatility that can be expected from the stock. Future, the information on trading volume which is ordinarily provide at the bottom of a bar chart gives a fair idea of the extent of the public interest in the stock The detractors of technical analysis believe that the technical analysis is a useless exercise. Their arguments run as follows: Most technical analyst are not able to offer convincing explanation employed by them Empirical evidence in support of the random-walk hypothesis casts its shadow over the usefulness of technical analysis. By the time an uptrend or down may have been signaled by technical analysis, it already have taken place. Ultimately, technical analysis must be a self-defeating proposition as more and more people employ the value of such analysis tends to decline. for the tools

DATA ANALYSIS The technical analysis of the fifty stocks that were listed in the s&p cnx nifty has been done here. This is done by considering the data of the stocks for the past one year i.e. from 1 st of february, 2012 till 31st of january, 2013. The chart patterns and trends of the stocks were analyzed from the data obtained. Chart patterns, and five different indicators which include volume, relative strength index, moving average convergence & divergence, simple moving average, moving average cross over were considered to analyze stock trends. Each indicator provided a buy or sell decision for a given stock. After result was obtained from each indicator/ chart pattern, the overall decision was arrived at. For a particular stock if majority of the indicators gave a same signal as buy or sell, then the overall decision was concluded to be the same. The table below contains the analysis and the decision finally arrived at. Amongst these stocks some stocks indicated strong sell or strong buy decision. These were the stocks for which at least four indicators gave the same buy or sell signal. The graphs for the the top ten stocks with stong buy/sell signals are presented below the table.

Script Tata Motors Ranbaxy rpower tata steel Axis Bank Ambuja Cem Dr.Reddys ACC jindal HDFC Grasim gail ongc hero moto cairn bajaj auto sbi

Simple Moving Pattern Average Buy Sell sell Buy sell Buy sell Buy sell Buy Buy Buy Buy Buy Buy Buy sell sell Buy Buy Buy Sell sell Buy none Buy none sell Buy sell Buy sell Buy sell

Moving Average Crossover Sell sell Buy Buy Sell NONE Buy Sell Buy sell Buy sell Buy Buy Buy sell Buy

MACD Buy sell Buy Buy Buy Buy Buy Buy Buy Buy Buy sell Buy Buy Buy Buy Buy

RSI Buy sell sell sell sell Buy sell sell sell sell Buy none sell Buy sell sell sell

Volume Buy sell Buy Buy Sell sell Buy Buy Sell Buy Buy Buy Buy Sell Sell buy buy

Overall Decision Buy sell Buy Buy sell Buy Buy Buy sell Buy Buy sell Buy Buy None None Buy

Continuation

Script pnb bpcl power grid hdfc bank reliance cipla hcl tech sesa goa tcs hul itc sail wipro infosys siemens bharti airtel bhel reliance infra tata power sterline ind jp associates ntpc dlf rcom icici bank idfc hindalco coal india sun pharma kotak bank maruti LT M&M

Simple Moving Pattern Average sell Buy none sell none Buy Buy Sell none Buy Sell Buy Buy Buy sell Buy Buy Buy Buy Buy Buy sell sell Buy none Buy Buy Buy sell sell sell Buy sell sell sell Buy sell sell sell Buy sell Buy sell Buy none Buy none Buy Buy Buy Buy Buy sell Sell Sell sell Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy

Moving Average Crossover Buy Buy Buy Buy Buy Sell Sell Buy sell sell sell Buy Buy sell Buy Buy sell sell Buy Buy Buy Buy Buy Buy Buy Buy Sell Buy Sell Buy Buy Sell Sell

MACD Buy Buy Buy Buy Buy Buy Buy Buy sell sell none Buy Buy sell Buy sell none Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Sell Buy

RSI sell sell none sell sell Buy Buy sell Buy Buy sell sell none Buy sell sell none sell sell sell sell sell none sell sell sell Buy sell Buy Buy Buy sell Buy

Volume Buy sell sell Buy Buy Buy Buy sell Buy Buy Buy sell Buy Buy sell sell Buy Buy none Buy Buy Buy Buy Buy sell sell Buy sell Sell sell Buy Buy Buy

Overall Decision Buy sell Buy Buy Buy Buy Buy none Buy Buy Buy none Buy Buy sell Sell sell none sell Buy Buy sell Buy Buy Buy Buy None Sell Buy Buy Buy None Buy

1. DR. REDDYS LABORATORIES

MOV SCRIPT PATTERN AVG BUY CROSSOVER MACD RSI BUY BUY

OVERALL VOLUME DECISION BUY

DR.REDDYS BUY

BUY BUY

This is the best stock of all to be invested in. This is because all the chosen indicators convey that the stock is bullish and it is to be brought. The chart displays a higher high pattern of the stocks graph. It means it is bullish. The RSI is above 30. This is a bullish sign too. MACD is 24.21 which which indicates the stock is bullish. The Simple moving average conveys that the stock is bullish as a full candle formed was only seen above the SMA line. The Moving Average Crossover also coveys bullish sign as the 9 day moving average line is above the 27 day moving average line. Very high volumes were traded recently clearly indicating the bullish nature of the stock. As, sixr out of six factors considered convey that the stock is bullish, the overall decision is that the stock is to be bought.

2. MARUTHI SUZUKI

MOV SCRIPT PATTERN AVG BUY CROSSOVER BUY MACD BUY RSI VOLUME

OVERALL DECISION BUY

MARUTI BUY

BUY BUY

Analysis of the stock: The chart displays a higher high pattern of the stocks graph. It means it is bullish. The RSI is below 70. The stock is considered to be in bullish zone. MACD is 22.4 which indicates the stock is bullish. The Simple moving average conveys that the stock is bullish as a full candle formed was only seen above the SMA line. The Moving Average Crossover also coveys a bullish sign as the 9 day moving average line is over the 27 day moving average line. Very high volumes were traded recently clearly indicating the bullish nature of the stock. As, six out of six factors considered convey that the stock is bullish, the overall decision is that the stock is to be bought.

3. HCL TECH

MOV SCRIPT PATTERN HCL TECH BUY SELL BUY BUY BUY BUY AVG CROSSOVER MACD RSI VOLUME

OVERALL DECISION

BUY

The chart pattern is conveying a higher highs pattern . This is a positive trend. That indicates it is bullish and therefore it conveys that the decision is buy. For this stock the RSI is 50 which indicates a bullish trend. The Volume indicate a bullish trend. Though the average volume traded is a bit on the lower side in the recent months a high volume is being traded. This is a positive sign. The Simple moving average conveys that the stock is bearish as a full candle formed was only seen below the SMA line. The Moving Average Crossover also coveys a bullish sign as the 9 day moving average line is above the 27 day maving average line. The MACD indicator gives a Bullish sign as the MACD has a positive value it also indicates that the stock is bullish. As, five out of six factors considered convey that the stock is bullish, the overall decision is that the Grasim stock is to be bought.

4. MAHINDRA AND MAHINDRA

MOV SCRIPT PATTERN AVG CROSSOVER MACD RSI VOLUME

OVERALL DECISION

BU M&M BUY BUY SELL BUY Y SELL BUY

The chart pattern conveys that the overall trend is bullish. But a slight fall in the recent past was seen , later though a recovery was also seen. If it would touch the 820 mark, that acts as a first resistance level and the stock turns bearish. So, here as recovery was seen already the stock is considered to be bullish. For this stock the RSI is abobe 30 which indicates a bullish trend. The Volume indicate a bullish trend too. Though the average volume traded is a bit on the lower side in the recent months a high volume is being traded. This is a positive sign. The Simple moving average conveys that the stock is bullish as a full candle formed was only seen above the SMA line. The Moving Average Crossover also coveys a bearish sign as the 9 day moving average line is above the 27 day maving average line. The MACD indicator gives a Bullish sign as the MACD has a positive value it also indicates that the stock is bullish. As, five out of six factors considered convey that the stock is bullish, the overall decision is that the stock is to be bought.

5. RANABAXY LABORATORIES

MOV SCRIPT PATTERN AVG SELL CROSSOVER MACD RSI SELL SELL BUY VOLUME BUY

OVERALL DECISION SELL

RANBAXY SELL

Analysis of the stock: The chart displays a lower lows pattern of the stocks graph. It means it is bearish. The RSI is below 70. The stock is considered to be in bullish zone. MACD is negative and at -13.86, which indicates the stock is bearish. The Simple moving average conveys that the stock is bearish as a full candle formed was only seen below the SMA line. The Moving Average Crossover also coveys a bearish sign as the 9 day moving average line is below the 27 day moving average line. Very high volume was traded recently clearly indicating the bullish nature of the stock. As, four out of six factors considered convey that the stock is bullish, the overall decision is that the stock is to sold.

6. SUN PHARMA

MOV SCRIPT SUN PHARMA BUY BUY SELL BUY SELL PATTERN AVG

OVERALL CROSSOVER MACD VOLUME DECISION

BUY

Analysis of Data: For this stock the RSI is above 30 which indicates a buy decision. The chart pattern is conveying a positive trend. That indicates it is bullish and therefore it conveys that the decision is buy. The Volume is less as the trade has been too little over the past, so it gives a bearish signal. The Simple moving average conveys that the stock is bearish as a full candle formed was only seen above the SMA line. The Moving Average Crossover also coveys a bearish sign as the 9 day moving average line is below the 27 day moving average line. The MACD indicator gives a Bullish sign as the MACD has a positive value it also indicates that the stock is bullish. As, four out of six factors considered convey that the stock is bullish, the overall decision is that the Sun Pharma stock is to be bought.

7. GRASIM

MOV SCRIPT PATTERN AVG SELL CROSSOVER MACD SELL BUY RSI BUY VOLUME BUY

OVERALL DECISION BUY

GRASIM BUY

The chart pattern is conveying a positive trend. That indicates it is bullish and therefore it conveys that the decision is buy. For this stock the RSI is around 30 which indicates a bullish trend. Actually this signal can be considered to be a bit weak as the RSI may come down to below 30 very fast. The Volume is high as the trade has been good and above average for the past few months, so it gives a bullish signal. The Simple moving average conveys that the stock is bearish as a full candle formed was only seen below the SMA line. The Moving Average Crossover also coveys a bullish sign as the 9 day moving average line is below the 27 day maving average line. The MACD indicator gives a Bullish sign as the MACD has a positive value it also indicates that the stock is bullish. As, four out of six factors considered convey that the stock is bullish, the overall decision is that the Grasim stock is to be bought.

8. TATA MOTORS

SCRIPT

PATTERN

MOV CROSSOVER

MACD

RSI

VOLUME

OVERALL

AVG TATA MOTORS BUY SELL SELL BUY BUY BUY

DECISION

BUY

The graph stands above 300 at present. But a weak trend was slightly shown recently although the stock was bullish all the time. If in future ince if the graph touches the 260 marks, it acts as a resistance level for the stock to turn bearish. So, as of now the chart pattern conveys it is a bullish stock. For this stock the RSI is above 30 which indicates a bullish trend. The Volume indicate a bullish trend too as higher volumes were traded recently. The Simple moving average conveys that the stock is bearish as a full candle formed was only seen below the SMA line. The Moving Average Crossover also coveys a bearish sign as the 9 day moving average line is above the 27 day moving average line. The MACD indicator gives a Bullish sign as the MACD has a positive value it also indicates that the stock is bullish. As, four out of six factors considered convey that the stock is bullish, the overall decision is that the stock is to be bought.

9. AMBUJA CEMENT

MOV SCRIPT AMBUJA CEM BUY BUY NONE BUY BUY SELL PATTERN AVG CROSSOVER MACD RSI VOLUME

OVERALL DECISION

BUY

Though the graph conveys a flat trend, the stock is seen to gain slight strength in the last one month. But of the hraph hits the 190 mark again which acts as resistance, it would drop to a stron resistance2 which is at 180 and totally turns bearish. SO, as of now it is considered to be positive because of the slight recovey shown. For this stock the RSI is above 30 which indicates a bullish trend. The Volume indicates a bearish trend as lesser volumes were traded recently. The Simple moving average conveys that the stock is bearish as a full candle formed was only seen below the SMA line. The Moving Average Crossover also coveys no sign as the 9 day moving average line is meets the 27 day moving average line. The MACD indicator gives a Bullish sign as the MACD has a positive value it also indicates that the stock is bullish. As, four out of six factors considered convey that the stock is bullish, the overall decision is that the stock is to be bought.

10. KOTAK MAHINDRA BANK

MOV SCRIPT KOTAK BANK BUY BUY NONE BUY BUY SELL PATTERN AVG CROSSOVER MACD RSI VOLUME

OVERALL DECISION

BUY

The chart displays a higher high pattern of the stocks graph. It means it is bullish. The RSI is nearer to 70. This is always dangerous. But asit still not has crossed 70, the stock is considered to be in bullish zone. MACD is 5.11 which which indicates the stock is bullish. The Simple moving average conveys that the stock is bullish as a full candle formed was only seen above the SMA line. The Moving Average Crossover also coveys no sign as the 9 day moving average line is aligned with the 27 day moving average line. Very high volumes were traded recently clearly indicating the bullish nature of the stock. As, four out of six factors considered convey that the stock is bullish, the overall decision is that the stock is to be bought.

CONCLUSION
The project gives an exposure to the Securities Market in India. The components of the securities market like the Pimary Market, Secondary Market and Derivative Market are known in detail. Learning form the project includes understanding the different types of Technical indicators available for performing technical analysis of stocks. How to make use of each indicator is also being explained. Various factors which affect the stock market like the Economic growth, Lower interest rates, Stability, Confidence & Expectations, Bandwagon effect, related markets were also highlighted. The Analysis of the CNX NIFTY Stocks has been done as a part of the project. The Analysis concluded that the majority of the stocks could not get very strong indications i.e. to buy or to sell. Only two stocks namely Maruthi Suzuki and Dr. Reddys laboratories are the stocks with very strong bullish trends. The six technical tools considered gave the same result that the stock is bullish for both of. Then the stocks like HCL Tech and Mahindra & Mahindra had five Technical indicators alone giving out the same result as bullish. Then the rest of the stocks had either four indicators or three indicators in favor of a same result. Amongst the stocks selected, the top ten stocks recommended for investment are Maruthi Suzuki, Dr. Reddys, Hcl Tech, Mahindra Finance, Ranbaxy Laboratories, Sun Pharma, Grasim, Tata Motors, Ambuja Cement and Kotak Mahindra Bank. Amongst these top ten stocks recognized, only there is one stock i.e. Ranbaxy laboratories which is having a bearish trend. The rest of the stocks are bullish only. This conveys that the overall market is very bullish and much favorable for investments. Of the total 50 stocks in the S&P CNX NIFTY, 32 stocks are bullish and 11 stocks are bearish. The remaining seven stocks conveyed no result. Their performance is stable. Here 64% of the stocks are bullish while only 22% of the stocks are bearish. So, not alone the top ten stocks, but the overall index also conveys that the overall market is bullish. Even investing in the bullish stocks is gainful as one use the short option available carefully to gain profits. So, the S&P CNX NIFTY stocks are the one of the best investment options available as the gains could be very high. Especially investing in the bullish stocks would be very beneficial.

6.3 Suggestions for further study

The project was confined only to the study of derivatives strategies in the Indian Market. Apart from the analysis done, stocks can be analyzed on the basis of various other indicators of technical analysis or on the basis of the fundamental analysis. The index considered here is not alone the best investment avenue available. Even other stock of other indexes may yield good returns. The technical indicators can be utilized even for the study of Derivatives market and even for the commodities market etc. The opportunity cost of capital and the returns from investing elsewhere can be calculated and compared with the investment made in stocks. Apart from the factors explained in the project which would effect the stock market, many other factors also may exist.

BIBILIOGRAPHY
Books: A.K.Sharma & G.S. Batra (2008), Indian Stock Market. Deep & Deep Publications Pvt. Ltd Ajay Shah, Susan Thomas, Michael Gorham (2008), Indias Financial Markets. Elsevier Bharati V. Pathak, Pathak Bharati V. (2011), The Indian Financial System, Third Edition, Dorling Kindersley (india) Pvt.ltd Charles Kirkpatrick II, Julie R. Dahlquist (2011), Technical Analysis, Second Edition. Pearson Education Inc. Robert D. Edwards, John Magee, W.H.C. Bassetti, (2007), Tecjnical Analysis of Stock trends, Ninth Edition. CRC Press V. Raghunathan, Prabina Rajib (2007), Stock Exchanges, Investments and Derivatives, Third Edition, Tata McGraw-Hill Publishing Company limited

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