CHAPTER 1 Introduction

1. INTRODUCTION
The main objective of the project is to evaluate performance of the selected OIL companies of the NSE for the year 2008. Also to find out factors that influences the purchase decision of the investors. In this study the following methods are taken for calculation:

Expo-nential Moving Average

Stochastic

Relative Strength Index

Technical Analysis
Moving Average Conver-gence and Divergence

Rate of Change

1.1

COMPANY PROFILE

JRG is a premier brokerage house in India on the fast growth track. JRG started functioning in the stock market in 1992. Over the years, the company has grown from strength to strength to become a major player in India's financial services sector. Today JRG is a listed company in the Bombay Stock Exchange. JRG is one of the foremost brokerage houses, being a member of various exchanges in the capital and commodity markets and the insurance sector. JRG is a member of the National Stock Exchange of India (NSE), the Bombay Stock Exchange, the National Multi Commodity Exchange of India Ltd (NMCEIL), the National Commodities Derivatives Exchange Ltd (NCDEX), the Multi Commodity Exchange of India Ltd (MCX) and the Indian Pepper and Spices Trades Association (IPSTA). JRG is a fullfledged depository participant of the National Securities Depository Ltd and Central Depository Services (India) Limited. In April 2006, JRG Securities Limited, the flagship company of JRG Group, came out with a Rs 14.50 crore public issue of 36,25,000 equity shares with a face value of Rs 10 at a premium of Rs 30 per share. In July 2007, Baring India Private Equity Fund II Ltd (Baring India) announced an investment of upto $35 million in JRG Securities Ltd. through a preferential issue and warrants for a minimum 44.8 per cent stake in the company, subject to the approvals from Securities and Exchange Board of India and shareholders among others. JRG Securities Limited was born out of a vision to explore the immense investment opportunities in the Indian financial market, to benefit the investors. The company is built on the pillars of financial expertise, professionalism, exemplary ethics and a commitment to provide ultimate customer satisfaction. JRG constantly strives to meet the changing market needs and trends. We take pride to tell the world that we had a modest beginning. We began as a subbrokerage house in the year 1992. Our financial expertise and professionalism

coupled with ethics and a commitment has made JRG one of the major players in Indian financial market. We cater efficiently to the diverse and complex needs of over 200,000 customers, most of whom are individual traders, institutions and money managers. The vision of the JRG Group is to be a Financial Super Market. It aims to provide all types of financial services to its clients at one place to save them from going from place to place to meet their investment needs. With the opening up of the Indian economy and the advent of IT enabled trading, the Indian capital market has become a whole new ball game. From floor trading, the custom is fast shifting to Internet trading. Equally fast is the role of the financial service provider, which is being redefined. Earlier, a financial service provider's responsibility was limited to executing customer's instructions to buy and sell. Now, the whole operational paradigm has progressively shifted with the opening of more and more avenues to offer strategic customer supports.

The guiding principles that lead us:

Serve the clients with the highest level of responsiveness and integrity. Place the client's interests and protection of their investments as the top priorities. Operate on predefined and constantly updated service standards. Be customer driven, rather than deal driven. Adopt futuristic technology to gather vital information on real time basis to optimize investor protection and investor returns. Set up most modern trading facilities for its clients at par with global standards.

Their group of companies:

1. JRG securities Ltd. 2. JRG wealth management Ltd. 3. JRG Insurance management Ltd. 4. JRG metal & commodities Pvt Ltd.
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5. JRG fincorp Ltd.

JRG USP:
A leading player in Insurance Broking. Customer focused and customer-friendly in approach. Associate of a Proven Financial Group. High quality claims advisory service. Credibility & Standing. Accessible through phone and net. Industry-best professional service. Capability to handle retail and corporate accounts. Experienced Team.

1.2

IMPORTANCE OF THE STUDY

The very definition of technical analysis states that it is the process of

identifying trend and trend reversal at an early stage. Thus, the foremost use of technical analysis would be to make an early entry in the market, when it is likely to rise and an early exit from the market, when the market is likely to reverse direction and move downward. This aspect can be referred to as timing ones entry and exit from the market. Imagine the profit potential if one would be able to make an entry new about the bottom and make an exit near about the top in every market cycle.

The study reveals the movement share that is upward or downward, under different time periods. One may note that, as indicated buying and selling near about bottom and the top respectively and not the exact bottom and top. The reason for this is that buying or selling at the exact bottom/top can be only a random or fluke occurrence. It is just not possible to buy/sell consistently at the bottom/top.

1.3

OBJECTIVES OF THE STUDY

To study the behavior of the price of the stock. To find out the overbought and over sold conditions of the scrip. To predict the extent and direction of the price movements. To compare the stock price movements with the index movements and determining the trend. To study the application of technical analysis in stock market. To buy at a lower price and sell at a higher price of share prices to get a good return on investment.

1.4

SCOPE OF THE STUDY

The capital gain of an investor depends on the performance of a particular

companys stock in the stock market. The stronger the companys share is the more the profit the investor gets. So it is necessary to ascertain, analyze and interpret the share of various firms in order to know its position in the market. Investors can make wise investment with the help of this analysis.

This study is much useful for both the clients and the share broking firms. Technical analysis helps the share holders to choose the best security to invest to make profit. It also guides them to when to sell or how much time to hold the security and the like. The share brokers can use these tools to give a good guidance to its clients regarding the transaction of shares. Since the customers get added services, they will retain to the company. It can be used as a method to increase their clients and their by profit. This study reveals how the share brokers and its clients are helped by the technical tools.

1.5

TIME FRAME
This study was conducted for a period of 6 weeks during the period

December 2008 - February 2009.

1.6

LIMITATIONS OF THE STUDY

Technical analysis is that the methods typically give a lot of false signals. The risk of ruin by betting on all the signals the same way is very real. Technical analysis systems usually do not take into account correlation between different markets. If you are analyzing several markets and they all give similar signals, they may have close correlations, meaning that the risk profile for each is very similar, and that the prices of the assets move in close steps with each other. There are numerous other factors related to the markets in general or to the implementation of any specific trading model which cannot be fully accounted for

1.7

CHAPTER SCHEME

Chapter I deals with the Introduction, Objective of the study, Need for the study. Chapter II deals with the Research Methodology. Chapter III deals with the Analysis and Interpretations. Chapter IV deals with the Conclusion.

CHAPTER 2 Review of Literature

2.1 Literature Review

The term technical analysis generally contains a large variety of trading techniques which are based on past movements of the asset price and a few other related variables. The use of trading rules to detect patterns in the time series of asset prices dates back to the 1800s, when traders were clearly not able to develop a fundamental analysis on the basis of extensive financial information. Persistent shifts in supply and demand had to be detected in past price movements using simple to quite elaborate techniques. Many of these techniques are still applied by practitioners, as documented in Murphy (1999). However, the attitude of academia towards technical analysis is at least reserved, which is due to the economists persuasion that financial markets in particular are well described by the efficient market hypothesis. Under these circumstances it is obvious that trading rules, generally not derived from a mathematically well-defined econometric or economic model, are bound not be very informative. Thus, the information content of trading signals concerning asset price fundamentals is still supposed to be largely worthless and often referred to as noise. This view was seriously challenged by a large body of empirical studies showing that, on the one hand, standard martingale models do not sufficiently describe short-run price movements (Lewis, 1995). On the other hand, the introduction of technical analysis is justified by the results of micro survey data (Taylor and Allen, 1992), sustainable ex-post profits and the overall ability of heterogeneous agent models to explain the stylized facts of financial time series (Hommes, 2001). Existing explanations of the presence of chartists are generally based on sequential trading and asymmetric information.

If news is not commonly available on financial markets, uninformed traders may infer a signal from analyzing buy and sell decisions of informed traders or changes of the asset price itself. The resulting equilibrium can be described by models of herding behavior, as is done in Banerjee (1992) and Kirman (1993). Within such asymmetric information frameworks, technical trading might also be a suitable device for informed traders. Suppose that a trader receives what he believes to be private information but he cannot be sure if the information has already been incorporated into the asset price. Before changing positions, the trader applies technical analysis to check whether his information is indeed non-public (Treynor and Ferguson, 1985). As a general result of the models developed so far, it appears that the application of these techniques is rational from an individual trader's point of view but leads to market inefficiencies such as misalignments and excess volatility. This is due to the self-fulfilling nature of technical trading, whether or not a given initial signal is useful to predict future asset prices. However, the existing literature has not yet explicitly addressed the question as to how technical analysis might infer information about the fundamental value of the asset price as well. To provide an information revealing explanation of technical analysis, it is assumed that information on at least some of the asset price fundamentals is available only with a considerable lag. We will argue that if the market price was indeed driven by a fundamental that is not yet observable, useful information about a possible regime shift in the stochastic process of this variable can be inferred by analyzing the asset prices themselves. It is shown that within such a realistic informational set up, the oscillator model described as Hold a long position when the difference between the short term and the long term average is positive, otherwise hold a short position (Schulmeister, 1987) carries useful information for predicting future exchange rate changes. The filter rules should be interpreted as a cheap proxy for Bayesian learning and cannot be deemed as irrational. Empirical support for this interpretation is provided by applying a Markov regime switching model to various daily US-dollar exchange rates.

The logic of technical analysis presented however, suggests that its forecasting success will be state dependent because it only predicts the direction of future exchange rate changes accurately when regime shifts alter the time series properties of unobservable fundamentals. However, the exchange rate is certainly not always driven by the dynamics of hidden fundamentals, implying that periods of technical forecast dominance are followed by periods of standard fundamental analysis prevalence.

CHAPTER 3

Research Methodology
3.1 Research Design
Descriptive research design was found more suitable for this study. Descriptive study in one which is used to portray the characteristics of a particular individual, situation or group. It also includes surveys and fact finding enquiries of different kinds. The major purpose of descriptive research is description of the state of affairs as it exists at present. The main characteristic of this method is that the researcher has no control over the variables; he can only report what has happened or what is happening.

3.2 Method of Data Collection

Data is collected as Secondary Data. It means data that are already available i.e. they refer to the data which have already been collected and analyzed by someone else.

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CHAPTER 4 Data Analysis and Interpretations

4.1 INTRODUCTION ON TECHINCAL ANALYSIS

Technical analysis is a security analysis technique that claims the ability to forecast the future direction of prices through the study of past market data, primarily price and volume. In its purest form, technical analysis considers only the actual price and volume behavior of the market or instrument. Technical analysts, sometimes called "chartists", may employ models and trading rules based on price and volume transformations, such as the relative strength index, moving averages, regressions, inter-market and intra-market price correlations, cycles or, classically, through recognition of chart patterns. Technical analysis stands in distinction to fundamental analysis. Technical analysis "ignores" the actual nature of the company, market, currency or commodity and is based solely on "the charts," that is to say price and volume information, whereas fundamental analysis does look at the actual facts of the company, market, currency or commodity. For example, any large brokerage, trading group, or financial institution will typically have both a technical analysis and fundamental analysis team. Technical analysis is widely used among traders and financial professionals, and is very often used by active day traders, market makers, and pit traders. In the 1960s and 1970s it was widely discredited by academic mathematics. In a recent review, Irwin and Park reported that 56 of 95 modern studies found it produces positive results, but noted that many of the positive results were rendered dubious by issues such as data snooping so that the evidence in support of technical analysis was inconclusive; it is still considered by many academics to be pseudoscience. Academics such as Eugene Fama say the evidence for technical analysis is sparse and is inconsistent with the weak form of the efficient market hypothesis. Users hold that even if technical analysis cannot predict the future, it helps to identify trading opportunities.

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Technical analysts (or technicians) seek to identify price patterns and trends in financial markets and attempt to exploit those patterns. While technicians use various methods and tools, the study of price charts is primary. Technicians especially search for archetypal patterns, such as the well-known head and shoulders or double top reversal patterns, study indicators such as moving averages, and look for forms such as lines of support, resistance, channels, and more obscure formations such as flags, pennants or balance days. Critics argue that these 'patterns' are simply random effects on which humans impose causation. Critics state that humans see patterns that aren't there and then ascribe value to them. Technical analysts also extensively use indicators, which are typically mathematical transformations of price or volume. These indicators are used to help determine whether an asset is trending, and if it is, its price direction. Technicians also look for relationships between prices, volume and, in the case of futures, open interest. Examples include the relative strength index, and MACD. Other avenues of study include correlations between changes in options (implied volatility) and put/call ratios with price. Other technicians include sentiment indicators, such as Put/Call ratios and Implied Volatility in their analysis. Technicians seek to forecast price movements such that large gains from successful trades exceed more numerous but smaller losing trades, producing positive returns in the long run through proper risk control and money management. There are several schools of technical analysis. Adherents of different schools (for example, candlestick charting, Dow Theory, and Elliott wave theory) may ignore the other approaches, yet many traders combine elements from more than one school. Technical analysts use judgment gained from experience to decide which pattern a particular instrument reflects at a given time, and what the interpretation of that pattern should be. Technical analysis is frequently contrasted with fundamental analysis, the study of economic factors that influence prices in financial markets. Technical analysis holds

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that prices already reflect all such influences before investors are aware of them, hence the study of price action alone. Some traders use technical or fundamental analysis exclusively, while others use both types to make trading decisions.

DEFINITION
The term TECHNICAL in its application to the stock market, has come to have a very special meaning, quite different from its ordinary dictionary definition. It refers to the study of the action of the market itself as opposed to the study of the goods in which the market deals. Technical Analysis is the science of recording, usually in graphic form, the actual history of trading (price changes, volume of transactions, etc) in a certain stock or in the Averages and then deducing from that pictured history the probable future trend.

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

Market action discounts everything

Based on the premise that all relevant information is already reflected by prices, pure technical analysts believe it is redundant to do fundamental analysis they say news and news events do not significantly influence price, and cite supporting research such as the study by Cutler, Poterba, and Summers titled "What Moves Stock Prices?" On most of the sizable return days [large market moves] the information that the press cites as the cause of the market move is not particularly important. Press reports on adjacent days also fail to reveal any convincing accounts of why future profits or discount rates might have changed. Our inability to identify the fundamental shocks that accounted for these significant market moves is difficult to reconcile with the view that such shocks account for most of the variation in stock returns.

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 Prices move in trends

Technical analysts believe that prices trend. Technicians say that markets trend up, down, or sideways (flat). This basic definition of price trends is the one put forward by Dow Theory. An example of a security that had an apparent trend is AOL from November 2001 through August 2002. A technical analyst or trend follower recognizing this trend would look for opportunities to sell this security. AOL consistently moves downward in price. Each time the stock rose, sellers would enter the market and sell the stock; hence the "zig-zag" movement in the price. The series of "lower highs" and "lower lows" is a tell tale sign of a stock in a down trend. In other words, each time the stock edged lower, it fell below its previous relative low price. Each time the stock moved higher, it could not reach the level of its previous relative high price. Note that the sequence of lower lows and lower highs did not begin until August. Then AOL makes a low price that doesn't pierce the relative low set earlier in the month. Later in the same month, the stock makes a relative high equal to the most recent relative high. In this a technician sees strong indications that the down trend is at least pausing and possibly ending, and would likely stop actively selling the stock at that point.

History tends to repeat itself

Technical analysts believe that investors collectively repeat the behavior of the investors that preceded them. "Everyone wants in on the next Microsoft," "If this stock ever gets to $50 again, I will buy it," "This company's technology will revolutionize its industry, therefore this stock will skyrocket" these are all examples of investor sentiment repeating itself. To a technician, the emotions in the market may be irrational, but they exist. Because investor behavior repeats itself so often, technicians believe that recognizable (and predictable) price patterns will develop on a chart.

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Technical analysis is not limited to charting, but it always considers price trends. For example, many technicians monitor surveys of investor sentiment. These surveys gauge the attitude of market participants, specifically whether they are bearish or bullish. Technicians use these surveys to help determine whether a trend will continue or if a reversal could develop; they are most likely to anticipate a change when the surveys report extreme investor sentiment. Surveys that show overwhelming bullishness, for example, are evidence that an uptrend may reverse the premise being that if most investors are bullish they have already bought the market (anticipating higher prices). And because most investors are bullish and invested, one assumes that few buyers remain. This leaves more potential sellers than buyers, despite the bullish sentiment. This suggests that prices will trend down, and is an example of contrarians trading.

4.2

TYPES OF CHART

The different types of chart which are available with reference to Technical analysis are as follows:

Line Chart
A line chart or line graph is a type of graph created by connecting a series of data points together with a line. A line chart is a basic type of chart common in many fields. It is an extension of a scatter graph, and is created by connecting a series of points that represent individual measurements with line segments. A line chart is often used to visualize a trend in data over intervals of time, thus the line is often drawn chronologically. On a line chart, the closing prices of successive time periods are connected by straight lines, with no notice taken of the highs and lows of stock prices for each period.

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 Bar Chart
A bar chart or bar graph is a chart with rectangular bars with lengths proportional to the values that they represent. Bar charts are used for comparing two or more values. The bars can be horizontally or vertically oriented. Sometimes a stretched graphic is used instead of a solid bar. It is a visual display used to compare the amount or frequency of occurrence of different characteristics of data and it is used to compare groups of data. Most investors interested in charting use bar chats primarily because they have meanings familiar to technical analyst, but also because these charts are easy to draw. The vertical dimensions of the line represents price, the horizontal dimensions indicates the time involved by the chart as a whole. In a daily chart, for example each vertical line represents the range of each days price activity, and the chart as a whole may extend for a month. For this, extend the line on the graph paper from the highest transaction of each day drawn to the lowest and make a cross mark to indicate the closing price.

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 Candle Stick
A candlestick chart is a style of bar-chart used primarily to describe price movements of a equity over time. It is an enhanced version of a bar chart. These charts began to appear in the US in the mid 1980s. Such a chart shows a stocks open, close, high and low in a modified three dimensional format. The vertical axis shows stock price, while the horizontal axis reflects the passage of time. The principal difference between a daily candlestick chart and a bar chart are the white and black candles augmenting the daily trading range lines. If the opening price exceeds the closing price (the stock is down for the day), the body of the candle is black. When the stock is up (the close exceeds the open), the candle is clear. White candles represent stock advances, with black candles representing declines. The thick portion of an entry is called the real body, with the vertical line representing the wick. Various clusters of candles have exotic names, such as dark cloud cover, doji star, hanging man, harami cross and two day tweezer tops. It is a combination of a line-chart and a bar-chart, in that each bar represents the range of price movement over a given time interval. It is most often used in technical analysis of equity and currency price patterns. They appear superficially similar to error bars, but are unrelated.
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History
Candlestick charts are said to have been developed in the 18th century by legendary Japanese rice trader Homma Munehisa. The charts gave Homma and others an overview of open, high, low, and close market prices over a certain period. This style of charting is very popular due to the level of ease in reading and understanding the graphs. Since the 17th century, there has been a lot of effort to relate chart patterns to the likely future behavior of a market. This method of charting prices proved to be particularly interesting, due to the ability to display five data points instead of one. The Japanese rice traders also found that the resulting charts would provide a fairly reliable tool to predict future demand. The method was picked up by Charles Dow around 1900 and remains in common use by today's traders of financial instruments.

Candlestick chart topics Candlestick layout

Candlesticks are usually composed of the body (black or white), an upper and a lower shadow (wick). The wick illustrates the highest and lowest traded prices of a stock during the time interval represented. The body illustrates the opening and closing trades. If the stock closed higher than it opened, the body is white, with the opening price at the bottom of the body and the closing price at the top. If the stock closed lower than it opened, the body is black, with the opening price at the top and the closing price at the bottom. A candlestick need not have either a body or a wick.

Candlestick simple patterns

There are multiple forms of candlestick chart patterns. They are: White candlestick Black candlestick Long lower shadow Long upper shadow Hammer Inverted hammer
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Spinning top white Spinning top black

Complex Patterns
Despite those rather simple patterns depicted in the section above, there are more complex and difficult patterns, which have been identified since the charting method's inception. Candlestick charts also convey more information than other forms of charts, such as bar charts. Just as with bar charts, they display the absolute values of the open, high, low, and closing price for a given period. But, they also show how those prices are relative to the prior periods' prices, so one can tell by looking at one bar if the price action is higher or lower than the prior one. That and they are visually easier to look at, and can be colorized for even better definition.

Use of candlestick charts

Candlestick charts are a visual aid for decision making in stock, Forex, commodity, and options trading. For example, when the bar is white and high relative to other time periods, it means buyers are very bullish. The opposite is true for a black bar.

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4.3

Dow Theory

Dow Theory is a heterodox theory on stock price movements that is used as the basis for technical analysis. The theory was derived from 255 Wall Street Journal editorials written by Charles H. Dow (18511902), journalist, founder and first editor of the Wall Street Journal and co-founder of Dow Jones and Company. Following Dow's death, William P. Hamilton, Robert Rhea and E. George Schaefer organized and collectively represented "Dow Theory," based on Dow's editorials. Dow himself never used the term "Dow Theory," nor presented it as a trading system.

Background
Charles Dow developed the Dow Theory from his analysis of market price action in the late 19th century. Until his death in 1902, Dow was part owner as well as editor of The Wall Street Journal. Although he never wrote a book on the subject, he did write some editorials that reflected his views on speculation and the role of the rail and industrial averages. Even though Charles Dow is credited with developing the Dow Theory, it was S.A. Nelson and William Hamilton who later refined the theory into what it is today. Nelson wrote The ABC of Stock Speculation and was the first to actually use the term "Dow theory." Hamilton further refined the theory through a series of articles in The Wall Street Journal from 1902 to 1929. Hamilton also wrote The Stock Market Barometer in 1922, which sought to explain the theory in detail. In 1932, Robert Rhea further refined the analysis of Dow and Hamilton in The Dow Theory. Rhea read, studied and deciphered some 252 editorials through which Dow (1900-1902) and Hamilton (1902-1929) conveyed their thoughts on the market. Rhea also referred to Hamilton's The Stock Market Barometer. The Dow Theory presents the Dow Theory as a set of assumptions and theorems.

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SIX ASSUMPTIONS
The six basic tenets of Dow Theory as summarized by Hamilton, Rhea, and Schaefer are described below.

The market has three movements

(1) The "main movement", primary movement or major trend may last from less than a year to several years. It can be bullish or bearish. (2) The "medium swing", secondary reaction or intermediate reaction may last from ten days to three months and generally retraces from 33% to 66% of the primary price change since the previous medium swing or start of the main movement. (3) The "short swing" or minor movement varies with opinion from hours to a month or more. The three movements may be simultaneous, for instance, a daily minor movement in a bearish secondary reaction in a bullish primary movement.

Market Trends have three phases

Dow Theory asserts that major market trends are composed of three phases: an accumulation phase, a public participation phase, and a distribution phase. The accumulation phase (phase 1) is a period when investors "in the know" are actively buying (selling) stock against the general opinion of the market. During this phase, the stock price does not change much because these investors are in the minority absorbing (releasing) stock that the market at large is supplying (demanding). Eventually, the market catches on to these astute investors and a rapid price change occurs (phase 2). This occurs when trend followers and other technically oriented investors participate. This phase continues until rampant speculation occurs. At this point, the astute investors begin to distribute their holdings to the market (phase 3).

The stock market discounts all news

Stock prices quickly incorporate new information as soon as it becomes available. Once news is released, stock prices will change to reflect this new information. On this point, Dow Theory agrees with one of the premises of the efficient market hypothesis.

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 Stock market averages must confirm each other

In Dow's time, the US was a growing industrial power. The US had population centers but factories were scattered throughout the country. Factories had to ship their goods to market, usually by rail. Dow's first stock averages were an index of industrial (manufacturing) companies and rail companies. To Dow, a bull market in industrials could not occur unless the railway average rallied as well, usually first. According to this logic, if manufacturers' profits are rising, it follows that they are producing more. If they produce more, then they have to ship more goods to consumers. Hence, if an investor is looking for signs of health in manufacturers, he or she should look at the performance of the companies that ship the output of them to market, the railroads. The two averages should be moving in the same direction. When the performance of the averages diverges, it is a warning that change is in the air. Both Barron's Magazine and the Wall Street Journal still publish the daily performance of the Dow Jones Transportation Index in chart form. The index contains major railroads, shipping companies, and air freight carriers in the US.

Trends are confirmed by volume

Dow believed that volume confirmed price trends. When prices move on low volume, there could be many different explanations why. An overly aggressive seller could be present for example. But when price movements are accompanied by high volume, Dow believed this represented the "true" market view. If many participants are active in a particular security, and the price moves significantly in one direction, Dow maintained that this was the direction in which the market anticipated continued movement. To him, it was a signal that a trend is developing.

Trends exist until definitive signals prove that they have ended
Dow believed that trends existed despite "market noise". Markets might temporarily move in the direction opposite to the trend, but they will soon resume the prior move. The trend should be given the benefit of the doubt during these reversals. Determining whether a reversal is the start of a new trend or a temporary movement in the current trend is not easy. Dow Theorists often disagree in this determination. Technical

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analysis tools attempt to clarify this but they can be interpreted differently by different investors.

LIMITATIONS
There are several problems with the Dow Theory. The first is that it is not a theory but an interpretation of known data. It does not explain why the two averages should be able to forecast future stock prices. In addition, there may be a considerable lag between actual turning points and those indicated by the forecast. It may be months before the two averages confirm each other, during which time individual stocks may show substantial price changes. It might work only when a long, wide, upward, or downward movement is registered in the market. It is mostly unsuitable as a market predictor when the market trend frequently reverses itself in the short or the intermediate term. Another major drawback is that the theory does not attempt to explain a consistent pattern of the stock price movements.

4.4

ELLIOT WAVE THEORY

The Elliott wave principle is a form of technical analysis that attempts to forecast trends in the financial markets and other collective activities. It is named after Ralph Nelson Elliott (18711948), an accountant who developed the concept in the 1930s he proposed that market prices unfold in specific patterns, which practitioners today call Elliott waves. Elliott published his views of market behavior in the book The Wave Principle (1938), in a series of articles in Financial World magazine in 1939, and most fully in his final major work, Natures Laws The Secret of the Universe (1946). Elliott argued that because humans are themselves rhythmical, their activities and decisions could be predicted in rhythms, too. Critics argue that the Elliott wave principle is pseudoscientific and contradicts the efficient market hypothesis.

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Market Predictions Based On Wave Patterns

Elliott made detailed stock market predictions based on unique characteristics he discovered in the wave patterns. An impulsive wave, which goes with the main trend, always shows five waves in its pattern. On a smaller scale, within each of the impulsive waves, five waves can again be found. In this smaller pattern, the same pattern repeats itself ad infinitum. These ever-smaller patterns are labeled as different wave degrees in the Elliott Wave Principle. Only much later were fractals recognized by scientists.

In the financial markets we know that "every action creates an equal and opposite reaction" as a price movement up or down must be followed by a contrary movement. Price action is divided into trends and corrections or sideways movements. Trends show the main direction of prices while corrections move against the trend. Elliott labeled these "impulsive" and "corrective" waves.

Theory Interpretation
The Elliott Wave Theory is interpreted as follows:

Every action is followed by a reaction. Five waves move in the direction of the main trend followed by three corrective waves (a 5-3 move).

A 5-3 move completes a cycle. This 5-3 move then becomes two subdivisions of the next higher 5-3 wave. The underlying 5-3 pattern remains constant, though the time span of each may vary.

Elliott Wave analysts hold that it is not necessary to look at a price chart to judge where a market is in its wave pattern. Each wave has its own "signature" which often reflects the psychology of the moment. Understanding how and why the waves develop is key to the application of the Wave Principle; that understanding includes recognizing the characteristics described below.

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These wave characteristics assume a bull market in equities. The characteristics apply in reverse in bear markets.

Five wave pattern (dominant trend)

Wave 1: Wave one is rarely obvious at its inception. When the first wave of a new bull market begins, the fundamental news is almost universally negative. The previous trend is considered still strongly in force. Fundamental analysts continue to revise their earnings estimates lower; the economy probably does not look strong. Sentiment surveys are decidedly bearish; put options are in vogue, and implied volatility in the options market is high. Volume might increase a bit as prices rise, but not by enough to alert many technical analysts. Wave 2: Wave two corrects wave one, but can never extend beyond the starting point of wave one. Typically, the news is still bad. As prices retest the prior low, bearish sentiment quickly builds, and "the crowd" haughtily reminds all that the bear market is still deeply ensconced. Still, some positive signs appear for those who are looking: volume should be lower during wave two than during wave one, prices usually do not retrace more than 61.8% of the wave one gains, and prices should fall in a three wave pattern. Wave 3: Wave three is usually the largest and most powerful wave in a trend (although some research suggests that in commodity markets, wave five is the largest). The news is now positive and fundamental analysts start to raise earnings estimates. Prices rise quickly, corrections are short-lived and shallow. Anyone looking to "get in on a pullback" will likely miss the boat. As wave three starts, the news is probably still bearish, and most market players remain negative; but by wave three's midpoint, "the crowd" will often join the new bullish trend. Wave three often extends wave one by a ratio of 1.618:1. Wave 4: Wave four is typically clearly corrective. Prices may meander sideways for an extended period, and wave four typically retraces less than 38.2% of wave three. Volume is well below than that of wave three. This is a good place to buy a pull back if you understand the potential ahead for wave 5. Still, the most distinguishing feature of fourth waves is that they often prove very difficult to count.
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Wave 5: Wave five is the final leg in the direction of the dominant trend. The news is almost universally positive and everyone is bullish. Unfortunately, this is when many average investors finally buy in, right before the top. Volume is lower in wave five than in wave three, and many momentum indicators start to show divergences (prices reach a new high, the indicator does not reach a new peak). At the end of a major bull market, bears may very well be ridiculed (recall how forecasts for a top in the stock market during 2000 were received).

Three wave pattern (corrective trend)

Wave A: Corrections are typically harder to identify than impulse moves. In wave A of a bear market, the fundamental news is usually still positive. Most analysts see the drop as a correction in a still-active bull market. Some technical indicators that accompany wave A include increased volume, rising implied volatility in the options markets and possibly a turn higher in open interest in related futures markets. Wave B: Prices reverse higher, which many see as a resumption of the now longgone bull market. Those familiar with classical technical analysis may see the peak as the right shoulder of a head and shoulders reversal pattern. The volume during wave B should be lower than in wave A. By this point, fundamentals are probably no longer improving, but they most likely have not yet turned negative. Wave C: Prices move impulsively lower in five waves. Volume picks up, and by the third leg of wave C, almost everyone realizes that a bear market is firmly entrenched. Wave C is typically at least as large as wave A and often extends to 1.618 times wave A or beyond.

Degree
The patterns link to form five and three-wave structures which themselves underlie self-similar wave structures of increasing size or higher "degree." Note the lower most of the three idealized cycles. In the first small five-wave sequence, waves 1, 3 and 5 are motive, while waves 2 and 4 are corrective. This signals that the movement of the wave one degree higher is upward. It also signals the start of the first small threewave corrective sequence. After the initial five waves up and three waves down, the sequence begins again and the self-similar fractal geometry begins to unfold
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according the five and three-wave structure which it underlies one degree higher. The completed motive pattern includes 89 waves, followed by a completed corrective pattern of 55 waves. Each degree of a pattern in a financial market has a name. Practitioners use symbols for each wave to indicate function and degree numbers for motive waves, letters for corrective waves (shown in the highest of the three idealized series of wave structures or degrees). Degrees are relative; they are defined by form, not by absolute size or duration. Waves of the same degree may be of very different size and/or duration. The classification of a wave at any particular degree can vary, though practitioners generally agree on the standard order of degrees (approximate durations given): Grand Supercycle Supercycle Cycle Primary Intermediate Minor Minute Minuette Sub-Minuette

CHART PATTERNS
Charts are a means to an end. They help a technical analyst not only to identify stocks which are technically strong or weak but to decide when to buy or sell a stock.

1. Support and Resistance Level

One of the most important aspects of chart analysis is the identification of support and resistance levels. A support level is a barrier to price decline; a resistance level is a barrier to price advancement. Although the barrier is an obstruction, it is by no means impassable; stock prices do break support and resistance barriers. A stock breaking its

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support level is technically weak; conversely, a stock breaking the resistance level is technically strong.

2. Head and Shoulders Configuration

Basic reversal patterns help analysts identify the turning points so that they can decide when to buy or sell stock. The key reversal pattern is popularly known as the head and shoulders configuration. This configuration is merely another name for an uptrend or a downtrend in a stock; the neckline is the familiar resistance or support level. Head and shoulders formation should be analyzed against the background of volume trend. As the head and shoulders top is formed, resistance to further price increases dampens investor enthusiasm; therefore the volume decreases on each of the rally phases within the top formation. The reverse is tyre when the head and shoulders bottom is under formation. There are many variations of such reversal formations. Of these, the so called double and triple tops and bottom are interesting.

Both of these head and shoulders patterns are similar in that there are four main parts: two shoulders, a head and a neckline. Also, each individual head and shoulder is comprised of a high and a low. For example, in the head and shoulders top image shown in Figure 1, the left shoulder is made up of a high followed by a low. In this pattern, the neckline is a level of support or resistance. Remember that an upward

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trend is a period of successive rising highs and rising lows. The head and shoulders chart pattern, therefore, illustrates a weakening in a trend by showing the deterioration in the successive movements of the highs and lows.

Double Tops and Bottoms

This chart pattern is another well-known pattern that signals a trend reversal - it is considered to be one of the most reliable and is commonly used. These patterns are formed after a sustained trend and signal to chartists that the trend is about to reverse. The pattern is created when a price movement tests support or resistance levels twice and is unable to break through. This pattern is often used to signal intermediate and long-term trend reversals.

3. Triangles
Triangles are some of the most well-known chart patterns used in technical analysis. The three types of triangles, which vary in construct and implication, are the symmetrical triangle, ascending and descending triangle. These chart patterns are considered to last anywhere from a couple of weeks to several months.

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The symmetrical triangle is a pattern in which two trendlines converge toward each other. This pattern is neutral in that a breakout to the upside or downside is a confirmation of a trend in that direction. In an ascending triangle, the upper trendline is flat, while the bottom trendline is upward sloping. This is generally thought of as a bullish pattern in which chartists look for an upside breakout. In a descending triangle, the lower trendline is flat and the upper trendline is descending. This is generally seen as a bearish pattern where chartists look for a downside breakout.

4. Flag and Pennant

These two short-term chart patterns are continuation patterns that are formed when there is a sharp price movement followed by a generally sideways price movement. This pattern is then completed upon another sharp price movement in the same direction as the move that started the trend. The patterns are generally thought to last from one to three weeks.

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There is little difference between a pennant and a flag. The main difference between these price movements can be seen in the middle section of the chart pattern. In a pennant, the middle section is characterized by converging trendlines, much like what is seen in a symmetrical triangle. The middle section on the flag pattern, on the other hand, shows a channel pattern, with no convergence between the trendlines. In both cases, the trend is expected to continue when the price moves above the upper trendline.

5. Wedge
The wedge chart pattern can be either a continuation or reversal pattern. It is similar to a symmetrical triangle except that the wedge pattern slants in an upward or downward direction, while the symmetrical triangle generally shows a sideways movement. The other difference is that wedges tend to form over longer periods, usually between three and six months.

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The fact that wedges are classified as both continuation and reversal patterns can make reading signals confusing. However, at the most basic level, a falling wedge is bullish and a rising wedge is bearish. We have a falling wedge in which two trendlines are converging in a downward direction. If the price was to rise above the upper trendline, it would form a continuation pattern, while a move below the lower trendline would signal a reversal pattern.

4.4

TOOLS FOR ANALYSIS

Indicators:
An indicator is a mathematical calculation that can be applied to a securitys price and / or volume fields. The result is a value that is used to anticipate future changes in prices. A technical analysis indicator is used to determine the trend of a market, the strength of the market and the direction of the market.

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* Exponential Moving Average:

Moving Averages:
Moving averages are one of the most popular technical indicators used to identify the directions of stock market. The market does not rise or fall in a straight line. The up-moves and down-moves are interrupted by counter moves. Quite often, these counter moves are quite volatile making it difficult for the analyst to gauge the underlying trend of the market. Mathematically moving averages filter out the random noise in market data by smoothing out fluctuation and short term volatility in price movement. Graphically super imposing a moving average on a price chart makes it easy to visualize the underlying trend within the data.

Moving averages are precisely calculated according to specific mathematical formulae. This makes moving averages an objective way to determine the current trend direction of a market and anticipate its most likely future directions. This is in sharp contrast to subjective approaches to trend identification based on visual chart analysis of reoccurring pattern such as head and shoulders formation, flags, triangles and pennants etc.

In calculation the various types of moving averages, one must first decide the prices on which the moving average would be based. There are four basic types of prices maintained by the analyst, the open, high, low, closing prices. Of these, the closing prices are generally used to calculate the various types of moving averages. This does not mean that one cannot calculate the moving averages on either the high, low or the averages of these prices or for that matter any other combination of these prices.

There are three types of moving averages that are commonly used by the analyst; Simple, Weighted and Exponential Moving Averages.

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a) Simple Moving Average:

A simple moving average is the arithmetic mean or average of a price series over a selected time period. As the market moves forward in time, the oldest price is removed from the moving average calculated and replaced by the most recent price. Thus if one were to calculate the five day moving average then on the sixth day, the body of the data would move ahead to include the prices on the sixth day and in turn the price on the first day would be eliminated. Here, the body of the data consists of only five days of data but as we ahead in time recent data is added and the first data is omitted as so to include the most recent prices.

Calculation Simple Moving Average

Table 2.2.1
Date 09/02/2007 09/05/2007 09/06/2007 09/08/2007 09/09/2007 09/12/2007 Closing Price 528.06 525.25 531.07 533.95 531.08 539.45 Average 0.0 0.0 0.0 0.0 530.03 532.04

5 day average = (528.06+525.25+531.07+533.95+531.08+539.45)/5

= 3190.75/5 = 530.03 Average on sixth day = (3190.75 528.06 + 539.45) / 5

= 3201.06/5 = 532.04

Here, to calculate a five days average, one has to add the five days closing prices and divide the total by five. The result abstained is a five day simple moving average. On the sixth day, the closing price of the first day will be deducted from the total of the
34

previous five days and the sixth days closing price will be added. Again the new total has to be divided by the five to get the five day simple moving average on the sixth day. The process is continued further as one progress ahead in time.

b) Weighted Moving Average:

In weighted moving average the recent prices are given more weights to the recent price action. There by allowing the moving average to respond more quickly to current market conditions.

In this system, weights are attached to the closing prices. The most commonly used weights are 1 for day one, 2 for day two, 3 for day three so on. In this case one has to multiply the closing price with the weights and add the weighted closing price. Divide this total with the sum of weights to get the weighted moving averages. Thus, if one has to calculate the five day weight moving average, one would use the weight 1 to 5 and the total of the weights would be 15.

Calculation of Five day Weighted Moving Average

Table 2.2.2
Days Closing Price Weight Weighted Close 1 2 3 4 5 528.06 525.25 531.07 533.95 531.08 1 2 3 4 5 528.06 1050.05 1595.01 2135.08 2659.00 531.03 Weighted Average

Five day weighted close total = 528.06+1050.05+1595.01+2135.08+2659 = 7969

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Sum of the weights = 1+2+3+4+5 = 15

Weighted average for the fifth day = 7969/15 = 531.03

c) Exponential Moving Average:

An exponential moving average improves the weighted moving average by weighting past history less and less, without ever removing the data completely. So, it eliminates the impact when a data point is dropped from the moving average. It still appropriately gives the highest weighting to most recent data. However, this moving average is harder to understand than the simple moving average.

For calculating the exponential moving average the following formula is used.

EMA = (Current closing price Previous exponential average) * Factor ------------------------------------------------------------------------------Previous exponential average

Where factor = 2n+1. Here n = number of days for which the average is to be calculated.

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Calculation of five day Exponential Moving Average

Table 2.2.3
Date 09/02/2007 09/05/2007 09/06/2007 09/08/2007 09/09/2007 09/12/2007 Closing Price 528.06 525.25 531.07 533.95 531.08 539.45 Exponential Average 528.06 527.05 528.09 530.06 531.00 533.08

Take the closing price of the first day as the average for the day. The actual five day exponential moving average can be had from the sixth day onwards and so on.

Here factor = 2/n+1 Where, n=5 Factor = 2/5+1 = 0.33 Average on 09/05/2007 will be, Average = (525.25 528.06) * 0.33 / 528.06 = 527.05

For starting the calculation, on the first day one does not have the exponential average for the first day. Hence in place of the exponential average of the first day, one can use the closing price on the first day as the exponential average on day one and proceeds with the calculations. If one is calculating exponential average for five days, the correct five day exponential average will be available from the sixth day onwards and so on.

Another method of calculating the exponential moving average of five days to take the simple moving average of five days as the starting point or the exponential average on the fifth day and then calculating the exponential average for the sixth day with the helps of the formula of exponential moving average.

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Average Period:
A moving average represents the underlying trend in the security. For calculating the moving average the number of days to average is the most important criterion. This number of days is also known as the average. The period of the average determines the period of the trend that has being identified. In other words, a five day period will represent the five day trend and longer period (say 200) would represent the longer term trend (of 200 days) in the security.

Interpretation:
The interpretation of moving average is quiet simple. The moving average line is superimposed on the price line and both the lines are studied together to locate buy and sell signals in the price chart.

The analyst also study the relationship between two or more moving averages i.e. the relationship between long term and short term moving averages. Some of the important indicators from using moving average lines are:-

Bullish signal When the price line is above the moving average line. Bearish signal - When the price line is below the moving average line. Buy signal When the price line moves above the moving average line. Sell signal - When the price line crosses below the moving average line.

System of Two Moving Average:

This system, the analyst uses combination of two moving averages. One is a short term moving average and the other is a longer term average. This system, the buy and the sell signals are generated by the intersection of the two moving averages. When the security is falling, the short term average would be below
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the longer term average. If the security were to reverse direction, the short term average would be above the longer term average. This cross over is taken as a valid signal of trend reversal and hence a signal to buy in to the security. If the security is rising, the short term average would be above the longer term and if the security were to reverse directions and move downwards, the short term average would be below the longer term average. This cross over would be treated as a signal of trend reversal and a signal to move out of the security.

Analyst consider the cross over to be more powerful and valid if the longer term average has attended out or just started to rise at the time the short term average moves above the longer term average. If the short term average moves above the longer term average and if the longer term average is falling, they would treat the intersection with suspicion and wait for the longer term average to turn before buying into the security. Similarly if the short term average moves below the longer term average before the longer term average has flattened or before it reverses direction, one would wait for the longer term average to reverse direction before moving out of the security. Some popular combinations for moving averages 5 days and 20 days, 10 days and 40 days, 20 days and 40 days etc. There is no such effect combination that will work if left to the analyst who uses this to make inferences.

* Moving Average Convergence Divergence (MACD):

MACD is one of the most accepted and widely used oscillators. MACD, as the name itself suggests the difference between two moving averages. It is constructed by taking the difference between two moving average of different length and plotting that difference.

For calculating MACD, we generally use Exponential Moving Average (EMA) to get faster signal from the chart. An EMA gives more weight to recent prices and decreasing weight to the data. It is the most sophisticated moving average which answers the criticism fixed by simple moving average.

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To construct the MACD, two EMAs are used, the short term EMA and the long term EMA. MACD is the difference between the short term EMA and long term EMA.

Interpretation:
Simple moving average line which is superimposed on the MACD line gives us the buy or the sell signal. Buy signal If the MACD line moves above the simple moving average line. Sell signal If the MACD line moves below the simple moving average line

* Relative Strength Index (RSI):

Relative strength index (RSI) is a momentum indicator; it measures the market momentum (if constructed for the indices) or security momentum (if constructed for individual security). RSI is developed by wells wilder. It is an indicator used to identify the inherent technical strength or weakness in particular security. This indicator should not be confused with RSC indicator. The RSC or Relative Strength Comparative is the ratio of two prices of different securities.

RSI will show from one extreme to the other across a central reference point or the equilibrium point. RSI is used along with the price chart and never in isolation. This is because the RSI would indicate the possibility of trend reversal or the likelihood of the security rising or falling at a fast price. The RSI is calculated for the particular security by using the following formula. I = 100 (100/1+RS)

Where, RS = Average gain per day / Average loss per day.

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Calculation of 9 days RSI:

Table 2.2.4
Date 12/12/2005 12/13/2005 12/14/2005 12/15/2005 12/16/2005 12/19/2005 12/20/2005 12/21/2005 12/22/2005 12/23/2005 Total Closing Price 320 350 360 365 360 345 360 365 355 350 Gain 0 30 10 5 0 0 15 5 0 0 65 Loss 0 0 0 0 5 15 0 0 10 5 35

9 day average = 65/9 = 7.2, 35/9 = 3.9 RS = 7.2/3.9 = 1.85 I = 100 (100/1+RS) = 100 (100/1+1.85) = 100 35.09 = 64.91

The average gain or loss per day is, in turn arrived at by adding up the gain or losses per day, calculated by comparing the closing price on a day with that of the proceeding day, gain and losses have to be added separately and not merged and then dividing the total of gains or losses by the period for which RSI is calculated.

The RSI can be calculated for any number of days depending on the strategy of the technical analyst and the time frame of trading. The most commonly used time period is the 4 days RSI. However, some analyst uses 5 days RSI, 7 days RSI or even 9 days RSI for quick trading. In general, it can be stated that the greater the period, the lower would be the volume of whipsaws (incorrect signals). RSI can be calculated on a daily basis or weekly or monthly basis. For calculating the daily RSI, the weekly closing price is used, for monthly RSI one has to use the monthly closing price.
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Interpretation:

Identify tops and bottom

When ever the RSI goes above seventy, one had better prepared for a downturn. Similarly, when RSI goes below thirty, it is time to pick the security. These, of course are board rules. But there could always be exceptions. What adds to this forecasting merit is the fact that the RSI generally moves above the seventy ranges or below the thirty ranges much before the security makes the top or the bottom i.e. it gives an early warning of the top or bottom that should be in making. Once this top or bottom is formed, one can expect a significant direction in the security or the very trend may changes.

Divergence
Divergence is said to have occurred when the share price and the RSI are moving in the opposite direction i.e. if the share price is moving downward and the RSI is rising, or conversely if the share price is moving upwards and the RSI is falling, divergence is said to be occurred. Divergence generally indicates that a turning point in the market may not be far. A positive divergence is when the price is still falling but the RSI started rising. A positive divergence is when the price is still rising but the RSI started falling down.

* Rate of Change (ROC)

Rate of change measures the rate at which prices rises or falls. The concept of ROC can be explained with the help of a simple example. A ball thrown up into the air shoots up with speed but subsequently slows down considerably before it turns to come down again. The loss of upward momentum that occurs before the ball change course can be seen in the currency market also.

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Before peaking out, currency prices register a notable decrease in momentum. To measure the ROC, the ratio of the most recent closing price to the price for certain number of days in the past in worked out.

To calculate a 13 day ROC, the latest closing price is divided by the closing price before 13 days. If the latest price is higher than that of the historical price for the 13 previous days, the ROC value will be above the line 1 and the vice versa.

Interpretation:
The ROC line is above 1, the current day price is higher than that of 13 days ago. The ROC is above 1 and rising the difference between the current day price and 13 days back grows at an increasing rate, then it gives a bullish signal. Similarly, if the ROC line is above 1, but declining the price rises at a lower rate than the earlier growth rate, then it gives bearish signal. The ROC line is below 1, the current days price is lower than the price 13 days ago. The ROC line is below 1 and falling, the difference between the current price and the 13 days back price grows at a faster rate, then it gives a bearish signal. Similarly, if the ROC is below 1, but rising the rate of decline slows down, it gives a bullish signal.

Momentum:
Momentum is the basic application of oscillator analysis, which measures the rate of changing price. Momentum is calculated by taking the price difference continuously for a fixed time interval.

To calculate a 13 days momentum line, subtracts the closing price 13 days ago from the latest closing price. If the latest closing price is greater than that of the 13 days ago price, then a positive value will be plotted above the zero line. If the latest price is below the price 13 days earlier, then the negative value is plotted below the zero line.

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There are three principals signals generated by the momentum line from which a technician earns a profit. The first is identification of overbought and oversold zones. The second is the identification of the fact whether the currency is gaining or losing momentum

The third is a buy or sell signal generated by crossing of the zero lines. A crossing above the zero line is a buy signal and crossing below the zero line is a sell signal. In other words the basic way to use momentum indicator is to buy, when it becomes positive and sell when it turns negative. The overbought and oversold zones are similar to the ones discussed in the ROC.

* Stochastic:
The Stochastic process developed by George Lane. It is an important tool for taking short term position in the stock market. If the share price analysis is confirmed by the stochastic indicator, one may trade with confidence. However, if the share price analysis and the stochastic indicator are at variance, one should remain on the sidelines still the indicator aggress with the share price analysis. This is not an indicator that should be used as an excuse to back the trend but on the contrary, it should be used to identify trading opportunities along the trend.

It is generally observed that as the price of stock increases, the closing prices tend to be nearer to the upper end of the price range. As prices falls, the closing prices tend to be nearer to the lower end of the price range. Based on this observation, George Lane formulated the stochastic process.

In the stochastic process, there are two lines - %K and %D. The %K line is the faster of the two and %D line is the slower one. Based on the method of construction, %D line will anyways lag behind the %K lines. Also, %K and %D would take value between zero and 100. In other words, both the lines would oscillate between zeros to 100.

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Calculation of Stochastic:
The general time framed used for the calculation of stochastic is 5 days/ weeks/ months. However, there are analysts, who use other time frames to suit their systems of share trading. The formula used for the construction of %K line (for 5 days) is; %K = 100 * (C-L5) / (H5 L5). Here, C = Latest closing price. L5 = the lowest price touched by the security during the last five days. H5 = the highest price touched by the security during the last five days. The formula used for the construction of %D line is; %D = 100 * (H3/L3) Here, H3 = three day sum of (C-L5) L3 = three day sum of (H5-L5)

Table 2.2.5
Date High Low 605 600 590 555 530 Close 620 610 590 560 537.5 C-L5 0 0 0 0 H5-L5 0 0 0 0 8.33 37.05 %K %D

12/12/2005 620 12/13/2005 610 12/14/2005 605 12/15/2005 590 12/16/2005 560

537.5 620 530 530 610 530 - 605 530

12/19/2005 572.5

555

560

560 530

12/20/2005 580

570

580

580 530

- 66.67

35.71

%K = 100 * (C-L5) / (H5-L5)

Hence on 12/16/05 %K = 100 * (537.5 530) / (620 530) = 100 (75/90) = 8.33
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%D = 100 * (H3/L3) H3 = Sum of three days of C-L5 = 7.5 + 30 + 50 = 87.5 L3 = Sum of three days of H5 L5 = 90 + 80 + 75 = 245

%D = 100 * (875/245) = 35.71

Interpretation:

Overbought and Oversold Zones

One of the basic uses of stochastic is to identify the overbought and oversold zones. In the stochastic process, the overbought zone would be above the 70 mark and oversold zone would be below the 30 mark. However, it is observed that the best guy signals are generated when the stochastic is below the 15 mark and the best sell signals are above the 85 mark. Some analysts say the reading below 20 as oversold and reading above so as overbought reading.

As mentioned above the stochastic as two lines %K and %D, the obvious questions is to which line should be considered for overbought and oversold condition. For identifying the overbought and oversold zones, the reading of %D line are generally taken. In fact, the entry of the %K line into the overbought or oversold zones is an early warming of the possibility of %D line following suit.

Entry and Exit

Interaction between %K and %D lines are taken as the criterion for entry and exit in stochastic. When the %K lines moves above the %D line when the %D line is in oversold zone, it is considered as the buy signal. On the other hand, if the %K line moves below the %D line when %D line is in the overbought zone then it is

46

considered as the sell signal. These signals are considered for entry and exit using stochastic.

Divergence
A positive divergence is said to have occurred when the security is falling and the %D line has started rising. A negative divergence is said to have occurred when the security rising and the %K line started falling. Divergences are strong signal of trend reversal.

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4.6.1 Opinion Regarding the Selling or Buying of Scrips of RPL from 01-06-2008 to 31-08-2008
Date 02-Jun-2008 03-Jun-2008 04-Jun-2008 05-Jun-2008 06-Jun-2008 09-Jun-2008 10-Jun-2008 11-Jun-2008 12-Jun-2008 13-Jun-2008 16-Jun-2008 17-Jun-2008 18-Jun-2008 19-Jun-2008 20-Jun-2008 23-Jun-2008 24-Jun-2008 25-Jun-2008 26-Jun-2008 27-Jun-2008 30-Jun-2008 01-Jul-2008 02-Jul-2008 03-Jul-2008 04-Jul-2008 07-Jul-2008 08-Jul-2008 09-Jul-2008 10-Jul-2008 11-Jul-2008 Prev Close 174.70 172.50 172.00 167.35 168.60 166.50 171.35 171.50 171.65 180.10 179.15 180.65 185.90 181.00 180.30 170.90 168.00 163.80 170.30 174.10 173.65 170.55 166.00 174.45 167.95 171.45 166.55 164.20 169.40 171.15 Open Price 176.05 170.00 173.50 167.20 170.75 164.50 171.00 172.80 169.70 181.90 182.75 181.00 186.90 178.60 180.85 167.20 168.60 160.10 172.40 169.10 174.50 171.00 167.70 174.60 170.00 170.10 160.00 168.00 167.00 171.90 High Price 179.90 172.70 176.80 170.40 171.40 172.85 173.90 174.25 180.90 182.20 183.65 186.40 187.80 181.85 182.20 172.60 170.50 171.30 174.75 178.30 178.00 176.00 176.00 174.60 173.70 173.85 166.70 170.50 172.30 172.80 Low Price 171.10 167.00 166.10 162.25 165.40 160.10 165.10 170.20 166.05 177.50 179.45 179.65 180.25 177.00 169.30 164.25 161.65 159.00 170.50 168.10 168.60 165.00 160.10 165.05 165.10 165.10 160.00 166.50 167.00 166.50 Last Price 171.40 172.15 167.70 168.50 166.70 171.90 171.30 172.00 179.90 178.40 180.50 185.80 180.90 179.85 171.90 168.35 162.00 171.00 174.20 173.25 170.50 165.75 175.80 167.10 170.85 166.30 164.15 169.25 170.65 167.90 Close Price 172.50 172.00 167.35 168.60 166.50 171.35 171.50 171.65 180.10 179.15 180.65 185.90 181.00 180.30 170.90 168.00 163.80 170.30 174.10 173.65 170.55 166.00 174.45 167.95 171.45 166.55 164.20 169.40 171.15 167.70

48

14-Jul-2008 15-Jul-2008 16-Jul-2008 17-Jul-2008 18-Jul-2008 21-Jul-2008 22-Jul-2008 23-Jul-2008 24-Jul-2008 25-Jul-2008 28-Jul-2008 29-Jul-2008 30-Jul-2008 31-Jul-2008 01-Aug-2008 04-Aug-2008 05-Aug-2008 06-Aug-2008 07-Aug-2008 08-Aug-2008 11-Aug-2008 12-Aug-2008 13-Aug-2008 14-Aug-2008 18-Aug-2008 19-Aug-2008 20-Aug-2008 21-Aug-2008 22-Aug-2008 25-Aug-2008 26-Aug-2008 27-Aug-2008 28-Aug-2008 29-Aug-2008

167.70 167.15 161.35 153.35 150.65 153.80 154.40 159.80 170.90 167.20 159.35 162.60 159.45 164.25 164.75 169.05 174.30 173.70 169.10 165.70 164.60 166.70 165.20 163.50 161.60 156.45 159.45 161.65 157.70 160.85 158.80 160.15 157.95 154.40

167.00 165.00 163.00 157.95 153.00 154.00 153.90 164.00 174.00 155.10 159.00 159.90 161.70 166.00 165.00 168.00 174.60 175.75 166.05 169.70 167.00 166.95 164.90 161.05 161.30 155.00 162.60 160.00 156.25 162.85 158.00 161.30 158.70 157.00

170.45 167.40 163.85 158.50 155.45 156.00 161.70 174.20 174.00 165.50 163.75 161.65 165.70 167.00 170.00 175.10 175.75 176.90 169.70 169.70 168.50 168.95 166.50 164.90 163.50 160.50 163.40 161.75 161.50 163.00 160.85 161.80 159.00 159.00

165.50 160.50 152.00 147.40 147.10 150.60 153.50 162.55 165.00 155.10 157.65 158.00 160.70 163.20 162.10 167.40 170.30 168.25 165.00 162.15 165.40 164.20 163.00 161.05 155.15 154.25 160.05 157.10 156.25 158.00 156.85 157.55 153.75 156.40

167.90 160.95 154.80 151.40 153.15 154.25 159.90 169.95 166.55 159.70 162.45 159.35 164.10 164.75 168.75 173.60 173.70 168.70 165.40 164.50 166.40 165.40 163.75 161.70 157.00 160.50 161.55 157.80 160.60 158.40 160.70 157.85 154.95 157.00

167.15 161.35 153.35 150.65 153.80 154.40 159.80 170.90 167.20 159.35 162.60 159.45 164.25 164.75 169.05 174.30 173.70 169.10 165.70 164.60 166.70 165.20 163.50 161.60 156.45 159.45 161.65 157.70 160.85 158.80 160.15 157.95 154.40 157.20
49

4.6.1.1 Forecasting future price trends of stocks using Exponential Moving Average Method

INFERENCE In figure the red line represents faster and blue line represents slower moving averages. From figure it is obtained that the faster EMA (red line), stays one time above and stays twice below the slower EMA (blue line). That means only once a buy signal generated (when red line crosses above the blue line) and twice a sell signal generated (when red line crosses below the blue line)

50

4.6.1.2 Forecasting future price trends of stocks using MACD

INFERENCE From the diagram it is obtained that red line, twice crossed above and thrice crossed below the zero line. That means, two times a buy signal is generated (when the red crosses above the zero line) and three times a sell signal is generated (when the red line crosses below the zero line). The blue line represents the MACD signal line. Here, the MACD (red line), twice crosses above and thrice crosses below the MACD signal line (blue line). These are the apt points to buy and sell shares respectively.

51

4.6.1.3 Forecasting future price trends of stocks using Relative Strength Index

INFERENCE The figure shows that there was no right time to sell or pick up the shares from Nov 08 Jan 09, because the RSI oscillate in between the over sold line (30) and over bought line (70).

52

4.6.1.4 Forecasting future price trends of stocks using Rate of Change

INFERENCE From the figure it is obtained that, the ROC curve, thrice has crossed above and 4 times has crossed below the zero line. The region above the zero line shows the overbought area and the region below the zero line shows the oversold area.

53

4.6.1.5 Forecasting future price trends of stocks using Stochastic

INFERENCE From the figure it is obtained that the %K lines crosses 3 times and %D lines crosses twice the overbought line (80) and the %K lines crosses 4 times and %D lines crosses thrice the oversold line (20) simultaneously. In the region above the overbought line (80) it is obtained that one time the %K line crosses below the %D line, the right time to sell. In the region below the oversold line (20) it is obtained that one time the %K line crosses above the %D line, the right time to buy.

54

4.6.2 Opinion Regarding the Selling or Buying of Scrips of ONGC from 01-06-2008 to 31-08-2008
Date Prev Close Open Price 870.00 825.00 846.80 890.00 957.00 901.10 875.00 831.00 818.60 835.00 857.00 846.10 889.10 865.10 860.00 859.00 888.00 838.80 862.35 855.50 833.00 829.95 798.95 835.00 825.05 861.00 864.00 885.00 875.00 High Price 875.00 844.50 913.95 974.90 970.00 920.00 875.00 855.90 840.00 859.80 873.10 897.00 898.90 879.85 891.90 900.00 898.70 877.90 893.00 859.80 854.70 829.95 867.40 880.00 884.00 915.00 882.00 919.00 893.00 Low Price 822.60 820.55 840.40 887.00 911.80 863.30 795.00 823.10 801.55 809.90 837.00 838.40 866.00 837.20 855.55 856.15 836.00 830.00 845.55 815.15 800.00 778.70 780.25 815.00 825.05 860.00 838.10 858.35 870.00 Last Price 839.00 841.00 883.00 943.90 940.00 876.00 841.05 830.00 830.50 855.20 843.10 895.00 876.00 870.00 871.20 889.80 840.00 871.25 882.20 830.00 804.00 788.00 862.00 877.00 870.15 884.00 865.10 878.00 883.00 Close Price 833.10 839.30 886.20 957.10 938.95 879.95 829.55 831.40 832.40 841.95 845.05 883.25 881.95 855.70 867.65 884.80 853.85 865.40 871.75 832.50 815.05 793.80 859.35 859.40 876.50 882.55 867.70 877.30 882.70
55

02-Jun-2008 865.20 03-Jun-2008 833.10 04-Jun-2008 839.30 05-Jun-2008 886.20 06-Jun-2008 957.10 09-Jun-2008 938.95 10-Jun-2008 879.95 11-Jun-2008 829.55 12-Jun-2008 831.40 13-Jun-2008 832.40 16-Jun-2008 841.95 17-Jun-2008 845.05 18-Jun-2008 883.25 19-Jun-2008 881.95 20-Jun-2008 855.70 23-Jun-2008 867.65 24-Jun-2008 884.80 25-Jun-2008 853.85 26-Jun-2008 865.40 27-Jun-2008 871.75 30-Jun-2008 832.50 01-Jul-2008 815.05 02-Jul-2008 793.80 03-Jul-2008 859.35 04-Jul-2008 859.40 07-Jul-2008 876.50 08-Jul-2008 882.55 09-Jul-2008 867.70 10-Jul-2008 877.30

11-Jul-2008 882.70 14-Jul-2008 849.50 15-Jul-2008 875.75 16-Jul-2008 845.20 17-Jul-2008 864.10 18-Jul-2008 902.55 21-Jul-2008 944.00 22-Jul-2008 955.25 23-Jul-2008 964.15 24-Jul-2008 994.55 25-Jul-2008 1,027.05 28-Jul-2008 983.60 29-Jul-2008 1,011.60 30-Jul-2008 983.45 31-Jul-2008 990.50 01-Aug2008 04-Aug2008 05-Aug2008 06-Aug2008 07-Aug2008 08-Aug2008 11-Aug2008 12-Aug2008 13-Aug2008 14-Aug2008 18-Aug2008 996.25 997.55 982.15 1,003.05 1,016.90 1,024.35 1,063.90 1,105.40 1,088.30 1,083.90 1,066.30

927.25 850.00 875.00 846.00 871.90 900.00 945.00 951.10 980.00 1,004.85 1,000.00 1,044.00 975.05 1,001.00 990.00 980.20 998.00 990.00 1,018.30 1,019.00 1,025.00 1,080.00 1,140.00 1,068.50 1,070.25 1,070.20

927.25 903.60 875.00 875.00 918.50 949.90 964.80 988.00 1,020.00 1,088.00 1,029.00 1,044.00 1,019.00 1,022.00 1,006.20 1,012.00 1,003.60 1,008.00 1,030.00 1,049.00 1,073.80 1,114.00 1,140.00 1,085.00 1,084.00 1,085.00

845.00 840.00 834.00 840.00 871.90 900.00 932.00 940.25 980.00 1,004.85 974.10 951.25 960.60 977.40 988.20 975.35 971.00 981.00 1,010.00 1,011.15 1,016.00 1,075.00 1,072.40 1,061.10 1,055.00 1,040.55

847.00 874.50 835.00 868.05 902.00 935.50 954.95 987.00 997.20 1,028.20 983.90 1,011.50 977.00 990.00 992.00 997.15 979.75 999.70 1,016.00 1,020.30 1,067.00 1,113.50 1,091.15 1,085.00 1,069.05 1,075.45

849.50 875.75 845.20 864.10 902.55 944.00 955.25 964.15 994.55 1,027.05 983.60 1,011.60 983.45 990.50 996.25 997.55 982.15 1,003.05 1,016.90 1,024.35 1,063.90 1,105.40 1,088.30 1,083.90 1,066.30 1,074.40

56

19-Aug2008 20-Aug2008 21-Aug2008 22-Aug2008 25-Aug2008 26-Aug2008 27-Aug2008 28-Aug2008 29-Aug2008

1,074.40 1,063.15 1,035.70 1,010.30 1,019.20 1,014.55 1,015.90 1,006.65 999.25

1,069.00 1,066.20 1,030.00 953.80 1,022.00 975.35 1,024.00 1,019.90 1,006.55

1,074.40 1,070.00 1,049.80 1,030.00 1,038.80 1,024.75 1,034.95 1,019.90 1,027.80

1,055.25 1,028.50 1,002.10 953.80 1,008.35 975.35 1,001.25 990.10 1,006.55

1,070.00 1,038.10 1,005.80 1,015.00 1,010.00 1,023.00 1,008.10 1,002.90 1,023.75

1,063.15 1,035.70 1,010.30 1,019.20 1,014.55 1,015.90 1,006.65 999.25 1,023.25

4.6.2.1 Forecasting future price trends of stocks using Exponential Moving Average

57

INFERENCE In figure the red line represents faster and blue line represents slower moving averages. From figure it is obtained that the faster EMA (red line), has stayed above and never stayed below the slower EMA (blue line). That means only a buy signal was generated (when red line crosses above the blue line) and never a sell signal was generated (when red line crosses below the blue line)

4.6.2.2 Forecasting future price trends of stocks using MACD

58

INFERENCE From the diagram it is obtained that red line, twice crossed above and once crossed below the zero line. That means, two times a buy signal is generated (when the red crosses above the zero line) and one time a sell signal is generated (when the red line crosses below the zero line). The blue line represents the MACD signal line. Here, the MACD (red line), twice crosses above and once crosses below the MACD signal line (blue line). These are the apt points to buy and sell shares respectively.

4.6.2.3 Forecasting future price trends of stocks using Relative Strength Index
59

INFERENCE The figure shows that there was no right time to sell or pick up the shares from Nov 08 Jan 09, because the RSI oscillate in between the over sold line (30) and over bought line (70). off the scrips. Nevertheless, there were couple of instances arising out of

overbought shares (70) during Mid July and Mid August, were it was suggested to sell

4.6.2.4 Forecasting future price trends of stocks using Rate of Change

60

INFERENCE From the figure it is obtained that, the ROC curve, twice has crossed above and thrice has crossed below the zero line. The region above the zero line shows the overbought area and the region below the zero line shows the oversold area.

4.6.2.5 Forecasting future price trends of stocks using Stochastic

61

INFERENCE From the figure it is obtained that the %K lines crosses 4 times and %D lines crosses twice the overbought line (80) and the %K lines crosses 4 times and %D lines crosses once the oversold line (20) simultaneously. In the region above the overbought line (80) it is obtained that two times the %K line crosses below the %D line, the right time to sell. In the region below the oversold line (20) it is obtained that four times the %K line crosses above the %D line, the right time to buy.

4.6.3 Opinion Regarding the Selling or Buying of Scrips of IOC from 01-06-2008 to 31-08-2008

62

Date 02-Jun-2008 03-Jun-2008 04-Jun-2008 05-Jun-2008 06-Jun-2008 09-Jun-2008 10-Jun-2008 11-Jun-2008 12-Jun-2008 13-Jun-2008 16-Jun-2008 17-Jun-2008 18-Jun-2008 19-Jun-2008 20-Jun-2008 23-Jun-2008 24-Jun-2008 25-Jun-2008 26-Jun-2008 27-Jun-2008 30-Jun-2008 01-Jul-2008 02-Jul-2008 03-Jul-2008 04-Jul-2008 07-Jul-2008 08-Jul-2008 09-Jul-2008 10-Jul-2008 11-Jul-2008 14-Jul-2008 15-Jul-2008 16-Jul-2008

Prev Close 426.10 420.70 433.70 417.85 391.95 378.05 362.85 366.90 369.50 363.40 374.15 374.00 378.30 378.75 370.75 369.30 358.20 352.60 358.30 351.65 341.10 332.30 314.60 323.55 339.60 341.55 348.75 352.05 359.75 361.75 344.75 349.00 341.50

Open Price 430.00 418.05 447.00 419.00 396.00 368.00 357.20 371.25 365.00 368.95 374.00 375.05 380.20 375.00 374.95 365.00 351.50 348.35 360.40 342.00 355.00 330.00 315.00 322.00 336.00 341.55 345.05 360.00 310.15 357.55 346.00 349.00 346.00

High Price 433.00 437.00 451.80 426.00 402.35 368.00 371.90 375.05 369.10 385.00 381.10 380.50 385.00 378.00 381.90 369.95 360.00 360.80 365.00 344.90 355.00 336.00 333.20 346.00 348.85 355.00 360.00 370.00 367.50 360.95 353.90 349.00 352.50

Low Price 418.05 405.35 413.00 390.00 373.10 348.35 351.50 364.05 349.00 362.10 372.20 370.00 375.05 368.05 365.50 355.00 345.30 345.30 345.25 330.60 329.00 300.00 303.00 315.00 330.25 339.00 340.00 357.00 310.15 341.05 341.00 339.30 341.10

Last Price 420.10 433.30 416.00 392.45 376.90 366.40 366.00 368.75 364.00 372.05 373.00 379.20 378.10 372.90 371.35 355.75 353.00 356.40 349.00 340.00 331.00 311.95 329.05 334.60 339.90 351.00 352.00 359.50 360.00 346.45 351.40 343.85 343.00

Close Price 420.70 433.70 417.85 391.95 378.05 362.85 366.90 369.50 363.40 374.15 374.00 378.30 378.75 370.75 369.30 358.20 352.60 358.30 351.65 341.10 332.30 314.60 323.55 339.60 341.55 348.75 352.05 359.75 361.75 344.75 349.00 341.50 342.55
63

17-Jul-2008 18-Jul-2008 21-Jul-2008 22-Jul-2008 23-Jul-2008 24-Jul-2008 25-Jul-2008 28-Jul-2008 29-Jul-2008 30-Jul-2008 31-Jul-2008 01-Aug-2008 04-Aug-2008 05-Aug-2008 06-Aug-2008 07-Aug-2008 08-Aug-2008 11-Aug-2008 12-Aug-2008 13-Aug-2008 14-Aug-2008 18-Aug-2008 19-Aug-2008 20-Aug-2008 21-Aug-2008 22-Aug-2008 25-Aug-2008 26-Aug-2008 27-Aug-2008 28-Aug-2008 29-Aug-2008

342.55 363.45 381.85 376.95 379.20 400.15 404.40 400.90 400.30 392.15 414.20 402.90 417.95 426.65 433.40 440.85 442.85 432.00 443.05 448.95 452.90 441.05 438.70 439.90 436.25 411.10 395.65 401.90 402.10 399.00 391.60

350.15 370.00 382.50 373.00 386.05 410.00 373.05 398.05 373.00 398.00 407.85 415.00 415.25 425.00 450.90 412.25 440.20 440.00 448.00 447.90 442.00 442.00 434.85 438.35 431.00 403.00 410.00 399.85 400.25 397.00 396.90

365.00 383.50 387.00 380.95 405.00 415.00 408.55 407.95 399.00 420.00 414.00 442.20 429.50 447.80 450.90 446.90 444.00 447.85 458.00 453.90 448.35 446.00 441.30 444.00 433.90 403.00 410.00 404.50 402.00 400.00 405.80

349.95 368.00 371.95 372.05 386.05 396.05 373.05 398.05 373.00 397.90 400.00 398.00 410.40 425.00 425.25 412.25 430.00 436.35 442.50 441.00 438.25 434.80 434.15 434.80 408.00 392.20 400.15 396.00 398.15 390.00 395.30

364.00 382.00 374.35 380.00 403.50 405.00 404.00 400.00 391.05 415.75 404.00 419.00 429.50 435.00 442.00 443.70 432.50 444.00 448.00 453.00 440.50 439.10 440.30 434.80 412.95 396.00 402.00 401.10 399.00 393.00 403.00

363.45 381.85 376.95 379.20 400.15 404.40 400.90 400.30 392.15 414.20 402.90 417.95 426.65 433.40 440.85 442.85 432.00 443.05 448.95 452.90 441.05 438.70 439.90 436.25 411.10 395.65 401.90 402.10 399.00 391.60 401.35

4.6.3.1 Forecasting future price trends of stocks using Exponential Moving Average

64

INFERENCE In figure the red line represents faster and blue line represents slower moving averages. From figure it is obtained that the faster EMA (red line), stays one time above and stays once below the slower EMA (blue line). That means only once a buy signal generated (when red line crosses above the blue line) and again once a sell signal generated (when red line crosses below the blue line)

4.6.3.2 Forecasting future price trends of stocks using MACD

65

INFERENCE From the diagram it is obtained that red line, twice crossed above and twice crossed below the zero line. That means, two times a buy signal is generated (when the red crosses above the zero line) and two times a sell signal is generated (when the red line crosses below the zero line). The blue line represents the MACD signal line. Here, the MACD (red line), twice crosses above and twice crosses below the MACD signal line (blue line). These are the apt points to buy and sell shares respectively.

66

4.6.3.3 Forecasting future price trends of stocks using Relative Strength Index

INFERENCE The figure shows that there were certain instances in the month of June and early July were the right time to pick up the shares (30). And thereafter there was no right time to sell or pick up the shares from Early July 08 Aug 08, because the RSI oscillate in between the over sold line (30) and over bought line (70).

4.6.3.4 Forecasting future price trends of stocks using Rate of Change

67

INFERENCE From the figure it is obtained that, the ROC curve, twice has crossed above and only once has crossed below the zero line. The region above the zero line shows the overbought area and the region below the zero line shows the oversold area.

4.6.3.5 Forecasting future price trends of stocks using Stochastic

68

INFERENCE From the figure it is obtained that the %K lines crosses 5 times and %D lines crosses twice the overbought line (80) and the %K lines crosses 5 times and %D lines crosses thrice the oversold line (20) simultaneously. In the region above the overbought line (80) it is obtained that two times the %K line crosses below the %D line, the right time to sell. In the region below the oversold line (20) it is obtained that two times the %K line crosses above the %D line, the right time to buy.

69

4.6.4 Opinion Regarding the Selling or Buying of Scrips of HINDPETRO from 01-06-2008 to 31-08-2008
Date 02-Jun-2008 03-Jun-2008 04-Jun-2008 05-Jun-2008 06-Jun-2008 09-Jun-2008 10-Jun-2008 11-Jun-2008 12-Jun-2008 13-Jun-2008 16-Jun-2008 17-Jun-2008 18-Jun-2008 19-Jun-2008 20-Jun-2008 23-Jun-2008 24-Jun-2008 25-Jun-2008 26-Jun-2008 27-Jun-2008 30-Jun-2008 01-Jul-2008 02-Jul-2008 03-Jul-2008 04-Jul-2008 07-Jul-2008 08-Jul-2008 09-Jul-2008 10-Jul-2008 11-Jul-2008 Prev Close 244.50 242.35 247.50 241.05 225.70 212.75 193.25 196.90 194.40 192.40 187.00 190.35 194.20 199.15 193.40 195.65 190.30 190.25 199.55 197.70 185.70 176.10 174.60 177.40 181.95 184.90 192.25 203.45 206.55 209.95 Open Price 247.50 241.00 255.00 247.00 231.00 210.00 190.00 200.60 190.00 192.95 190.10 191.50 195.25 194.20 195.10 194.90 190.00 185.00 201.50 191.00 188.50 184.80 175.00 184.45 180.00 189.00 190.20 206.00 208.00 209.95 High Price 247.50 250.25 260.00 249.00 232.90 210.00 199.00 201.50 198.50 193.50 192.90 195.90 202.55 197.40 199.50 195.70 193.50 202.80 206.25 193.00 188.50 184.80 182.00 184.45 186.45 198.00 205.40 213.90 210.95 210.00 Low Price 240.30 237.50 236.30 222.50 211.10 187.20 186.00 193.50 186.70 185.10 189.00 189.05 193.15 192.25 192.25 183.00 186.85 184.00 194.05 184.50 171.25 171.05 166.15 164.25 176.15 186.30 186.50 203.90 203.00 202.55 Last Price 240.30 249.50 240.70 225.55 212.40 192.65 196.00 193.95 192.75 185.80 190.50 195.00 197.60 194.00 197.85 190.50 188.35 199.50 203.00 184.50 172.05 173.00 182.00 180.50 184.80 192.50 202.65 208.00 210.00 204.00 Close Price 242.35 247.50 241.05 225.70 212.75 193.25 196.90 194.40 192.40 187.00 190.35 194.20 199.15 193.40 195.65 190.30 190.25 199.55 197.70 185.70 176.10 174.60 177.40 181.95 184.90 192.25 203.45 206.55 209.95 203.55

70

14-Jul-2008 15-Jul-2008 16-Jul-2008 17-Jul-2008 18-Jul-2008 21-Jul-2008 22-Jul-2008 23-Jul-2008 24-Jul-2008 25-Jul-2008 28-Jul-2008 29-Jul-2008 30-Jul-2008 31-Jul-2008 01-Aug-2008 04-Aug-2008 05-Aug-2008 06-Aug-2008 07-Aug-2008 08-Aug-2008 11-Aug-2008 12-Aug-2008 13-Aug-2008 14-Aug-2008 18-Aug-2008 19-Aug-2008 20-Aug-2008 21-Aug-2008 22-Aug-2008 25-Aug-2008 26-Aug-2008 27-Aug-2008 28-Aug-2008 29-Aug-2008

203.55 204.00 194.00 198.35 209.50 218.20 213.20 219.30 228.85 230.95 229.90 230.30 217.00 222.20 219.20 224.45 227.55 233.65 238.85 238.90 229.65 236.00 235.85 238.10 223.15 215.85 217.50 218.00 204.40 199.70 206.00 206.15 204.70 195.70

201.00 201.85 201.15 204.10 216.00 220.00 214.85 227.00 233.90 228.00 230.00 225.05 217.00 219.00 218.00 223.00 228.50 239.00 238.00 236.10 233.50 238.75 234.00 234.75 223.15 215.00 218.90 217.10 201.55 205.10 204.00 206.15 203.00 198.60

207.00 201.85 201.15 213.80 220.25 221.75 221.00 232.00 234.00 232.05 232.75 228.65 223.90 223.50 225.90 229.00 237.40 248.00 240.85 241.30 239.80 239.90 239.20 234.75 226.65 220.80 219.70 217.10 201.55 209.45 208.35 206.80 206.00 203.00

197.05 192.05 196.55 201.00 212.50 212.05 211.10 223.00 229.25 221.50 228.55 214.60 217.00 216.00 218.00 221.10 228.50 235.10 235.15 228.05 231.10 233.10 234.00 221.00 213.10 214.00 216.10 202.80 195.65 204.50 200.15 203.00 193.00 198.60

206.50 193.00 200.00 207.10 217.50 212.05 220.05 229.90 231.50 230.00 231.00 215.75 221.90 220.30 225.30 228.50 236.00 236.00 238.65 229.50 236.15 236.95 238.10 225.00 214.35 218.00 217.50 204.00 199.30 206.00 207.95 204.45 196.00 202.00

204.00 194.00 198.35 209.50 218.20 213.20 219.30 228.85 230.95 229.90 230.30 217.00 222.20 219.20 224.45 227.55 233.65 238.85 238.90 229.65 236.00 235.85 238.10 223.15 215.85 217.50 218.00 204.40 199.70 206.00 206.15 204.70 195.70 201.50
71

4.6.4.1 Forecasting future price trends of stocks using Exponential Moving Average

INFERENCE In figure the red line represents faster and blue line represents slower moving averages. From figure it is obtained that the faster EMA (red line), stays once above and stays twice below the slower EMA (blue line). That means only once a buy signal generated (when red line crosses above the blue line) and again twice a sell signal generated (when red line crosses below the blue line)

72

4.6.4.2 Forecasting future price trends of stocks using MACD

INFERENCE From the diagram it is obtained that red line, once crossed above and twice crossed below the zero line. That means, only one time a buy signal is generated (when the red crosses above the zero line) and two times a sell signal is generated (when the red line crosses below the zero line). The blue line represents the MACD signal line. Here, the MACD (red line), once crosses above and twice crosses below the MACD signal line (blue line). These are the apt points to buy and sell shares respectively.

73

4.6.4.3 Forecasting future price trends of stocks using Relative Strength Index

INFERENCE The figure shows that there were certain instances in the month of June and early July were the right time to pick up the shares (30). And thereafter there was no right time to sell or pick up the shares from Early July 08 Aug 08, because the RSI oscillate in between the over sold line (30) and over bought line (70).

74

4.6.4.4 Forecasting future price trends of stocks using Rate of Change

INFERENCE From the figure it is obtained that, the ROC curve, once has crossed above and twice has crossed below the zero line. The region above the zero line shows the overbought area and the region below the zero line shows the oversold area.

75

4.6.4.5 Forecasting future price trends of stocks using Stochastic

INFERENCE From the figure it is obtained that the %K lines crosses 4 times and %D lines crosses twice the overbought line (80) and the %K lines crosses 6 times and %D lines crosses thrice the oversold line (20) simultaneously. In the region above the overbought line (80) it is obtained that two times the %K line crosses below the %D line, the right time to sell. In the region below the oversold line (20) it is obtained that two times the %K line crosses above the %D line, the right time to buy.

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4.6.5 Opinion Regarding the Selling or Buying of Scrips of BPCL from 01-06-2008 to 31-08-2008
Date Prev Close Open Price 362.40 348.00 355.00 323.05 306.00 290.00 266.20 287.80 273.00 267.10 270.00 276.00 280.00 276.00 270.00 264.65 265.00 255.35 271.00 269.00 262.25 232.00 223.00 220.00 224.00 228.00 240.00 257.00 270.00 275.00 High Price 362.40 354.90 371.70 332.00 309.75 290.00 288.00 291.00 273.90 271.40 291.00 282.00 288.60 276.00 275.00 268.50 269.00 277.70 274.00 269.00 262.25 232.00 232.50 232.05 235.90 240.95 256.00 275.00 281.00 278.00 Low Price 345.20 342.55 318.25 299.20 297.25 266.60 266.20 270.90 265.00 260.25 268.25 273.50 277.15 265.30 256.40 250.15 253.60 255.35 264.20 242.30 221.20 210.00 208.00 206.00 218.00 228.00 230.10 256.60 265.00 253.10 Last Price 348.00 351.30 322.00 301.70 300.55 278.20 284.00 273.00 268.10 266.00 275.90 281.90 278.10 268.00 267.60 264.20 263.05 270.00 270.00 242.40 221.20 221.00 232.50 221.05 227.00 240.00 253.80 272.50 279.75 255.10 Close Price 348.60 351.80 322.30 301.85 300.95 278.85 284.60 273.25 269.35 266.90 277.00 280.20 278.55 267.85 264.65 265.65 263.70 269.75 269.65 247.75 223.80 215.95 224.45 225.70 229.65 238.40 251.65 271.90 279.30 255.75
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02-Jun-2008 356.90 03-Jun-2008 348.60 04-Jun-2008 351.80 05-Jun-2008 322.30 06-Jun-2008 301.85 09-Jun-2008 300.95 10-Jun-2008 278.85 11-Jun-2008 284.60 12-Jun-2008 273.25 13-Jun-2008 269.35 16-Jun-2008 266.90 17-Jun-2008 277.00 18-Jun-2008 280.20 19-Jun-2008 278.55 20-Jun-2008 267.85 23-Jun-2008 264.65 24-Jun-2008 265.65 25-Jun-2008 263.70 26-Jun-2008 269.75 27-Jun-2008 269.65 30-Jun-2008 247.75 01-Jul-2008 223.80 02-Jul-2008 215.95 03-Jul-2008 224.45 04-Jul-2008 225.70 07-Jul-2008 229.65 08-Jul-2008 238.40 09-Jul-2008 251.65 10-Jul-2008 271.90 11-Jul-2008 279.30

14-Jul-2008 255.75 15-Jul-2008 251.85 16-Jul-2008 244.95 17-Jul-2008 251.80 18-Jul-2008 275.15 21-Jul-2008 284.40 22-Jul-2008 277.55 23-Jul-2008 289.40 24-Jul-2008 308.65 25-Jul-2008 316.30 28-Jul-2008 319.90 29-Jul-2008 325.90 30-Jul-2008 310.55 31-Jul-2008 329.65 01-Aug2008 04-Aug2008 05-Aug2008 06-Aug2008 07-Aug2008 08-Aug2008 11-Aug2008 12-Aug2008 13-Aug2008 14-Aug2008 18-Aug2008 19-Aug327.90 335.25 326.65 335.60 334.25 328.60 316.45 320.10 326.65 323.20 317.10 308.55

255.00 254.00 250.00 260.10 276.10 286.00 277.00 299.90 339.00 316.30 319.90 320.00 306.00 329.65 325.00 333.00 331.10 346.15 330.15 324.00 321.15 323.00 325.00 320.00 314.95 307.80

257.60 254.00 258.90 277.00 286.95 289.90 296.00 312.95 339.00 325.00 326.45 320.00 330.50 334.40 336.00 333.00 338.90 366.00 334.90 330.00 329.00 330.70 325.90 327.85 316.85 316.50

246.55 235.10 250.00 258.20 275.00 274.00 270.60 299.90 308.00 305.65 317.90 303.95 306.00 316.00 324.20 324.00 324.50 330.30 324.20 312.35 316.10 320.30 319.00 314.15 304.20 300.00

254.90 245.00 253.05 271.30 284.50 275.20 296.00 312.00 316.90 320.00 326.20 306.30 330.10 326.00 333.55 327.30 336.80 333.90 329.00 318.05 320.15 326.00 325.90 318.00 306.00 313.15

251.85 244.95 251.80 275.15 284.40 277.55 289.40 308.65 316.30 319.90 325.90 310.55 329.65 327.90 335.25 326.65 335.60 334.25 328.60 316.45 320.10 326.65 323.20 317.10 308.55 314.05
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2008 20-Aug2008 21-Aug2008 22-Aug2008 25-Aug2008 26-Aug2008 27-Aug2008 28-Aug2008 29-Aug2008 314.05 316.75 300.20 292.95 298.05 298.55 298.50 284.30 307.00 315.00 298.15 305.00 296.00 300.00 295.00 290.15 318.00 315.00 298.15 307.25 302.15 301.10 300.00 304.90 307.00 299.05 284.70 295.05 291.00 293.10 278.70 290.15 318.00 301.00 293.00 296.65 302.15 299.00 291.00 302.00 316.75 300.20 292.95 298.05 298.55 298.50 284.30 302.75

4.6.5.1 Forecasting future price trends of stocks using Exponential Moving Average Method

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INFERENCE In figure the red line represents faster and blue line represents slower moving averages. From figure it is obtained that the faster EMA (red line), stays one time above and stays once below the slower EMA (blue line). That means only once a buy signal generated (when red line crosses above the blue line) and again once a sell signal generated (when red line crosses below the blue line)

4.6.5.2 Forecasting future price trends of stocks using MACD

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INFERENCE From the diagram it is obtained that red line, once crossed above and once crossed below the zero line. That means, only once a buy signal is generated (when the red crosses above the zero line) and only once a sell signal is generated (when the red line crosses below the zero line). The blue line represents the MACD signal line. Here, the MACD (red line), once crosses above and once crosses below the MACD signal line (blue line). These are the apt points to buy and sell shares respectively.

4.6.5.3 Forecasting future price trends of stocks using Relative Strength Index
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INFERENCE The figure shows that there were certain instances in mid June and early July were the right time to pick up the shares (30). And thereafter there was no right time to sell or pick up the shares from Early July 08 Aug 08, because the RSI oscillate in between the over sold line (30) and over bought line (70).

4.6.5.4 Forecasting future price trends of stocks using Rate of Change

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INFERENCE From the figure it is obtained that, the ROC curve, once has crossed above and twice has crossed below the zero line. The region above the zero line shows the overbought area and the region below the zero line shows the oversold area.

4.6.5.5 Forecasting future price trends of stocks using Stochastic

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INFERENCE From the figure it is obtained that the %K lines crosses 5 times and %D lines crosses twice the overbought line (80) and the %K lines crosses 4 times and %D lines crosses thrice the oversold line (20) simultaneously. In the region above the overbought line (80) it is obtained that two times the %K line crosses below the %D line, the right time to sell. In the region below the oversold line (20) it is obtained that only once the %K line crosses above the %D line, the right time to buy.

CHAPTER-5

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Findings, Recommendations and Conclusion

5.1 FINDINGS
According to EMA, ONGC has been the ideal scrip to pick in the given period because all the other scrip had generated several selling signals when compared to ONGC. According to MACD, ONGC has been the ideal scrip to pick up because it had generated 2 buying signals and only one selling signal when compared to all other scrip which had generated more than once. According to Relative Strength Index, the following three were the ideal scrip to pick up during the given period. (1) IOC (2) HIND PETRO (3) BPCL. All these 3 had generated buy signals during those periods in comparison with other scrip which had generated sell signals. According to Rate of Change, RPL has generated more buying signal and more selling signal when compared to other scrip, which had generated less selling signals and less buying signals. According to Stochastic, BPCL has been the ideal scrip to pick up when compared to every other scrip.

Findings related to technical analysis tools

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 The technical analysis tools are more helpful for speculators than investors. The EMA is more powerful tool than simple moving average because EMA is quicker to respond to price fluctuations than a simple moving average The disadvantage of EMA over simple moving average is that EMA is more prone to whipsaws. It is found that the MACD is not only good for buy and sell signals. The MACD can be used for warnings of potential change in the direction of stock, futures and currency pairs Apart from showing overbought and oversold conditions the ROC can be used to confirm price moves or detect divergences In addition to giving clear buy and sell signals, the stochastic technical analysis indicator is also helpful in detecting price divergence and confirming trend.

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5.2

SUGGESTIONS
JRG should advice customers to pick up stocks which are doing well with respect to technical analysis and its major indicators. JRG should not just advice on the basis of Technical analysis but should also take into consideration the performance of the company over a period of time and thereafter provide necessary advice. This will subsequently improvise the profits of the investor who is going according to the companies advice. JEG will also build wide range of customers. It means more customers can be roped in by the kind of performance the company shows. JRGs financial performance will improve. And it will result in high profits. The company should make a note of investors whose investments are high and also the most frequently bought scrip. The advice given on these scrips should be very careful as it will directly affect the major investors in the company.

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5.3

CONCLUSION
Technical analysis is an alternative approach to stock selection. Today the

world of technical analysis is huge and it is used by large number of institutional and individual traders. Technical analysis considers the market to be 80% psychological and 20% logical. Psychological or logical may be open for database, but there is no questioning the current price of a security. After all, it is available for all to see and nobody doubts its legitimacy. The price set by the market reflects the sum knowledge of all participants. These participants have considered (discounted) everything under the sum and settled on a price to buy or sell. These are the forces of supply and demand at work. By examining price action to determine which force is prevailing, technical analysis focuses directly on the bottom line: what is the price? Where has it been? Where is it going? Even though there can some universal principles and rules that can be applied, it must be remembered that technical analysis is more an art than a science. As a form of art, it is subject to interpretation. However, it is also flexible in its approach and each participant should use only that which suits his or her style. Developing a style takes time, effort and dedication but the rewards can be significant.

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Bibliography
Books Referred
C.R. Kothari, Research Methodology Methods & Techniques. New Delhi: New Age International Publishers, 2007. V.K. Bhalla, Security Analysis and Portfolio Management.

Websites
http://www.hse.gov.uk/research/crr_pdf/2001/crr01325.pdf http://fossil.energy.gov/epact/cold_cracking_report.pdf http://www.energybulletin.net/node/18056 http://dahl.mines.edu/LitReviewOPEC.pdf http://www.icharts.in/ http://www.jrg.co.in/

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