“TECHNICAL ANALYSIS”

Dissertation Submitted to the

Mumbai University

in partial fulfilment of the requirements for the award of the Degree of MASTERS of MANAGEMENT STUDIES

(M.M.S.)

Submitted by:

VISHAL SOPANRAO NABDE

(Roll No.18)

Project Guide:

Mr.K.K.Surenranathan

IBSAR® Institute of Management Studies, Karjat

University of Mumbai

March’ 2010

[1]

DECLARATION

I hereby declare that the dissertation “Technical Analysis” submitted for the Master’s of Management Studies (M.M.S.) Degree at Mumbai

University’s IBSAR® Institute of Management Studies, Karjat, is my original work and the dissertation has not formed the basis for the award of any degree, associate ship, fellowship or any other similar titles.

Place: Karjat

Date:

Signature of the Student

[2]

Certificate

This is to certify that the dissertation entitled “TECHNICAL ANALYSIS” is the bonafide research work carried out by Mr. Vishal Nabde student of MMS, at IBSAR® Institute of Management Studies, Karjat during the year 2008 -2010, in partial fulfilment of the requirements for the award of the Degree of Master of Management Studies and that the dissertation has not formed the basis for the award previously of any degree, diploma, associate ship, fellowship or any other similar title.

(Dr. Jayanti Gokhale

Dy. Director

IBSAR® Institute of Management Studies, Karjat)

(Dr. M.L. Moonga,

Director,

IBSAR® Institute of Management Studies, Karjat)

[3]

ACKNOWLEDGEMENT

In the first place, I thank Mr. K.K. Surendranathan for having given me

his valuable guidance for the project. Without his help it would have

been impossible for me to complete the project.

I would be failing in my duty if I do not acknowledge with a deep sense of

gratitude the sacrifices made by my parents and thus have helped me in

completing the project work successfully.

Place: Karjat

Date:

Signature of the student.

[4]

TABLE OF CONTENTS

S.NO. PARTICULARS PAGE NO.Chapter 1. Introduction 06Chapter 2. Technical analysis 10Chapter 3. Drawbacks / limitations of

technical analysis 13

Chapter 4. Tools & Instruments in technical analysis

16

Chapter 5. Trends In Technical Analysis 36Chapter 6. Why Volume Is Important 46Chapter 7. Chart Patterns 48Chapter 8. Technical Indicators 74Chapter 9. Technical analysis of Stock

“Power Grid” 85

Chapter 10. Bibliography 99

INTRODUCTION :-[5]

WHAT’S THIS EQUITY ANALYSIS?

Professional investor will make more money & less loss than, who let

their heart rule. Their head eliminate all emotions for decision making. Be

ruthless & calculating, you are out to make money. Decision should be based

on actual movement of share price measured both in money & percentage

term & nothing else. Greed must be avoided

patience may be a virtue, but impatience can frequently be profitable.

In Equity Analysis anticipated growth, calculations are based on considered

FACTS & not on HOPE. Equity analysis is basically a combination of two

independent analyses, namely fundamental analysis & Technical analysis.

The subject of Equity analysis, i.e. the attempt to determine future share price

movement & its reliability by references to historical data is a vast one,

covering many aspect from the calculating various FINANCIAL RATIOS,

plotting of CHARTS to extremely sophisticated indicators.

A general investor can apply the principles by using the simplest of

tools: pocket calculator, pencil, ruler, chart paper & your cautious mind,

watchful attention. It should be pointed out that, this equity analysis does not

discuss how to buy & sell shares, but does discuss a method which enables

the investor to arrive at buying & selling decision. The financial analysts

always need yardsticks to evaluate the efficiency & performances of any [6]

business unit at the time of investment. Fundamental analysis is useful in long

term investment decision. In Fundamental analysis a company s goodwill,

its performances, liquidity, leverage, turnover, profitability & financial health

was checked & analysis with the help of ratio analysis for the purpose of long

term successful investment.

Technical analysis refers to the study of market generated data like

prices & volume to determine the future direction of prices movements.

Technical analysis mainly seeks to predict the short term price travels.

The focus of technical analysis is mainly on the internal market data, i.e.

prices & volume data. It appeals mainly to short term traders.

It is the oldest approach to equity investment dating back to the late

19th century.

Assumptions for the Equity Analysis.

[7]

1. Works only in normal share-market conditions with great reliability, it also

works in abnormal share-market conditions, but with low reliability.

2. Equity analysis is purely based on the INVESTMENT PHILOSOPHY , so

the investment object has vital importance associated to return along with

risk.

3. Cash management gets the magnitude role, because the scenario of equity

analysis is revolving around the term money

4. Portfolio management, risk management was up to the investor s

knowledge.

5. Capital market trend is always a friend, whether it is short run or long run.

6. You are buying stock & not companies, so don t be curious or panic to do

post-mortem of companies performances.

7. History repeats: investors & speculators react the same way to the same

types of events homogeneously.

[8]

8. Capital market has a typical market psychology along with other issues

like; perceptions, the crowd Vc the individual, tradition s & trust.

9. An individual perceptions about the investment return & associated risk

may differ from individual to individual.

10. Although the equity analysis is art as well as sciences so, it also has some

exceptions.

EQUITY ANALYSIS.

ENVIRONMENT & ECONOMICAL ANALYSIS.

FUNDAMENTAL TECHNICAL

ANALYSIS ANALYSIS

Technical analysis :-

[9]

“Technical analysis refers to the study of market generated data like

prices & volume to determine the future direction of prices movements.”

Technical analysis mainly seeks to predict the short term price travels.

It is important criteria for selecting the company to invest. It also provides the

base for decision-making in investment. The one of the most frequently used

yardstick to check & analyze underlying price progress. For that matter a

verity of tools was consider.

This Technical analysis is helpful to general investor in many ways. It

provides important & vital information regarding the current price position of

the company.

Technical analysis involves the use of various methods for charting,

calculating & interpreting graph & chart to assess the performances & status

of the price. It is the tool of financial analysis, which not only studies but also

reflecting the numerical & graphical relationship between the important

financial factors.

The focus of technical analysis is mainly on the internal market data,

i.e. prices & volume data. It appeals mainly to short term traders. It is the

oldest approach to equity investment dating back to the late 19th century.

It uses charts and computer programs to study the stock’s trading

volume and price movements in the hope of identifying a trend.

In fact the decision made on the basis of technical analysis is done only

[10]

after inferring a trend and judging the future movement of the stock on

the basis of the trend. Technical Analysis assumes that the market is efficient

and the price has already taken into consideration the other factors related to

the company and the industry. It is because of this assumption that many

think technical analysis is a tool, which is effective for short-term investing.

History of Technical Analysis:

Technical Analysis as a tool of investment for the average investor

thrived in the late nineteenth century when Charles Dow, then editor of the

Wall Street Journal, proposed the Dow theory. He recognized that the

movement is caused by the action/reaction of the people dealing in stocks

rather than the news in itself.

Technical analysis is a method of evaluating securities by analyzing the

statistics generated by market activity, such as past prices and volume.

Technical analysts do not attempt to measure a security's intrinsic value, but

instead use charts and other tools to identify patterns that can suggest future

activity. Just as there are many investment styles on the fundamental side,

there are also many different types of technical traders. Some rely on chart

patterns, others use technical indicators and oscillators, and most use some

combination of the two. In any case, technical analysts' exclusive use of

[11]

historical price and volume data is what separates them from their

fundamental counterparts. Unlike fundamental analysts, technical analysts

don't care whether a stock is undervalued the only thing that matters is a

security's past trading data and what information this data can provide about

where the Security might move in the future.

Basic premises of technical analysis:

1. Market prices are determined by the interaction of supply & demand forces.

2. Supply & demand are influenced by variety of supply & demand affiliated

factors both rational & irrational.

3. These include fundamental factors as well as psychological factors.

4. Barring minor deviations stock prices tend to move in fairly persistent

trends.

5. Shifts in demand & supply bring about change in trends.

6. This shift s can be detected with the help of charts of manual &

computerized action, because of the persistence of trends & patterns analysis

of past market data can be used to predict future prices behaviors.

Drawbacks / limitations of technical analysis:

1. Technical analysis does not able to explain the rezones behind the

employment or selection of specific tool of Technical analysis.

[12]

2. The technical analysis failed to signal an uptrend or downtrend in time.

3. The technical analysis must be a self defeating proposition. As more &

more people use, employ it the value of such analysis trends to reduce.

Why we use TECHNICAL ANALYSIS?

1) Technical analysis provides information on the best entry and

exit points for a trade.

2) On a chart, the trader can see where momentum is rising, a

trend is forming, a price is dipping or other events are developing that show

the best entry point and time for the most profitable trade. With the constant

movement of various currencies against each other in the Forex market, most

traders will focus on using technical indicators to find and place their

trades.

IS TECHNICAL ANALYSIS DIFFICULT?

1) Technical analysis is not difficult, but it requires studying

different types of charts such as the hourly or daily charts,

[13]

knowing which technical indicators to use and how to use them.

2) Computers and the Internet have made this process much easier.

Most brokers provide basic charts and technical indicators for

free or at a very low cost.

3) One way to avoid getting frustrated by all the lines, colors, and

graphics is to focus on using only a few indicators that will

provide you with the information needed. Try not to clutter your

chart with too much information.

Fundamental vs. Technical Analysis

Technical analysis and fundamental analysis are the two main schools

of thought in the financial markets. As we've mentioned, technical analysis

looks at the price movement of a security and uses this data to predict its

future price movements. Fundamental analysis, on the other hand, looks at

economic factors, known as fundamentals.

Fundamental analysis takes a relatively long-term approach to

analyzing the market compared to technical analysis. While technical

analysis can be used on a timeframe of weeks, days or even minutes,

fundamental analysis often looks at data over a number of years.

[14]

The future can be found in the past

If prices are based on investor expectations, then knowing what a

security should sell for (i.e., fundamental analysis) becomes less important

than knowing what other investors expect it to sell for. That's not to say that

knowing what a security should sell for isn't important--it is. But there is

usually a fairly strong consensus of a stock's future earnings that the average

investor cannot disprove.

Technical analysis is the process of analyzing a security's historical

prices in an effort to determine probable future prices. This is done by

comparing current price action (i.e., current expectations) with comparable

historical price action to predict a reasonable outcome. The devout technician

might define this process as the fact that history repeats itself while others

would suffice to say that we should learn from the past.

Usually the following tools & instruments are used to do

the technical analysis:

Price Fields

[15]

Technical analysis is based almost entirely on the analysis of price and

volume. The fields which define a security's price and volume are explained

below.

Open - This is the price of the first trade for the period (e.g., the first trade of

the day). When analyzing daily data, the Open is especially important as it is

the consensus price after all interested parties were able to "sleep on it."

High - This is the highest price that the security traded during the period. It

is the point at which there were more sellers than buyers (i.e., there are always

sellers willing to sell at higher prices, but the High represents the highest

price buyers were willing to pay).

Low - This is the lowest price that the security traded during the period. It is

the point at which there were more buyers than sellers (i.e., there are always

buyers willing to buy at lower prices, but the Low represents the lowest price

sellers were willing to accept).

Close - This is the last price that the security traded during the period. Due to

its availability, the Close is the most often used price for analysis. The

relationship between the Open (the first price) and the Close (the last price)

are considered significant by most technicians. This relationship is

emphasized in candlestick charts.

[16]

Volume - This is the number of shares (or contracts) that were traded during

the period. The relationship between prices and volume (e.g., increasing

prices accompanied with increasing volume) is important.

Open Interest - This is the total number of outstanding contracts (i.e.,

those that have not been exercised, closed, or expired) of a future or option.

Open interest is often used as an indicator.

Bid - This is the price a market maker is willing to pay for a security (i.e., the

price you will receive if you sell).

Ask - This is the price a market maker is willing to accept (i.e., the price you

will pay to buy the security).

Price Styles

Price in a chart can be displayed in four styles:

[17]

1. Bar Chart.

2. Line Chart.

3. Candlestick Chart.

4. Point and Figure Charts

1) Bar Charts :

The highs and lows of a foreign currency are plotted in a diagram and the

points are joined with vertical lines (bars). A small horizontal tick to the left

denotes the opening level while a small horizontal tick to the right represents

the closing price of each interval.

2) Line Chart.

It gives the detailed information about every aspect.[18]

The exchange rates for each time period are plotted in a diagram and the

points are joined. Prices on the y-axis, time on the x-axis.

The line chart chooses for example the closing price of consecutive time

periods, but can also work with daily, official fixings.

The relatively easy handling of line charts is a great advantage. Line charts

do not show price movements within a time period. This can be a problem

because important information for exchange rate analysis can be lost. This

problem was remedied with the development of bar charts that represent a

more sophisticated form of line chart.

3) Candlestick Chart.

[19]

A candlestick is black if the closing price is lower than the opening price. A

candlestick is white if the closing price is higher than the opening price.

In the 1600s, the Japanese developed a method of technical analysis to

analyze the price of rice contracts. This technique is called candlestick

charting. Steven Nison is credited with popularizing candlestick charting

and has become recognized as the leading expert on their interpretation.

Candlestick charts display the open, high, low, and closing prices in a format

similar to a modern-day barchart, but in a manner that extenuates the

relationship between the opening and closing prices. Candlestick

[20]

charts are simply a new way of looking at prices, they don't involve any

calculations. Because candlesticks display the relationship between the open,

high, low, and closing prices, they cannot be displayed on securities that only

have closing prices, nor were they intended to be displayed on securities

that lack opening prices.

The interpretation of candlestick charts is based primarily on patterns. The

most popular patterns are explained below.

Bullish Patterns

1) Long white (empty) line. This is a bullish line. It occurs when prices

open near the low and close significantly higher near the period's high.

2) Hammer. This is a bullish line if it occurs after a significant

downtrend. If the line occurs after a significant up-trend, it is called a

Hanging Man. A Hammer is identified by a small real body (i.e., a

[21]

small range between the open and closing prices) and a long lower

shadow (i.e., the low is significantly lower than the open, high, and

lose). The body can be empty or filled-in.

3) Piercing line. This is a bullish pattern and the opposite of a dark cloud

cover. The first line is a long black line and the second line is a long

white line. The second line opens lower than the first line's low, but it

closes more than halfway above the first line's real body.

4) Bullish engulfing lines. This pattern is strongly bullish if it occurs after

a significant downtrend (i.e., it acts as a reversal pattern). It occurs

[22]

when a small bearish (filled-in) line is engulfed by a large bullish

(empty) line.

5) Morning star. This is a bullish pattern signifying a potential bottom.

The "star" indicates a possible reversal and the bullish (empty) line

confirms this. The star can be empty or filled-in.

6) Bullish doji star. A "star" indicates a reversal and a doji indicates

indecision. Thus, this pattern usually indicates a reversal following an

[23]

indecisive period. You should wait for a confirmation (e.g., as in the

morning star, above) before trading a doji star. The first line can be

empty or filled in.

Bearish Patterns

1) Long black (filled-in) line. This is a bearish line. It occurs when prices

open near the high and close significantly lower near the period's low.

2) Hanging Man. These lines are bearish if they occur after a significant

uptrend. If this pattern occurs after a significant downtrend, it is called

[24]

a Hammer. They are identified by small real bodies (i.e., a small range

between the open and closing prices) and a long lower shadow (i.e., the

low was significantly lower than the open, high, and close). The bodies

can be empty or filled-in.

3) Dark cloud cover. This is a bearish pattern. The pattern is more

significant if the second line's body is below the center of the previous

line's body (as illustrated).

[25]

4) Bearish engulfing lines. This pattern is strongly bearish if it occurs

after a significant uptrend (i.e., it acts as a reversal pattern). It occurs

when a small bullish (empty) line is engulfed by a large bearish (filled-

in) line.

5) Evening star. This is a bearish pattern signifying a potential top. The

"star" indicates a possible reversal and the bearish (filled-in) line confirms

this. The star can be empty or filledin.

[26]

5) Doji star. A star indicates a reversal and a doji indicates indecision.

Thus, this pattern usually indicates a reversal following an indecisive

period. You should wait for a confirmation (e.g., as in the evening star

illustration) before trading a doji star.

6) Shooting star. This pattern suggests a minor reversal when it appears

after a rally. The star's body must appear near the low price and the line

should have a long upper shadow.

[27]

Reversal Patterns

1) Long-legged doji. This line often signifies a turning point. It occurs

when the open and close are the same, and the range between the high and

low is relatively large.

2) Dragon-fly doji. This line also signifies a turning point. It occurs when

the open and close are the same, and the low is significantly lower than

the open, high, and closing prices.

[28]

3) Gravestone doji. This line also signifies a turning point. It occurs when

the open, close, and low are the same, and the high is significantly higher

than the open, low, and closing prices.

4) Star. Stars indicate reversals. A star is a line with a small real body that

occurs after a line with a much larger real body, where the real bodies do

not overlap. The shadows may overlap.

[29]

5) Doji star. A star indicates a reversal and a doji indicates indecision.

Thus, this pattern usually indicates a reversal following an indecisive

period. You should wait for a confirmation (e.g., as in the evening star

illustration) before trading a doji star.

Neutral Patterns

1) Spinning tops. These are neutral lines. They occur when the

distance between the high and low, and the distance between the

open and close, are relatively small.

[30]

2) Doji. This line implies indecision. The security opened and closed at

the same price. These lines can appear in several different patterns.

Double doji lines (two adjacent doji lines) imply that a forceful

move will follow a breakout from the current indecision.

3) Harami ("pregnant" in English). This pattern indicates a decrease

in momentum. It occurs when a line with a small body falls within

the area of a larger body. In this example, a bullish (empty) line with [31]

a long body is followed by a weak bearish (filledin) line. This

implies a decrease in the bullish momentum.

4) Harami cross. This pattern also indicates a decrease in momentum.

The pattern is similar to a harami, except the second line is a doji

(signifying indecision).

[32]

Example

4 ) Point And Figure Charts

The point and figure chart is not well known or used by the average investor but it has had a

long history of use dating back to the first technical traders. This type of chart reflects price

movements and is not as concerned about time and volume in the formulation of the points. The

[33]

point and figure chart removes the noise, or insignificant price movements, in the stock, which

can distort traders' views of the price trends. These types of charts also try to neutralize

the skewing effect that time has on chart analysis.

When first looking at a point and figure chart, you will notice a series of Xs

and Os. The Xs represent upward price trends and the Os represent downward

price trends. There are also numbers and letters in the chart; these represent

months, and give investors an idea of the date. Each box on the chart

represents the price scale, which adjusts depending on the price of the stock:

the higher the stock's price the more each box represents. On most charts

where the price is between $20 and $100, a box represents $1, or 1 point for

[34]

the stock. The other critical point of a point and figure chart is the reversal

criteria. This is usually set at three but it can also be set according to the

chartist's discretion. The reversal criteria set how much the price has to move

away from the high or low in the price trend to create a new trend or, in other

words, how much the price has to move in order for a column of Xs to

become a column of Os, or vice versa. When the price trend has moved from

one trend to another, it shifts to the right, signalling a trend change.

TRENDS IN TECHNICAL ANALYSIS

The Use of Trends

One of the most important concepts in technical analysis is that of

trend. The meaning in finance isn't all that different from the general

definition of the term - a trend is really nothing more than the general

[35]

direction in which a security or market is headed. Take a look at the

chart below:

Isn’t it hard to see that the trend  is up. However, it's not always this

easy to see a trend:

[36]

There are lots of ups and downs in this chart, but there isn't a clear

indication of which direction this security is headed.

A More Formal Definition

Unfortunately, trends are not always easy to see. In other

words, defining a trend goes well beyond the obvious. In any given

chart, you will probably notice that prices do not tend to move in a

straight line in any direction, but rather in a series of highs and

lows. In technical analysis, it is the movement of the highs and lows

that constitutes a trend. For example, an uptrend is classified as a

[37]

series of higher highs and higher lows, while a downtrend is one of

lower lows and lower highs.

 It is an example of an uptrend. Point 2 in the chart is the first high, which is

determined after the price falls from this point. Point 3 is the low that is

established as the price falls from the high. For this to remain an uptrend each

successive low must not fall below the previous lowest point or the trend is

deemed a reversal.

Types of Trend

There are three types of trend:

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1.Uptrend

2.Downtrend

3.Sideways/Horizontal Trends

As the names imply, when each successive peak and trough is higher,

it's referred to as an upward trend. If the peaks and troughs are getting lower,

it's a downtrend. When there is little movement up or down in the peaks and

troughs, it's a sideways or horizontal trend. If you want to get really technical,

you might even say that a sideways trend is actually not a trend on its own,

but a lack of a well-defined trend in either direction. In any case, the market

can really only trend in these three ways: up, down or nowhere.

Trend Lengths

Along with these three trend directions, there are three trend classifications. A trend of

any direction can be classified as a long-term trend, intermediate trend or a short-term

trend. In terms of the stock market, a major trend is generally categorized as one lasting

longer than a year. An intermediate trend is considered to last between one and three

months and a near-term trend is anything less than a month. A long-term trend is

composed of several intermediate trends, which often move against the direction of the

major trend. If the major trend is upward and there is a downward correction in price

movement followed by a continuation of the uptrend, the correction is considered to be [39]

an intermediate trend. The short-term trends are components of both major and

intermediate trends. Take a look a Figure 4 to get a sense of how these three trend

lengths might look.

When analyzing trends, it is important that the chart is constructed to

bestreflect the type of trend being analyzed. To help identify long-term

trends, weekly charts or daily charts spanning a five-year period are

used by chartists to get a better idea of the long-term trend. Daily data

charts are best used when analyzing both intermediate and short-term

trends. It is also important to remember that the longer the trend, the

more important it is; for example, a one-month trend is not as

significant as a five-year trend.

[40]

Trend Lines

A trend line is a simple charting technique that adds a line to a

chart to represent the trend in the market or a stock. Drawing a trend

line is as simple as drawing a straight line that follows a general trend.

These lines are used to clearly show the trend and are also used in the

identification of trend reversals.

An upward trend line is drawn at the lows of an upward trend.

This line represents the support the stock has every time it moves from

a high to a low. Notice how the price is propped up by this support.

This type of trend line helps traders to anticipate the point at which a

stock's price will begin moving upwards again. Similarly, a downward

trend line is drawn at the highs of the downward trend. This line

represents the resistance level that a stock faces every time the price

moves from a low to a high.

[41]

Channels

A channel, or channel lines, is the addition of two parallel trend lines that act as

strong areas of support and resistance. The upper trend line connects a series of highs,

while the lower trend line connects a series of lows. A channel can slope upward,

downward or sideways but, regardless of the direction, the interpretation remains the

same. Traders will expect a given security to trade between the two levels of support and

resistance until it breaks beyond one of the levels, in which case traders can expect a

[42]

sharp move in the direction of the break. Along with clearly displaying the trend, channels

are mainly used to illustrate important areas of support and resistance.

A descending channel on a stock chart; the upper trend line has been

placed on the highs and the lower trend line is on the lows. The price

has bounced off of these lines several times, and has remained range-

bound for several months. As long as the price does not fall below the

lower line or move beyond the upper resistance, the range-bound

downtrend is expected to continue.

The Importance Of Trend

[43]

It is important to be able to understand and identify trends so that you

can trade with rather than against them. Two important sayings in technical

analysis are "the trend is your friend" and "don't buck the trend," illustrating

how important trend analysis is for technical traders

IMPORTANCE OF VOLUME :-

What Is Volume?

Volume is simply the number of shares or contracts that trade over a given

period of time, usually a day. The higher the volume, the more active the security. To

determine the movement of the volume (up or down), chartists look at the volume bars

that can usually be found at the bottom of any chart. Volume bars illustrate how many

shares have traded per period and show trends in the same way that prices do.

[44]

Why Volume Is Important?

Volume is an important aspect of technical analysis because it

is used to confirm trends and chart patterns. Any price movement up or

down with relatively high volume is seen as a stronger, more relevant

move than a similar move with weak volume.Say, for example, that a

stock jumps 5% in one trading day after being in a long downtrend. Is

this a sign of a trend reversal? This is where volume helps traders. If

volume is high during the day relative to the average daily volume, it is

a sign that the reversal is probably for real. On the other hand, if the

volume is below average, there may not be enough conviction to

[45]

support a true trend reversal. Volume should move with the trend. If

prices are moving in an upward trend, volume should increase (and

vice versa). If the previous relationship between volume and price

movements starts to deteriorate, it is usually a sign of weakness in the

trend. For example, if the stock is in an uptrend but the up trading days

are marked with lower volume, it is a sign that the trend is starting to

lose its legs and may soon end. When volume tells a different story, it

is a case of divergence, which refers to a contradiction between two

different indicators. The simplest example of divergence is a clear

upward trend on declining volume.

Volume And Chart Patterns

The other use of volume is to confirm chart patterns. Patterns

such as head and shoulders, triangles, flags and other price patterns can

be confirmed with volume, a process which we'll describe in more

detail later in this tutorial. In most chart patterns, there are several

pivotal points that are vital to what the chart is able to convey to

chartists. Basically, if the volume is not there to confirm the pivotal

[46]

moments of a chart pattern, the quality of the signal formed by the

pattern is weakened.

Volume Precedes Price

Another important idea in technical analysis is that price is preceded by

volume. Volume is closely monitored by technicians and chartists to form

ideas on upcoming trend reversals. If volume is starting to decrease in an

uptrend, it is usually a sign that the upward run is about to end. Now that we

have a better understanding of some of the important factors of technical

analysis, we can move on to charts, which help to identify trading

opportunities in prices movements.

CHART PATTERNS :-

A chart pattern is a distinct formation on a stock chart that creates a

trading signal, or a sign of future price movements. Chartists use these

patterns to identify current trends and trend reversals and to trigger buy and

sell signals.

In the first section of this tutorial, we talked about the three

assumptions of technical analysis, the third of which was that in technical

[47]

analysis, history repeats itself. The theory behind chart patters is based on this

assumption. The idea is that certain patterns are seen many times, and that

these patterns signal a certain high probability move in a stock. Based on the

historic trend of a chart pattern setting up a certain price movement, chartists

look for these Patterns to identify trading opportunities. While there are

general ideas and components to every chart pattern, there is no chart pattern

that will tell you with 100% certainty where a security is headed. This creates

some leeway and debate as to what a good pattern looks like, and is a major

reason why charting is often seen as more of an art than a science. There are

two types of patterns within this area of technical analysis, reversal and

continuation. A reversal pattern signals that a prior trend will reverse upon

completion of the pattern. A continuation pattern, on the other hand, signals

that a trend will continue once the pattern is complete. These patterns can be

found over charts of any timeframe. In this section, we will review some of

the more Popular chart paterns.

1.Head And Shoulders

This is one of the most popular and reliable chart patterns in technical

analysis. Head and shoulders is a reversal chart pattern that when formed,

signals that the security is likely to move against the previous trend. As you

[48]

can see , there are two versions of the head and shoulders chart pattern. Head

and shoulders top (shown on the left) is a chart pattern that is formed at the

high of an upward movement and signals that the upward trend is about to

end. Head and shoulders bottom, also known as   inverse head and shoulders

(shown on the right) is the lesser known of the two, but is used to signal a

reversal in a downtrend.

Head and shoulders top is shown on the left. Head and shoulders bottom,

or inverse head and shoulders, is on the right.

Both of these head and shoulders patterns are similar in that there are four

main parts: two shoulders, a head and a neckline. Also, each individual head

and shoulder is comprised of a high and a low. For example, in the head and

shoulders top image shown on the left side, the left shoulder is made up of a

[49]

high followed by a low. In this pattern, the neckline is a level of support or

resistance. Remember that an upward trend is a period of successive rising

highs and rising lows. The head and shoulders chart pattern, therefore,

illustrates a weakening in a trend by showing the deterioration in the

successive movements of the highs and lows.

2.Cup And Handle

A cup and handle chart is a bullish continuation pattern in which the upward

trend has paused but will continue in an upward direction once the pattern is

confirmed.

The price pattern forms what looks like a cup, which is preceded by an

upward trend. The handle follows the cup formation and is formed by a

[50]

generally downward/sideways movement in the security's price. Once the

price movement pushes above the resistance lines formed in the handle, the

upward trend can continue.

3.Double Tops And Bottoms

This chart pattern is another well-known pattern that signals a trend reversal -

it is considered to be one of the most reliable and is commonly used. These

patterns are formed after a sustained trend and signal to chartists that the

trend is about to reverse. The pattern is created when a price movement tests

support or resistance levels twice and is unable to break through. This pattern

is often used to signal intermediate and long-term trend reversals.

 

[51]

A double top pattern is shown on the left, while a double bottom pattern

is shown on the right.In the case of the double top pattern, the price

movement has twice tried to move above a certain price level. After two

unsuccessful attempts at pushing the price higher, the trend reverses and the

price heads lower. In the case of a double bottom (shown on the right), the

price movement has tried to go lower twice, but has found support each time.

After the second bounce off of the support, the security enters a new trend

And heads upward.

4.Triangles

Triangles are some of the most well-known chart patterns used in technical analysis. The

three types of triangles, which vary in construct and implication, are the symmetrical

triangle, ascending and descending triangle. These chart patterns are considered to last

anywhere from a couple of weeks to several months.

[52]

The symmetrical is a pattern in which two trend lines converge toward each

other. This pattern is neutral in that a breakout to the upside or downside is a

confirmation of a trend in that direction. In an ascending triangle, the upper

trend line is flat, while the bottom trend line is upward sloping. This is

generally thought of as a bullish pattern in which chartists look for an upside

breakout. In a descending triangle, the lower trend line is flat and the upper

trend line is descending. This is generally seen as a bearish pattern where

chartists look for a downside breakout.

[53]

5.Flag And Pennants

These two short-term chart patterns are continuation patterns that are

formed when there is a sharp price movement followed by a   generally

sideways price movement. This pattern is then completed upon another

sharp price movement in the same direction as the move that started the

trend. The patterns are generally thought to last from one to three weeks.

There is little difference between a pennant and a flag. The main difference

between these price movements can be seen in the middle section of the chart

pattern. In a pennant, the middle section is characterized by converging trend

lines, much like what is seen in a symmetrical triangle. The middle section on

the flag pattern, on the other hand, shows a channel pattern, with no

convergence between the trend lines. In both cases, the trend is expected to

continue when the price moves above the upper trend line

[54]

6.Wedge

The wedge chart pattern can be either a continuation or reversal pattern. It is similar to a

symmetrical triangle except that the wedge pattern slants in an upward or downward

direction, while the symmetrical triangle generally shows a sideways movement. The

other difference is that wedges tend to form over longer periods, usually between three

and six months.

The fact that wedges are classified as both continuation and reversal patterns

can make reading signals confusing. However, at the most basic level, a

falling wedge is bullish and a rising wedge is bearish. We have a falling

wedge in which two trend lines are converging in a downward direction. If

the price was to rise above the upper trend line, it would form a continuation

[55]

pattern, while a move below the lower trend line would signal a reversal

pattern

7.Triple Tops And Bottoms

Triple tops   and   triple bottoms are another type of reversal chart pattern

in chart analysis. These are not as prevalent in charts as head and

shoulders and double tops and bottoms, but they act in a similar fashion.

These two chart patterns are formed when the price movement tests a

level of support or resistance three times and is unable to break through;

this signals a reversal of the prior trend.

Confusion can form with triple tops and bottoms during the formation of the

pattern because they can look similar to other chart patterns. After the first

two support/resistance tests are formed in the price movement, the pattern

[56]

will look like a double top or bottom, which could lead a chartist to enter a

reversal position too soon.

8.Rounding Bottom

A rounding bottom, also referred to as a saucer bottom, is a long-term

reversal pattern that signals a shift from a downward trend to an upward

trend. This pattern is traditionally thought to last anywhere from several

Months to several years.

A rounding bottom chart pattern looks similar to a cup and handle pattern but

without the handle. The long-term nature of this pattern and the lack of a

[57]

confirmation trigger, such as the handle in the cup and handle, make it a

difficult pattern.

SUPPORT AND RESISTANCE :-

Once you understand the concept of a trend, the next major concept is that of support

and resistance. You'll often hear technical analysts talk about the ongoing battle between

the bulls and the bears, or the struggle between buyers (demand) and sellers (supply). This is

revealed by the prices a security seldom moves above (resistance) or below (support).

[58]

Support is the price level through which a stock or market seldom falls

(illustrated by the blue arrows). Resistance, on the other hand, is the price

level that a stock or market seldom surpasses (illustrated by the Red Arrows).

These support and resistance levels are seen as important in terms of

market psychology and supply and demand. Support and resistance levels are

the levels at which a lot of traders are willing to buy the stock (in the case of a

support) or sell it (in the case of resistance). When these trend lines are

broken, the supply and demand and the psychology behind the stock's

[59]

movements is thought to have shifted, in which case new levels of support

and resistance likely be established.

Round Numbers and Support and Resistance:-

One type of universal support and resistance that tends to be seen

across a large number of securities is round numbers. Round numbers

like 10, 20, 35, 50, 100 and 1,000 tend be important in support and

resistance levels because they often represent the major psychological

turning points at which many traders will make buy or sell decisions.

Buyers will often purchase large amounts of stock once the price starts to

fall toward a major round number such as $50, which makes it more

difficult for shares to fall below the level. On the other hand, sellers start

to sell off a stock as it moves toward a round number peak, making it

difficult to move past this upper level as well. It is the increased buying

and selling pressure at these levels that makes them important points of

support and resistance and, in many cases, major psychological points as

well.

Role Reversal

[60]

Once a resistance or support level is broken, its role is reversed. If

the price falls below a support level, that level will become resistance. If

the price rises above a resistance level, it will often become support. As

the price moves past a level of support or resistance, it is thought that

supply and demand has shifted, causing the breached level to reverse its

role. For a true reversal to occur, however, it is important that the price

make a strong move through either the support or resistance.

For example, as you can see, the dotted line is shown as a level of resistance that has

prevented the price from heading higher on two previous occasions (Points 1 and 2).

However, once the resistance is broken, it becomes a level of support (shown by Points 3

and 4) by propping up the price and preventing it from heading lower again.

Many traders who begin using technical analysis find this concept hard to believe and

don't realize that this phenomenon occurs rather frequently, even with some of the most

well-known companies. For example, this phenomenon is evident on the Wal-Mart Stores

Inc. (WMT) chart between 2003 and 2006. Notice how the role of the $51 level changes

from a strong level of support to a level of resistance.

[61]

In almost every case, a stock will have both a level of support and a

level of resistance and will trade in this range as it bounces between

these levels.

The Importance Of Support And Resistance

Support and resistance analysis is an important part of trends because

it can be used to make trading decisions and identify when a trend is

reversing.

Support and resistance levels both test and confirm trends and need to

be monitored by anyone who uses technical analysis. As long as the price of

the share remains between these levels of support and resistance, the trend is

[62]

likely to continue. It is important to note, however, that a break beyond a

level of support or resistance does not always have to be a reversal.

For example, if prices moved above the resistance levels of an upward

trending channel, the trend have accelerated, not reversed. This means that

the price appreciation is expected to be faster than it was in the channel.

Being aware of these important support and resistance points should affect

the way that you trade a stock. Traders should avoid placing orders at these

major points, as the area around them is usually marked by a lot of volatility.

If you feel confident about making a trade near a support or resistance level,

it is important that you follow this simple rule: do not place orders directly at

the support or resistance level. This is because in many cases, the price never

actually reaches the whole number, but flirts with it instead. So if you're

bullish on a stock that is moving toward an important support level, do not

place the trade at the support level. Instead, place it above the support level,

but within a few points. On the other hand, if you are placing stops or short

selling, set up your trade price at or below the level of support.

Summary of charts

[63]

MOVING AVERAGES :-

Most chart patterns show a lot of variation in price movement.

This can make it difficult for traders to get an idea of a security's

overall trend. One simple method traders use to combat this is to apply

moving averages. A moving average is the average price of a security

over a set amount of time. By plotting a security's average price, the

price movement is smoothed out. Once the day-to-day fluctuations are

removed, traders are better able to identify the true trend and increase

the probability that it will work in their favor.

[64]

Types Of Moving Averages:-

There are a number of different types of moving averages that vary in

the way they are calculated, but how each average is interpreted remains the

same. The calculations only differ in regards to the weighting that they place

on the price data, shifting from equal weighting of each price point to more

weight being placed on recent data. The three most common types of moving

averages are simple, linear and exponential.

1. Simple Moving Average (SMA)

This is the most common method used to calculate the moving average

of prices. It simply takes the sum of all of the past closing prices over the

time period and divides the result by the number of prices used in the

calculation. For example, in a 10-day moving average, the last 10 closing

prices are added together and then divided by 10. As you can see in Figure 1,

a trader is able to make the average less responsive to changing prices by

increasing the number of periods used in the calculation. Increasing the

number of time periods in the calculation is one of the best ways to gauge the

[65]

strength of the long-term trend and the likelihood that it will reverse.

Many individuals argue that the usefulness of this type of average is limited

because each point in the data series has the same impact on the result

regardless of where it occurs in the sequence. The critics argue that the most

recent data is more important and, therefore, it should also have a higher

weighting. This type of criticism has been one of the main factors leading to

the invention of other forms of moving averages.

2. Linear Weighted Average

This moving average indicator is the least common out of the three

[66]

and is used to address the problem of the equal weighting. The linear

weighted moving average is calculated by taking the sum of all the closing

prices over a certain time period and multiplying them by the position of the

data point and then dividing by the sum of the number of periods. For

example, in a five-day linear weighted average, today's closing price is

multiplied by five; yesterday's by four and so on until the first day in the

period range is reached. These numbers are then added together and divided

by the sum of the multipliers.

3. Exponential Moving Average (EMA)

This moving average calculation uses a smoothing factor to place a higher weight on

recent data points and is regarded as much more efficient than the linear weighted average.

Having an understanding of the calculation is not generally required for most traders because

most charting packages do the calculation for you. The most important thing to remember about

the exponential moving average is that it is more responsive to new information relative to the

simple moving average. This responsiveness is one of the key factors of why this is the moving

average of choice among many technical traders. A 15-period EMA raises and falls faster than a

15-period SMA. This slight difference doesn’t seem like much, but it is an important factor to be

aware of since it can affect returns.

[67]

Major Uses of Moving Averages

Moving averages are used to identify current trends and trend

reversals as well as to set up support and resistance levels. Moving

averages can be used to quickly identify whether a security is moving in

an uptrend or a downtrend depending on the direction of the moving

average. When a moving average is heading upward and the price is

above it, the security is in an uptrend. Conversely, a downward sloping

moving average with the price below can be used to signal a downtrend.

[68]

Another method of determining momentum is to look at the order of a pair of

moving averages. When a short-term average is above a longer-term average,

the trend is up. On the other hand, a long-term average above a shorter-term

average signals a downward movement in the trend.

Moving average trend reversals are formed in two main ways:

when the price moves through a moving average and when it moves

through moving average crossovers. The first common signal is when the

price moves through an important moving average. For example, when

the price of a security that was in an uptrend falls below a 50-period

moving average, it is a sign that the uptrend may be reversing.

[69]

The other signal of a trend reversal is when one moving average crosses

through another. For example, if the 15-day moving average crosses

above the 50-day moving average, it is a positive sign that the price will

start to increase.

[70]

If the periods used in the calculation are relatively short, for example 15

and 35, this could signal a short-term trend reversal. On the other hand,

when two averages with relatively long time frames cross over (50 and

200, for example), this is used to suggest a long-term shift in trend.

Another major way moving averages are used is to identify support and

resistance levels. It is not uncommon to see a stock that has been falling

stop its decline and reverse direction once it hits the support of a major

moving average. A move through a major moving average is often used

as a signal by technical traders that the trend is reversing. For example,

if the price breaks through the 200-day moving average in a downward

direction, it is a signal that the uptrend is reversing.

[71]

Moving averages are a powerful tool for analyzing the trend in a security.

They provide useful support and resistance points and are very easy to use.

The most common time frames that are used when creating moving averages

are the 200-day, 100-day, 50-day, 20-day and 10-day. The 200-day average is

thought to be a good measure of a trading year, a 100-day average of a half a

year, a 50-day average of a quarter of a year, a 20-day average of a month

And 10 – day average of two weeks.

Moving averages help technical traders smooth out some of the noise

that is found in day-to-day price movements, giving traders a clearer view of

the price trend. So far we have been focused on price movement, through

[72]

charts and averages. In the next section, we'll look at some other techniques

used to confirm price movement and patterns.

Technical Indicators

ACCUMULATION/DISTRIBUTION

Overview

The Accumulation/Distribution is a momentum indicator that

associates changes in price and volume. The indicator is based on the premise

that the more volume that accompanies a price move, the more significant the

price move.

Interpretation

The Accumulation/Distribution is really a variation of the more

popular On Balance Volume indicator. Both of these indicators attempt to

confirm changes in prices by comparing the volume associated with prices.

When the Accumulation/Distribution moves up, it shows that the security is

being accumulated, as most of the volume is associated with upward price

movement. When the indicator moves down, it shows that the security is

being distributed, as most of the volume is associated with downward price

movement. Divergences between the Accumulation/Distribution and the [73]

security's price imply a change is imminent. When a divergence does occur,

prices usually change to confirm the Accumulation/Distribution. For example,

if the indicator is moving up and the security's price is going down, prices will

probably reverse.

BOLLINGER BANDS

Overview

Bollinger Bands are similar to moving average envelopes. The

difference between Bollinger Bands and envelopes is envelopes are plotted at

a fixed percentage above and below a moving average, whereas Bollinger

Bands are plotted at standard deviation levels above and below a moving

average. Since standard deviation is a measure of volatility, the bands are self-

adjusting: widening during volatile markets and contracting during calmer

periods.

Bollinger Bands were created by John Bollinger.

Interpretation

Bollinger Bands are usually displayed on top of security prices, but

they can be displayed on an indicator. These comments refer to bands

displayed on prices.

As with moving average envelopes, the basic interpretation of Bollinger

Bands is that prices tend to stay within the upper- and lower-band. The

[74]

distinctive characteristic of Bollinger Bands is that the spacing between the

bands varies based on the volatility of the prices. During periods of extreme

price changes (i.e., high volatility), the bands widen to become more

forgiving. During periods of stagnant pricing (i.e., low volatility), the bands

narrow to contain prices.

following are characteristics of Bollinger Bands.

• Sharp price changes tend to occur after the bands tighten, as volatility

lessens.

• When prices move outside the bands, a continuation of the current trend is

implied.

• Bottoms and tops made outside the bands followed by bottoms and tops

made inside the bands call for reversals in the trend.

• A move that originates at one band tends to go all the way to the other band.

This observation is useful when projecting price targets.

COMMODITY CHANNEL INDEX:-

Overview

[75]

The Commodity Channel Index ("CCI") measures the variation of a

security's price from its statistical mean. High values show that prices are

unusually high compared to average prices whereas low values indicate that

prices are unusually low. Contrary to its name, the CCI can be used

effectively on any type of security, not just commodities.

Interpretation

There are two basic methods of interpreting the CCI: looking for

divergences and as an overbought/oversold indicator.

• A divergence occurs when the security's prices are making new highs while

the CCI is failing to surpass its previous highs. This classic divergence is

usually followed by a correction in the security's price.

• The CCI typically oscillates between 100. To use the CCI as an

overbought/oversold indicator, readings above +100 imply an overbought

condition (and a pending price correction) while readings below -100 imply

an oversold condition (and a pending rally).

ENVELOPES (TRADING BANDS)

Overview

[76]

An envelope is comprised of two moving averages. One moving

average is shifted upward and the second moving average is shifted

downward.

Interpretation

Envelopes define the upper and lower boundaries of a security's normal

trading range. A sell signal is generated when the security reaches the upper

band whereas a buy signal is generated at the lower band. The optimum

percentage shift depends on the volatility of the security--the more volatile,

the larger the percentage. The logic behind envelopes is that overzealous

buyers and sellers push the price to the extremes (i.e., the upper and lower

bands), at which point the prices often stabilize by moving to more realistic

levels. This is similar to the interpretation of Bollinger Bands.

MACD

Overview

The MACD ("Moving Average Convergence/Divergence") is a trend

following momentum indicator that shows the relationship between two

moving averages of prices. The MACD was developed by Gerald Appel,

publisher of Systems and Forecasts. The MACD is the difference between a

26-day and 12-day exponential moving average. A 9-day exponential moving

average, called the "signal" (or "trigger") line is plotted on top of the MACD

[77]

to show buy/sell opportunities. (Appel specifies exponential moving averages

as percentages. Thus, he refers to these three moving averages as 7.5%, 15%,

and 20% respectively.)

Interpretation

The MACD proves most effective in wide-swinging trading markets. There

are three popular ways to use the MACD: crossovers, overbought/oversold

conditions, and divergences.

Crossovers

The basic MACD trading rule is to sell when the MACD falls below its signal

line. Similarly, a buy signal occurs when the MACD rises above its signal

line. It is also popular to buy/sell when the MACD goes above/below zero.

Overbought/Oversold Conditions

The MACD is also useful as an overbought/oversold indicator. When the

shorter moving average pulls away dramatically from the longer moving

average (i.e., the MACD rises), it is likely that the security price is

overextending and will soon return to more realistic levels. MACD

overbought and oversold conditions exist vary from security to security.

Divergences

A indication that an end to the current trend may be near occurs when the

MACD diverges from the security. A bearish divergence occurs when the

[78]

MACD is making new lows while prices fail to reach new lows. A bullish

divergence occurs when the MACD is making new highs while prices fail to

reach new highs. Both of these divergences are most significant when they

occur at relatively overbought/oversold levels.

MOMENTUM

Overview

The Momentum indicator measures the amount that a security's price has

changed over a given time span.

Interpretation

The interpretation of the Momentum indicator is identical to the interpretation

of the Price ROC. Both indicators display the rate-of-change of a security's

price. However, the Price ROC indicator displays the rate-of-change as a

percentage whereas the Momentum indicator displays the rate-of-change as a

ratio.

ON BALANCE VOLUME

Overview

[79]

On Balance Volume ("OBV") is a momentum indicator that relates volume to

price change. On Balance Volume was developed by Joe Granville

Interpretation

On Balance Volume is a running total of volume. It shows if volume is

flowing into or out of a security. When the security closes higher than the

previous close, all of the day's volume is considered up-volume. When the

security closes lower than the previous close, all of the day's volume is

considered down-volume.

PRICE OSCILLATOR

Overview

The Price Oscillator displays the difference between two moving averages of

a securitys price. The difference between the moving averages can be

expressed in either points or percentages. The Price Oscillator is almost

identical to the MACD, except that the Price Oscillator can use any two user-

specified moving averages. (The MACD always uses 12- and 26-day moving

averages, and always expresses the difference in points.)

Interpretation

Moving average analysis typically generates buy signals when a short-term

moving average (or the securitys price) rises above a longer-term moving [80]

average. Conversely, sell signals are generated when a shorter-term moving

average (or the security’s price) falls below a longer-term moving average.

The Price Oscillator illustrates the cyclical and often profitable signals

generated by these one- or two-moving-average systems.

VOLUME

Overview

Volume is simply the number of shares (or contracts) traded during a

specified time frame (e.g., hour, day, week, month, etc). The analysis of

volume is a basic yet very important element of technical analysis. Volume

provides clues as to the intensity of a given price move.

Interpretation

Low volume levels are characteristic of the indecisive expectations that

typically occur during consolidation periods (i.e., periods where prices move

sideways in a trading range). Low volume also often occurs during the

indecisive period during market bottoms. High volume levels are

characteristic of market tops when there is a strong consensus that

prices will move higher. High volume levels are also very common at the

beginning of new trends (i.e., when prices break out of a trading range). Just

before market bottoms, volume will often increase due to panic-driven

selling.

[81]

Volume can help determine the health of an existing trend. A healthy up-trend

should have higher volume on the upward legs of the trend, and lower volume

on the downward (corrective) legs. A healthy downtrend usually has higher

volume on the downward legs of the trend and lower volume on the upward

(corrective) legs.

VOLUME OSCILLATOR

Overview

The Volume Oscillator displays the difference between two moving averages

of a security's volume. The difference between the moving averages can be

expressed in either points or percentages.

Interpretation

We can use the difference between two moving averages of volume to

determine if the overall volume trend is increasing or decreasing. When the

Volume Oscillator rises above zero, it signifies that the shorter-term volume

moving average has risen above the longerterm volume moving average, and

thus, that the short-term volume trend is higher (i.e., more volume) than the

longer-term volume trend.

There are many ways to interpret changes in volume trends. One common

belief is that rising prices coupled with increased volume, and falling prices

coupled with decreased volume, is bullish. Conversely, if volume increases

[82]

when prices fall, and volume decreases when prices rise, the market is

showing signs of underlying weakness. The theory behind this is straight

forward. Rising prices coupled with increased volume signifies increased

upside participation (more buyers) that should lead to a continued move.

Conversely, falling prices coupled with increased volume (more sellers)

signifies decreased upside participation.

TECHNICAL ANALYSIS OF A STOCK :-

[83]

POWERGRID, a Navratna Public Sector Enterprise, is one of the

largest transmission utilities in the world.POWERGRID wheels about 45% of

the total power generated in the country on its transmission

network.POWERGRID has a pan India presence with  around 71,500 Circuit

Kms of Transmission network and 120 nos. of EHVAC & HVDC sub-

stations with a total transformation capacity of 79,500 MVA.POWERGRID

has also diversified into Telecom business and established a telecom network

of more than 20,000 Kms across the country.POWERGRID has consistently

maintained the transmission system availability over  99% which is at par

with the International Utilities.

POWERGRID, the Central Transmission Utility (CTU) of the country, is

engaged in power transmission business with the mandate for planning, co-

ordination, supervision and control over complete inter-State transmission

system. POWERGRID, as on July 2009, owns and operates about 71,600 ckt

kms of transmission lines at 800/765 kV, 400 kV, 220 kV & 132 kV EHVAC

& +500 kV HVDC levels and 122 sub-stations with transformation capacity

of about 81,200 MVA. This gigantic transmission network, spread over length

[84]

and breadth of the country, is consistently maintained at an availability of

over 99% through deployment of state-of-the-art Operation & Maintenance

techniques which are at par with global standards.

Share Holding Patterns

Promoter (Ind) 86.36%

Institution 6.40%

Non-Institution 7.24%

Custodians 0.00%

Promoter (For) 0.00%

Price’s of Power Grid

[85]

Month Open Close

Oct’2008 92.05 89.90

Nov’2008 89.90 74.45

Dec’2008 74.45 75.05

Jan’2009 75.05 83.35

Feb’2009 83.35 85.05

Mar’2009 85.05 91.15

Apr’2009 91.15 93.00

May’2009 93.00 95.85

Jun’2009 95.85 119.50

July’2009 119.50 108.75

Aug’2009 108.75 117.65

Sept’2009 117.65 108.45

Technical Analysis of Power Grid:

[86]

Accumulation/Distribution:

This chart is showing the pattern of accumulation/distribution with the price

pattern of Power Grid and we can easily see that the indicator is following the

same pattern as the price of power grid.

But for now looking at this indicator is showing downward trend in the prices.

Because as an when price move to 10m in indicator the price tend to fall and

there is one another reason that is prices are going down and indicator is

going up that also shows the negative trend in the prices.

Bollinger Bands

[87]

The chart shows that prices are moving within bollinger band and

trading days where this script is very volatile and at some point of time its less

volatile. During the Oct – Nov 2008 and May – June 2009 the Script seems to

be more trading months.But looking at the current situation the script shows a

selling signal but as the prices reaches below the bollinger band the prices

would again tend to move upside but it all depends on the santiments and

situation which would be prevailing in the market at that point of time.

But for now one shold sell the particular script to gain a profit of about 5 –

10% in near future.

Commodity Channel Index:

[88]

The chart shows that the CCI is moving in line with the prices and the as

prices goes up the CCI also goes up and vice versa.

By the chart, if we are looking for the current trend its moving downward for

short run but it still bullish for medium term.

Envelope:

[89]

Currently stock is showing that prices will go down but as it will touch its

lower envelope band its will move upward

MACD:-

[90]

Currently looking at the chart the MACD has crossed the EMA 9 from the

upside and this is a kind of negative sign and this negativity is going to be

there until the MACD move above the EMA cutting it from below

Momentum:-

[91]

Earlier chart has shown some indication about sell and buy and they come

true as it can be seen from the chart itself. Now the chart is showing selling

indication for intraday basis and for short term its good when indicator goes

to the lower level as it has made earlier

[92]

Moving Average:-

Looking at the chart one can easily interpret that moving average is roaming

around the price but still giving some indication about price movement for

near future. Sometime it shows indication of sale and buy at given point of

time

Looking forfuture price we cannot easily interpret themovement at thi spoint

of time but still some indication of sale is shown in the graph as the price of

share take support at the 15 days moving average and futher going down. It

shows a downturn for short term period and if price cross moving from below

[93]

and goes above the moving average that would be the best time to buy the

stock.

On Balance Volume:-

Currently the indicator is making low high than the previous high and its

indicates the downturn in intraday basis. But as it breaks the cuurent trend

prices tend to move upside with a bang.

[94]

Price Oscillator:-

Currently the share prices according to the indicator is trading high and it

gave a signal of selling share prices fro short term and go long for medium

term

[95]

Volume:-

Current trend of volume shows that price tend to move upward but the rally

will not exceed 2-3 days. After that we need to see the chart again because the

indicator is not so trustworthy as others

[96]

Volume Oscillator:-

The chart shows that price will tend to move downside in short term but on

intraday basis it will move upside.

[97]

BIBLIOGRAPHY

www.moneycontrol.com

www.googlefinance.com

www.yahoofinance.com

www.technicalanalysis.com

www.nseindia.com

www.bseindia.com

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