A Project Report on Understanding and Implementing Technical Analysis on Capital Markets

Under the aegis of:

Submitted By: Ashwini Jodve (212512672065 !"A# 2012 $ 1%&

!C"A#ATI$%

'# Ashwini Jodve do here() dec*are that the project report tit*ed Understanding and implementing Technical Analysis on capital markets is a gen+ine research wor, +nderta,en () -e and it has not (een p+(*ished an)where ear*ier and there() ' ta,e f+** responsi(i*it) of the report&

ate: &lace: Ash'ini (od)e MBA* +yderabad

Certi,icate by the ,aculty guide:

/his is to certif) that the project report entit*ed 0Understanding and implementing Technical Analysis on capital markets1 at !icrosec 2apita* *i-ited is a (onafide record of wor, done () Ashwini Jodve# and s+(-itted in partia* f+*fi**-ent of the re3+ire-ents of !"A# 4instein P5 2o**ege# 6)dera(ad&

Ms-S'apna

Certi,icate by the organi.ation:

/his is to certif) that Ms- Ash'ini (od)e# p+rs+ing !"A$ 7inance 8 !ar,eting at 4instein Technical Analysis on capital markets at Microsec Capital limited* 6)dera(ad fro!a) 20th 201. to J+ne 10th 201.& 1 /o the (est of -) ,now*edge this is an origina* piece of wor,& P5 2o**ege has wor,ed +nder -) s+pervision and g+idance on his dissertation entit*ed Understanding and implementing

Mr- San/ay Sureka 0&* Technical #esearch Microsec Capital "imited

Mr- &rabir Sarkar Senior Technical Analyst Microsec Capital "imited

C$%T!%TS

&age no-

1- !2ecuti)e Summary 4- Introduction 6- About the company 8- Technical Analysis 9- Conclusions :- #e,erences 3- Appendi2

3 5 7 18 94 99 9:

!;!CUTI0! SUMMA#<
/his project has (een a great *earning e9perience for -e: at the sa-e ti-e it gave -e eno+gh scope to i-p*e-ent -) ana*)tica* a(i*it)& /his project as a who*e can (e divided into two parts:

/he first part gives an insight a(o+t the a(o+t the co-pan) and its vario+s aspects& ' got an opport+nit) to *earn what is rea**) -eant () technica* ana*)sis in stoc, -ar,et# how is it i-p*e-ented in the stoc, -ar,et and i-proved on -) *earning in c*ass where we j+st went thro+gh the (asics& 't was -ain*) (ased on intrada) trade and predicting the price -ove-ents which re3+ire in depth st+d) of *ive charts changing ever) -in+te with the -ar,et& /he second part consists of preparation of technica* reports on a dai*) ; wee,*) (asis in which we tr) to give a near acc+rate prediction of s+pport 8 resistance *eve*s of <pot =ift) after ana*)>ing its previo+s price -ove-ents and a*so ta,ing in different para-eters *i,e the for-ation of new govern-ent# ca(inet -inistr)# 7''s (ehavior or an) s+ch anno+nce-ent which -a) affect o+r -ar,et& Apart fro- the news and actions of o+r own co+ntr) we a*so have to ,eep an e)e on 5*o(a* -ar,ets how are the) perfor-ing& /his report gives a genera* idea to the co-pan) and a** those invo*ved with the fir- that what -a) (e e9pected fro- the -ar,et ne9t da) or wee,& 't a*so inc*+des an +pdate on the (+**ion -ar,et and cr+de rates as the) (oth are a (ig part of an) (ro,erage fir-&

I%T#$ UCTI$%

'n toda)?s wor*d co-panies (eco-e ,nown or considered (ig when the) are *isted on rep+ted <toc, 49changes na-e*) =<4 (='7/@ 8 "<4 (<4=<4A for 'ndia# Bowjones for U<A# 6A=5<4=5 for 6ong Cong# ='CC4' for Japan# R/< for R+ssia etc Dnce the co-pan) is *isted ever)thing a co-pan) does ; doesn?t is reacted +pon () the p+(*ic and the prices of the share of the respective co-pan) f*+ct+ate& =ow the co-pan) wo+*d a*wa)s want a tr+e pict+re of the co-pan) to (e represented () share price# the) wo+*dn?t -ind if its over va*+ed (+t it h+rts when the stoc,s get +nder va*+ed& "+t this +ncertaint) of the price gives peop*e a chance to -a,e -one) (oth in *ong ter8 short ter-& Eong ter- invest-ent is -ain*) (ased +pon st+d)ing f+nda-enta*s of the co-pan) and its growth potentia*& "+t the rea* piece of -agic *ies in -a,ing -one) () trading shares either 'ntrada) or ho*ding for a short ter-& 'f one wants to -a,e -one) in this wa) he ; she needs to ,now the technica* side of the stoc, i&e& charts# trends etc& 't?s not hard to g+ess how fascinating it is and so ' decided to +n*oc, the -)ster) as far as possi(*e in this two -onths ti-e& /his fie*d is ver) diffic+*t to (e ta+ght in c*assrooperhaps (e)ond scope# one has to see to (e*ieve# +nderstand and i-p*e-ent it and that was -) -ain o(jective after a** who doesn?t want to ,now the answers of fo**owing 3+estions: 1& Fhere wi** ='7/@ go fro- hereG 2& Fhich stoc, wi** rise toda) and which ones wi** fa**G .& <ho+*d ' ho*d it or s3+are off -) positionsG %& Fh) is hedging re3+ired ; how is it doneG /o find the answer of the a(ove 3+estions and -an) -ore ' chose to do -) s+--ers in the fie*d of /echnica* Ana*)sis for 2apita* !ar,et&

AB$UT T+! C$M&A%<

0ision 0/o (e a +niversa**) respected financia* services organi>ation () assisting to create and -anage wea*th thro+gh persona* care# pr+dent approach and proactive cond+ct&1 Company &ro,ile: =e are--- Since its inception !icrosecIs co--it-ent to >creating true )alue> has (een the cornerstone of its (+siness approach that has ena(*ed the fir- to esta(*ish strong c*ient re*ationships& D+r partnership$*ed approach a**ows +s to wor, together with co-panies to generate so*+tions that are co-p*ete*) a*igned to their overa** (+siness and financia* o(jectives and ens+re sea-*ess i-p*e-entation of their (+siness strategies& =e pro)ide--D+r gro+p is foc+sed to provide services in the arena of In)estment banking* e?uity @ Commodity Brokerage* Insurance Brokerage and =ealth ManagementD+r a(i*it) to provide integrated c+sto- -ade so*+tions has he*ped +s carve a niche for o+rse*ves as we assist to create& AMega ,ocusA Ideation At this ti-e of constant reinvention# (+sinesses are often in need of an i-pet+s for action$ so-eone to ta,e their vision forward and -a,e it into rea*it)& Fe are co--itted to he*p corporate -a,e an i--ediate and visi(*e i-pact on their operations thro+gh 2ons+*ting# P*anning 8 '-p*e-entation assistance& D+r peop*e constant*) +pgrade their ,now*edge and app*) their e9perience and a +ni3+e c*ient service -ode* to de*iver practica* so*+tions that have a profo+nd and far reaching i-pact& Fe convert ideas into action# which is AIdeationA via 7oc+sed Approach# 2o--itted Be*iver)# B)na-ic Attit+de# Cnow*edge !anage-ent# 2oordinated /ea- effort and a visi(*e 'ntegration of a** these virt+es& 'ealth through Micro

%A0IBAT$#S: Mr- B- "- Mittal A d)na-ic tea- (+i*der and (+siness strategist# !r& !itta*?s specia* s,i**s have (een *everaged () his thin,ing and foc+sed approach& A seasoned finance professiona* with over 15 )ears of e9perience# his vision and path (rea,ing strategies have ena(*ed !icrosec to (+i*d a ver) strong fo+ndation and positioned it to ta,e +p the cha**enges in the f+t+re s+ccessf+**)& Mr- #a)i Cant Sharma An ast+te ana*)>er of -one) -ar,ets# Ravi possesses -ore than a decade e9perience in 2apita* !ar,et Dperations& 6is in$depth Cnow*edge of the 'ndian capita* -ar,ets co+p*ed with strong association with the investor co--+nit) at *arge has ena(*ed the co-pan) to esta(*ish itse*f a-ongst the front$r+nners in 2apita* -ar,et f+nctions& 6e heads the "ro,erage and Fea*th !anage-ent f+nctions of !icrosec& Mr- #akesh Sony An 'nvest-ent "an,er at heart# Ra,esh possesses -ore that a decade e9perience in 2orporate 7inance and !erchant "an,ing activities& Ra,esh?s *eadership and direction has positioned the fir- a-ongst *eading 'nvest-ent "an,s in the co+ntr)& 6e has hand*ed vario+s prestigio+s assign-ents with the top corporate ho+ses in 'ndia and a(road& 6e heads the 'nvest-ent "an,ing f+nctions of !icrosec& +istory and Milestones: !icrosec was pro-oted () three finance professiona*s na-e*) !r& "&E&!itta*# !r& Ra,esh <on) and !r& Ravi ,ant <har-a in ear*) 2001 who possessed significant professiona* co-petence in their respective fie*ds of specia*i>ation& /he three shared a co--on drea- vi> Ito (+i*d a professiona* organi>ation with strong va*+e s)ste-s and to provide a (o+ti3+e of financia* services& 4DD:ED3
F F F

<tarted e9c*+sive Fea*th !anage-ent "ro,erage office having state of art infrastr+ct+re at "a**)g+nge# Co*,ata& /ea- !icrosec grows to -ore than 160 -e-(ers "+siness Partners (ase reaches 6H for Fea*th !anage-ent <ervices&

10

4DD9ED: F "eca-e a !e-(er of the "o-(a) <toc, 49change ("<4 &

F F

Ran,ed Jth a** 'ndia () pri-e data(ase a-ongst the !erchant (an,ers in ter-s of n+-(er of iss+e hand*ed&

<tarted f+** f*edged operation as 2o--odit) "ro,ers with -e-(ership of =ationa* 2o--odit) and Berivatives 49change (=2B4A and !+*ti 2o--odit) 49change (!2A & F "eco-e a Bepositor) Participant of =ationa* <ec+rities Bepositor) Ei-ited (=<BE &
F F

"eca-e one of the first organi>ations in 4astern 'ndia to (e a+thori>ed () 2entra* 5overn-ent to accept 4$ret+rn&

<tarted the operations of o+r (ranch office at !+-(ai& F Ac3+ired 10500 s3 ft at Cnow*edge 2orridor# =ew /own# and Co*,ata for (+i*ding o+r own ca-p+s&
F

D(tained registration to operate as an +nderwriter&

4DD8ED9
F F

"eca-e a -e-(er of =ationa* <toc, 49change of 'ndia Ei-ited (=<4 & 6and*ed the iss+e of Ra-,rishna 7orgings Ei-ited which si-+*taneo+s*) *isted on (oth =<4 and "<4&

4DD6ED8 Jai "a*aji <ponge Ei-ited (eca-e the first co-pan) fro- 4astern 'ndia to (e *isted on the =ationa* <toc, 49change Ei-ited thro+gh an 'PD& Fe were the *ead !anagers to the 'ss+e& F <tarted 'ns+rance "ro,ing <ervices after o(taining registration as an 'RBA approved (ro,er&
F

4DD4ED6
F

2o--enced the f+nctions of !erchant "an,ing and 2orporate 7inance divisions after o(taining the necessar) stat+tor) approva*s&

4DDDED1 F Ea+nched operations with -e-(ership of K'nterconnected <toc, 49change ('<4 ?&

11

S!#0IC!S $GG!#! :
In)estment Banking: /he 'nvest-ent "an,ing tea- provides vario+s (+siness advisor) services to 2orporate# <trategic investors and *enders& As <4"' registered Merchant Bankers# we are geared to carr) o+t assign-ents in the sphere of &ublic $,,erings* &ri)ate !?uity* Institutional &lacements* Ad)isory on GCCBs and B #s* Mergers and Ac?uisitions* Strategic Consolidations and i)estituresFe (e*ieve in assisting the 2*ients in reaching their goa*s and esta(*ishing a *ong terre*ationship with the- thro+gh co--it-ents and (e their partners in growth& /he tea- effort co-(ined with g+idance# e9perience and ,now*edge of the -e-(ers has (een the driving force of the organi>ation and (+i*ding +p of a strong networ, ena(*es the co-pan) to diversif) in the fie*d of Ginancial and Corporate #estructuring* Corporate Ta2ation* Strategy Management Ser)ices* Intellectual &roperty #ights and g+iding the 2orporate to -a,e inroads in vario+s (oo-ing sectors of 'ndia& !?uity broking: Microsec Capital "td-* a -e-(er of =ationa* <toc, 49change of 'ndia and "o-(a) <toc, 49change provides a (etter and 3+a*it) service to its c*ients& /he co-pan) provides va*+a(*e advice to its c*ients thro+gh its dedicated tea- of professiona*s& Microsec provides services to a wide range of c*ient& 'n order to ,eep the pace going we have deve*oped o+r e3+it) (ro,ing tea- which is e3+ipped with research tea-# re*ationship -anager# good dea*ers and ro+nd the c*oc, Fe add va*+e to )o+ ()

F F F F F F F

Providing data so+rce fro- "*oo-(erg 'nte**igent Research /eaDn*ine "ac, office s+pport /ransaction -ai*ed on dai*) (asis !argin /rading !an to -an interaction 'n ho+se BP

Commodities Broking: 2o--odit) trading in si-p*e words is trading in co--odit) derivatives (f+t+res or options & /rading in co--odit) derivatives is done () ta,ing a (+);se** position (ased on 12

the f+t+re perfor-ance of co--odities *i,e 2r+de# !eta*s# go*d# si*ver# agric+*t+ra* co--odities etc& /here are c+rrent*) 2 -ajor co--odit) e9changes in 'ndia $=2B4A (=ationa* 2o--odit) and Berivative 49change and !2A (!+*ti$2o--odit) 49change $ where the 2o--odit) Berivative trading is done& 5o*d# <i*ver# Agri$co--odities *i,e grains# p+*ses# spices# oi*s and oi*seeds# -entha oi*# -eta*s and cr+de are so-e of the co--odities that the e9changes dea* in& =ealth Management: At Fea*th -anage-ent we co-(ine o+r operations and activities of o+r research tea- to str+ct+re tai*or -ade =ealth Management <o*+tions for o+r c*ients# depending on their o(jectives and ris, (earing capa(i*ities& Fe are geared to service o+r c*ients to -+*tip*) the va*+e of their wea*th thro+gh the fo**owing -echanis-s:
F F F F F F

'nvest-ent in !+t+a* 7+nds and si-i*ar invest-ents Proper ris, assess-ent *eading to effective ins+rance 7i9ed inco-e so*+tions s+ch as R"' (onds and 7i9ed Beposits Research (ased e9pos+re to the e3+it) and co--odities -ar,ets Persona* Eia(i*it) !anage-ent /a9 P*anning and Assess-ent

1.

T!C+%ICA" A%A"<SIS

1%

=hat Is Technical AnalysisH Technical analysis is a sec+rit) ana*)sis techni3+e that c*ai-s the a(i*it) to forecast the f+t+re direction of prices thro+gh the st+d) of past -ar,et data# pri-ari*) price and vo*+-e& 'n its p+rest for-# technica* ana*)sis considers on*) the act+a* price and vo*+-e (ehavior of the -ar,et or instr+-ent& /echnica* ana*)sts# so-eti-es ca**ed LchartistsL# -a) e-p*o) -ode*s and trading r+*es (ased on price and vo*+-e transfor-ations# s+ch as the re*ative strength inde9# -oving averages# regressions# inter$-ar,et and intra$-ar,et price corre*ations# c)c*es or# c*assica**)# thro+gh recognition of chart patterns& /echnica* ana*)sis stands in distinction to f+nda-enta* ana*)sis& /echnica* ana*)sis LignoresL the act+a* nat+re of the co-pan)# -ar,et# c+rrenc) or co--odit) and is (ased so*e*) on Lthe charts#L that is to sa) price and vo*+-e infor-ation# whereas f+nda-enta* ana*)sis does *oo, at the act+a* facts of the co-pan)# -ar,et# c+rrenc) or co--odit)& 7or e9a-p*e# an) *arge (ro,erage# trading gro+p# or financia* instit+tion wi** t)pica**) have (oth a technica* ana*)sis and f+nda-enta* ana*)sis tea-& J+st as there are -an) invest-ent st)*es on the f+nda-enta* side# there are a*so -an) different t)pes of technica* traders& <o-e re*) on chart patterns: others +se technica* indicators and osci**ators# and -ost +se so-e co-(ination of the two& 'n an) case# technica* ana*)stsI e9c*+sive +se of historica* price and vo*+-e data is what separates the- fro- their f+nda-enta* co+nterparts& Un*i,e f+nda-enta* ana*)sts# technica* ana*)sts donIt care whether a stoc, is +nderva*+ed $ the on*) thing that -atters is a sec+rit)Is past trading data and what infor-ation this data can provide a(o+t where the sec+rit) -ight -ove in the f+t+re&

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ASSUM&TI$%S 1- The Market iscounts !)erything

A -ajor criticis- of technica* ana*)sis is that it on*) considers price -ove-ent# ignoring the f+nda-enta* factors of the co-pan)& 6owever# technica* ana*)sis ass+-es that# at an) given ti-e# a stoc,Is price ref*ects ever)thing that has or co+*d affect the co-pan) $ inc*+ding f+nda-enta* factors& /echnica* ana*)sts (e*ieve that the co-pan)Is f+nda-enta*s# a*ong with (roader econo-ic factors and -ar,et ps)cho*og)# are a** priced into the stoc,# re-oving the need to act+a**) consider these factors separate*)& /his on*) *eaves the ana*)sis of price -ove-ent# which technica* theor) views as a prod+ct of the s+pp*) and de-and for a partic+*ar stoc, in the -ar,et& 4- &rice Mo)es in Trends 'n technica* ana*)sis# price -ove-ents are (e*ieved to fo**ow trends& /his -eans that after a trend has (een esta(*ished# the f+t+re price -ove-ent is -ore *i,e*) to (e in the sa-e direction as the trend than to (e against it& !ost technica* trading strategies are (ased on this ass+-ption&

6- +istory Tends To #epeat Itsel, Another i-portant idea in technica* ana*)sis is that histor) tends to repeat itse*f# -ain*) in ter-s of price -ove-ent& /he repetitive nat+re of price -ove-ents is attri(+ted to -ar,et ps)cho*og): in other words# -ar,et participants tend to provide a consistent reaction to si-i*ar -ar,et sti-+*i over ti-e& /echnica* ana*)sis +ses chart patterns to ana*)>e -ar,et -ove-ents and +nderstand trends& A*tho+gh -an) of these charts have (een +sed for -ore than 100 )ears# the) are sti** (e*ieved to (e re*evant (eca+se the) i**+strate patterns in price -ove-ents that often repeat the-se*ves&

16

%ot (ust ,or Stocks /echnica* ana*)sis can (e +sed on an) sec+rit) with historica* trading data& /his inc*+des stoc,s# f+t+res and co--odities# fi9ed$inco-e sec+rities# fore9# etc& 'n this t+toria*# weI** +s+a**) ana*)>e stoc,s in o+r e9a-p*es# (+t ,eep in -ind that these concepts can (e app*ied to an) t)pe of sec+rit)& 'n fact# technica* ana*)sis is -ore fre3+ent*) associated with co--odities and fore9# where the participants are predo-inant*) traders& =ow that )o+ +nderstand the phi*osoph) (ehind technica* ana*)sis# weI** get into e9p*aining how it rea**) wor,s& Dne of the (est wa)s to +nderstand what technica* ana*)sis is (and is not is to co-pare it to f+nda-enta* ana*)sis&

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T!C+%ICA" A%A"<SIS @ GU% AM!%TA" A%A"<SIS

/echnica* ana*)sis and f+nda-enta* ana*)sis are the two -ain schoo*s of tho+ght in the financia* -ar,ets& As weIve -entioned# technica* ana*)sis *oo,s at the price -ove-ent of a sec+rit) and +ses this data to predict its f+t+re price -ove-ents& 7+nda-enta* ana*)sis# on the other hand# *oo,s at econo-ic factors# ,nown as f+nda-enta*s& EetIs get into the detai*s of how these two approaches differ# the criticis-s against technica* ana*)sis and how technica* and f+nda-enta* ana*)sis can (e +sed together to ana*)>e sec+rities&

The

i,,erences

Charts )s- Ginancial Statements At the -ost (asic *eve*# a technica* ana*)st approaches a sec+rit) fro- the charts# whi*e a f+nda-enta* ana*)st starts with the financia* state-ents ") *oo,ing at the (a*ance sheet# cash f*ow state-ent and inco-e state-ent# a f+nda-enta* ana*)st tries to deter-ine a co-pan)Is va*+e& 'n financia* ter-s# an ana*)st atte-pts to -eas+re a co-pan)Is intrinsic va*+e& 'n this approach# invest-ent decisions are fair*) eas) to -a,e $ if the price of a stoc, trades (e*ow its intrinsic va*+e# itIs a good invest-ent& A*tho+gh this is an oversi-p*ification (f+nda-enta* ana*)sis goes (e)ond j+st the financia* state-ents & /echnica* traders# on the other hand# (e*ieve there is no reason to ana*)>e a co-pan)Is f+nda-enta*s (eca+se these are a** acco+nted for in the stoc,Is price& /echnicians (e*ieve that a** the infor-ation the) need a(o+t a stoc, can (e fo+nd in its charts&

1H

Time +ori.on 7+nda-enta* ana*)sis ta,es a re*ative*) *ong$ter- approach to ana*)>ing the -ar,et co-pared to technica* ana*)sis& Fhi*e technica* ana*)sis can (e +sed on a ti-efra-e of wee,s# da)s or even -in+tes# f+nda-enta* ana*)sis often *oo,s at data over a n+-(er of )ears& /he different ti-efra-es that these two approaches +se is a res+*t of the nat+re of the investing st)*e to which the) each adhere& 't can ta,e a *ong ti-e for a co-pan)Is va*+e to (e ref*ected in the -ar,et# so when a f+nda-enta* ana*)st esti-ates intrinsic va*+e# a gain is not rea*i>ed +nti* the stoc,Is -ar,et price rises to its LcorrectL va*+e& /his t)pe of investing is ca**ed va*+e investing and ass+-es that the short$ter-ar,et is wrong# (+t that the price of a partic+*ar stoc, wi** correct itse*f over the *ong r+n& /his L*ong r+nL can represent a ti-efra-e of as *ong as severa* )ears# in so-e cases& 7+rther-ore# the n+-(ers that a f+nda-enta*ist ana*)>es are on*) re*eased over *ong periods of ti-e& 7inancia* state-ents are fi*ed 3+arter*) and changes in earnings per share donIt e-erge on a dai*) (asis *i,e price and vo*+-e infor-ation& A*so re-e-(er that f+nda-enta*s are the act+a* characteristics of a (+siness& =ew -anage-ent canIt i-p*e-ent sweeping changes overnight and it ta,es ti-e to create new prod+cts# -ar,eting ca-paigns# s+pp*) chains# etc& Part of the reason that f+nda-enta* ana*)sts +se a *ong$ter- ti-efra-e# therefore# is (eca+se the data the) +se to ana*)>e a stoc, is generated -+ch -ore s*ow*) than the price and vo*+-e data +sed () technica* ana*)sts& Trading 0ersus In)esting =ot on*) is technica* ana*)sis -ore short ter- in nat+re that f+nda-enta* ana*)sis# (+t the goa*s of a p+rchase (or sa*e of a stoc, are +s+a**) different for each approach& 'n

1J

genera*# technica* ana*)sis is +sed for a trade# whereas f+nda-enta* ana*)sis is +sed to -a,e an invest-ent& 'nvestors (+) assets the) (e*ieve can increase in va*+e# whi*e traders (+) assets the) (e*ieve the) can se** to so-e(od) e*se at a greater price& /he *ine (etween a trade and an invest-ent can (e (*+rr)# (+t it does characteri>e a difference (etween the two schoo*s& The Critics <o-e critics see technica* ana*)sis as a for- of (*ac, -agic& BonIt (e s+rprised to see the- 3+estion the va*idit) of the discip*ine to the point where the) -oc, its s+pporters& 'n fact# technica* ana*)sis has on*) recent*) (eg+n to enjo) so-e -ainstrea- credi(i*it)& Fhi*e -ost ana*)sts on Fa** <treet foc+s on the f+nda-enta* side# j+st a(o+t an) -ajor (ro,erage now e-p*o)s technica* ana*)sts as we**& !+ch of the criticis- of technica* ana*)sis has its roots in acade-ic theor) $

specifica**) the efficient -ar,et h)pothesis (4!6 & /his theor) sa)s that the -ar,etIs price is a*wa)s the correct one $ an) past trading infor-ation is a*read) ref*ected in the price of the stoc, and# therefore# an) ana*)sis to find +nderva*+ed sec+rities is +se*ess& /here are three versions of 4!6& 'n the first# ca**ed wea, for- efficienc)# a** past price infor-ation is a*read) inc*+ded in the c+rrent price& According to wea, forefficienc)# technica* ana*)sis canIt predict f+t+re -ove-ents (eca+se a** past infor-ation has a*read) (een acco+nted for and# therefore# ana*)>ing the stoc,?s past price -ove-ents wi** provide no insight into its f+t+re -ove-ents& 'n the second# se-i$strong for- efficienc)# f+nda-enta* ana*)sis is a*so c*ai-ed to (e of *itt*e +se in finding invest-ent opport+nities& /he third is strong for- efficienc)# which states that a** infor-ation in the -ar,et is acco+nted for in a stoc,Is price and neither technica* nor f+nda-enta* can provide investors with an edge& /he vast -ajorit) of acade-ics (e*ieve in at *east the wea, version of 4!6# therefore# fro- their point of view# if technica* ana*)sis wor,s# -ar,et efficienc) wi** (e ca**ed into 3+estion&

20

Can They CoE!2istH A*tho+gh technica* ana*)sis and f+nda-enta* ana*)sis are seen () -an) as po*ar opposites $ the oi* and water of investing $ -an) -ar,et participants have e9perienced great s+ccess () co-(ining the two& 7or e9a-p*e# so-e f+nda-enta* ana*)sts +se technica* ana*)sis techni3+es to fig+re o+t the (est ti-e to enter into an +nderva*+ed sec+rit)& Dftenti-es# this sit+ation occ+rs when the sec+rit) is severe*) overso*d& ") ti-ing entr) into a sec+rit)# the gains on the invest-ent can (e great*) i-proved& A*ternative*)# so-e technica* traders -ight *oo, at f+nda-enta*s to add strength to a technica* signa*& 7or e9a-p*e# if a se** signa* is given thro+gh technica* patterns and indicators# a technica* trader -ight *oo, to reaffir- his or her decision () *oo,ing at so-e ,e) f+nda-enta* data& Dftenti-es# having (oth the f+nda-enta*s and technica*s on )o+r side can provide the (est$case scenario for a trade&

Fhi*e -i9ing so-e of the co-ponents of technica* and f+nda-enta* ana*)sis is not we** received () the -ost devoted gro+ps in each schoo*# there are certain*) (enefits to at *east +nderstanding (oth schoo*s of tho+ght

21

=hat is ChartH 'n technica* ana*)sis# charts are si-i*ar to the charts that )o+ see in an) (+siness setting& A chart is si-p*) a graphica* representation of a series of prices over a set ti-e fra-e& 7or e9a-p*e# a chart -a) show a stoc,Is price -ove-ent over a one$)ear period# where each point on the graph represents the c*osing price for each da) the stoc, is traded:

7ig+re 1 provides an e9a-p*e of a (asic chart& 't is a representation of the price -ove-ents of a stoc, over a 1&5 )ear period& /he (otto- of the graph# r+nning hori>onta**) (9$a9is # is the date or ti-e sca*e& Dn the right hand side# r+nning vertica**) ()$a9is # the price of the sec+rit) is shown& ") *oo,ing at the graph we see that in Dcto(er 200% (Point 1 # the price of this stoc, was aro+nd '=R 2%5# whereas in J+ne 2005 (Point 2 # the stoc,Is price is aro+nd '=R 265& /his te**s +s that the stoc, has risen (etween Dcto(er 200% and J+ne 2005&

22

Chart &roperties /here are severa* things that )o+ sho+*d (e aware of when *oo,ing at a chart# as these factors can affect the infor-ation that is provided& /he) inc*+de the ti-e sca*e# the price sca*e and the price point properties +sed& The Time Scale /he ti-e sca*e refers to the range of dates at the (otto- of the chart# which can var) frodecades to seconds& /he -ost fre3+ent*) +sed ti-e sca*es are intrada)# dai*)# wee,*)# -onth*)# 3+arter*) and ann+a**)& /he shorter the ti-e fra-e# the -ore detai*ed the chart& 4ach data point can represent the c*osing price of the period or show the open# the high# the *ow and the c*ose depending on the chart +sed& 'ntrada) charts p*ot price -ove-ent within the period of one da)& /his -eans that the ti-e sca*e co+*d (e as short as five -in+tes or co+*d cover the who*e trading da) fro- the opening (e** to the c*osing (e**& Bai*) charts are co-prised of a series of price -ove-ents in which each price point on the chart is a f+** da)?s trading condensed into one point& Again# each point on the graph can (e si-p*) the c*osing price or can entai* the open# high# *ow and c*ose for the stoc, over the da)& /hese data points are spread o+t over wee,*)# -onth*) and even )ear*) ti-e sca*es to -onitor (oth short$ter- and inter-ediate trends in price -ove-ent& Fee,*)# -onth*)# 3+arter*) and )ear*) charts are +sed to ana*)>e *onger ter- trends in the -ove-ent of a stoc,Is price& 4ach data point in these graphs wi** (e a condensed version of what happened over the specified period& <o for a wee,*) chart# each data point wi** (e a representation of the price -ove-ent of the wee,& 7or e9a-p*e# if )o+ are *oo,ing at a chart of wee,*) data spread over a five$)ear period and each data point is the c*osing price for the wee,# the price that is p*otted wi** (e the c*osing price on the *ast trading da) of the wee,# which is +s+a**) a 7rida)&

2.

The &rice Scale and &rice &oint &roperties /he price sca*e is on the right$hand side of the chart& 't shows a stoc,Is c+rrent price and co-pares it to past data points& /his -a) see- *i,e a si-p*e concept in that the price sca*e goes fro- *ower prices to higher prices as )o+ -ove a*ong the sca*e fro- the (otto- to the top& /he pro(*e-# however# is in the str+ct+re of the sca*e itse*f& A sca*e can either (e constr+cted in a *inear (arith-etic or *ogarith-ic wa)# and (oth of these options are avai*a(*e on -ost charting services& 'f a price sca*e is constr+cted +sing a *inear sca*e# the space (etween each price point (10# 20# .0# %0 is separated () an e3+a* a-o+nt& A price -ove fro- 10 to 20 on a *inear sca*e is the sa-e distance on the chart as a -ove fro- %0 to 50& 'n other words# the price sca*e -eas+res -oves in a(so*+te ter-s and does not show the effects of percent change&

'f a price sca*e is in *ogarith-ic ter-s# then the distance (etween points wi** (e e3+a* in ter-s of percent change& A price change fro- 10 to 20 is a 100M increase in the price whi*e a -ove fro- %0 to 50 is on*) a 25M change# even tho+gh the) are represented () the sa-e distance on a *inear sca*e& Dn a *ogarith-ic sca*e# the distance of the 100M price change fro- 10 to 20 wi** not (e the sa-e as the 25M change fro- %0 to 50& 'n this case#

2%

the -ove fro- 10 to 20 is represented () a *arger space one the chart# whi*e the -ove fro- %0 to 50# is represented () a s-a**er space (eca+se# percentage$wise# it indicates a s-a**er -ove& 'n 7ig+re 2# the *ogarith-ic price sca*e on the right *eaves the sa-e a-o+nt of space (etween 10 and 20 as it does (etween 20 and %0 (eca+se these (oth represent 100M increases&

T<&!S $G C+A#TS /here are fo+r -ain t)pes of charts that are +sed () investors and traders depending on the infor-ation that the) are see,ing and their individ+a* s,i** *eve*s& /he chart t)pes are: the *ine chart# the (ar chart# the cand*estic, chart and the point and fig+re (not +sed in !icrosec as s+ch chart& "ine Chart /he -ost (asic of the fo+r charts is the *ine chart (eca+se it represents on*) the c*osing prices over a set period of ti-e& /he *ine is for-ed () connecting the c*osing prices over the ti-e fra-e& Eine charts do not provide vis+a* infor-ation of the trading range for the individ+a* points s+ch as the high# *ow and opening prices& 6owever# the c*osing price is often considered to (e the -ost i-portant price in stoc, data co-pared to the high and *ow for the da) and this is wh) it is the on*) va*+e +sed in *ine charts&

25

Bar Charts /he (ar chart e9pands on the *ine chart () adding severa* -ore ,e) pieces of infor-ation to each data point& /he chart is -ade +p of a series of vertica* *ines that represent each data point& /his vertica* *ine represents the high and *ow for the trading period# a*ong with the c*osing price& /he c*ose and open are represented on the vertica* *ine () a hori>onta* dash& /he opening price on a (ar chart is i**+strated () the dash that is *ocated on the *eft side of the vertica* (ar& 2onverse*)# the c*ose is represented () the dash on the right& 5enera**)# if the *eft dash (open is *ower than the right dash (c*ose then the (ar wi** (e shaded (*ac,# representing an +p period for the stoc,# which -eans it has gained va*+e& A (ar that is co*ored red signa*s that the stoc, has gone down in va*+e over that period& Fhen this is the case# the dash on the right (c*ose is *ower than the dash on the *eft (open &

26

Candlestick Charts /he cand*estic, chart is si-i*ar to a (ar chart# (+t it differs in the wa) that it is vis+a**) constr+cted& <i-i*ar to the (ar chart# the cand*estic, a*so has a thin vertica* *ine showing the periodIs trading range& /he difference co-es in the for-ation of a wide (ar on the vertica* *ine# which i**+strates the difference (etween the open and c*ose& And# *i,e (ar charts# cand*estic,s a*so re*) heavi*) on the +se of co*ors to e9p*ain what has happened d+ring the trading period& A -ajor pro(*e- with the cand*estic, co*or config+ration# however# is that different sites +se different standards: therefore# it is i-portant to +nderstand the cand*estic, config+ration +sed at the chart site )o+ are wor,ing with& /here are two co*or constr+cts for da)s +p and one for da)s that the price fa**s& Fhen the price of the stoc, is +p and c*oses a(ove the opening trade# the cand*estic, wi** +s+a**) (e white or c*ear& 'f the stoc, has traded down for the period# then the cand*estic, wi** +s+a**) (e red or (*ac,# depending on the site& 'f the stoc,Is price has c*osed a(ove the previo+s da)?s c*ose (+t (e*ow the da)Is open# the cand*estic, wi** (e (*ac, or fi**ed with the co*or that is +sed to indicate an +p da)&

27

Conclusion 2harts are one of the -ost f+nda-enta* aspects of technica* ana*)sis& 't is i-portant that )o+ c*ear*) +nderstand what is (eing shown on a chart and the infor-ation that it provides& =ow that we have an idea of how charts are constr+cted# we can -ove on to the different t)pes of chart patterns& Chart &attern A chart pattern is a distinct for-ation on a stoc, chart that creates a trading signa*# or a sign of f+t+re price -ove-ents& 2hartists +se these patterns to identif) c+rrent trends and trend reversa*s and to trigger (+) and se** signa*s& 'n the first section# we ta*,ed a(o+t the three ass+-ptions of technica* ana*)sis# the third of which was that in technica* ana*)sis# histor) repeats itse*f& /he theor) (ehind chart patters is (ased on this ass+-ption& /he idea is that certain patterns are seen -an) ti-es# and that these patterns signa* a certain high pro(a(i*it) -ove in a stoc,& "ased on the historic trend of a chart pattern setting +p a certain price -ove-ent# chartists *oo, for these patterns to identif) trading opport+nities& Fhi*e there are genera* ideas and co-ponents to ever) chart pattern# there is no chart pattern that wi** te** )o+ with 100M certaint) where a sec+rit) is headed& /his creates so-e *eewa) and de(ate as to what a good pattern *oo,s *i,e# and is a -ajor reason wh) charting is often seen as -ore of an art than a science& /here are two t)pes of patterns within this area of technica* ana*)sis# reversa* and contin+ation& A reversa* pattern signa*s that a prior trend wi** reverse +pon co-p*etion of the pattern& A contin+ation pattern# on the other hand# signa*s that a trend wi** contin+e once the pattern is co-p*ete& /hese patterns can (e fo+nd over charts of an) ti-efra-e& 'n this section# we wi** review so-e of the -ore pop+*ar chart patterns&

2H

+ead and Shoulders /his is one of the -ost pop+*ar and re*ia(*e chart patterns in technica* ana*)sis& 6ead and sho+*ders is a reversa* chart pattern that when for-ed# signa*s that the sec+rit) is *i,e*) to -ove against the previo+s trend& As )o+ can see in 7ig+re# there are two versions of the head and sho+*ders chart pattern& 6ead and sho+*ders top (shown on the *eft is a chart pattern that is for-ed at the high of an +pward -ove-ent and signa*s that the +pward trend is a(o+t to end& 6ead and sho+*ders (otto-# a*so ,nown as inverse head and sho+*ders (shown on the right is the *esser ,nown of the two# (+t is +sed to signa* a reversa* in a downtrend&

7ig+re: 6ead and sho+*ders top is shown on the *eft& 6ead and sho+*ders (otto-# or inverse head and sho+*ders# is on the right& "oth of these head and sho+*ders patterns are si-i*ar in that there are fo+r -ain parts: two sho+*ders# a head and a nec,*ine& A*so# each individ+a* head and sho+*der is co-prised of a high and a *ow& 7or e9a-p*e# in the head and sho+*ders top i-age shown

2J

on the *eft side in 7ig+re 1# the *eft sho+*der is -ade +p of a high fo**owed () a *ow& 'n this pattern# the nec,*ine is a *eve* of s+pport or resistance& Re-e-(er that an +pward trend is a period of s+ccessive rising highs and rising *ows& /he head and sho+*ders chart pattern# therefore# i**+strates a wea,ening in a trend () showing the deterioration in the s+ccessive -ove-ents of the highs and *ows& Cup and +andle A c+p and hand*e chart is a (+**ish contin+ation pattern in which the +pward trend has pa+sed (+t wi** contin+e in an +pward direction once the pattern is confir-ed&

As )o+ can see in 7ig+re# this price pattern for-s what *oo,s *i,e a c+p# which is preceded () an +pward trend& /he hand*e fo**ows the c+p for-ation and is for-ed () a genera**) downward;sidewa)s -ove-ent in the sec+rit)Is price& Dnce the price -ove-ent p+shes a(ove the resistance *ines for-ed in the hand*e# the +pward trend can contin+e& /here is a wide ranging ti-e fra-e for this t)pe of pattern# with the span ranging fro- severa* -onths to -ore than a )ear&

.0

ouble Tops and Bottoms /his chart pattern is another we**$,nown pattern that signa*s a trend reversa* $ it is considered to (e one of the -ost re*ia(*e and is co--on*) +sed& /hese patterns are for-ed after a s+stained trend and signa* to chartists that the trend is a(o+t to reverse& /he pattern is created when a price -ove-ent tests s+pport or resistance *eve*s twice and is +na(*e to (rea, thro+gh& /his pattern is often +sed to signa* inter-ediate and *ong$tertrend reversa*s&

7ig+re: A do+(*e top pattern is shown on the *eft# whi*e a do+(*e (otto- pattern is shown on the right& 'n the case of the do+(*e top pattern in 7ig+re .# the price -ove-ent has twice tried to -ove a(ove a certain price *eve*& After two +ns+ccessf+* atte-pts at p+shing the price higher# the trend reverses and the price heads *ower& 'n the case of a do+(*e (otto(shown on the right # the price -ove-ent has tried to go *ower twice# (+t has fo+nd s+pport each ti-e& After the second (o+nce off of the s+pport# the sec+rit) enters a new trend and heads +pward& Triangles /riang*es are so-e of the -ost we**$,nown chart patterns +sed in technica* ana*)sis& /he three t)pes of triang*es# which var) in constr+ct and i-p*ication# are the s)--etrica*

.1

triang*e# ascending and descending triang*e& /hese chart patterns are considered to *ast an)where fro- a co+p*e of wee,s to severa* -onths&

/he s)--etrica* triang*e in 7ig+re % is a pattern in which two trend*ine converge toward each other& /his pattern is ne+tra* in that a (rea,o+t to the +pside or downside is a confir-ation of a trend in that direction& 'n an ascending triang*e# the +pper trend*ine is f*at# whi*e the (otto- trend*ine is +pward s*oping& /his is genera**) tho+ght of as a (+**ish pattern in which chartists *oo, for an +pside (rea,o+t& 'n a descending triang*e# the *ower trend*ine is f*at and the +pper trend*ine is descending& /his is genera**) seen as a (earish pattern where chartists *oo, for a downside (rea,o+t& Glag and &ennant /hese two short$ter- chart patterns are contin+ation patterns that are for-ed when there is a sharp -ove-ent fo**owed () a genera**) sidewa)s price -ove-ent& /his pattern is then co-p*eted +pon another sharp price -ove-ent in the sa-e direction as the -ove that started the trend& /he patterns are genera**) tho+ght to *ast fro- one to three wee,s&

.2

As )o+ can see# there is *itt*e difference (etween a pennant and a f*ag& /he -ain difference (etween these price -ove-ents can (e seen in the -idd*e section of the chart pattern& 'n a pennant# the -idd*e section is characteri>ed () converging trend*ine# -+ch *i,e what is seen in a s)--etrica* triang*e& /he -idd*e section on the f*ag pattern# on the other hand# shows a channe* pattern# with no convergence (etween the trend*ine& 'n (oth cases# the trend is e9pected to contin+e when the price -oves a(ove the +pper trend*ine& =edge /he wedge chart pattern can (e either a contin+ation or reversa* pattern& 't is si-i*ar to a s)--etrica* triang*e e9cept that the wedge pattern s*ants in an +pward or downward direction# whi*e the s)--etrica* triang*e genera**) shows a sidewa)s -ove-ent& /he other difference is that wedges tend to for- over *onger periods# +s+a**) (etween three and si9 -onths&

..

/he fact that wedges are c*assified as (oth contin+ation and reversa* patterns can -a,e reading signa*s conf+sing& 6owever# at the -ost (asic *eve*# a fa**ing wedge is (+**ish and a rising wedge is (earish& 'n the a(ove fig+re# we have a fa**ing wedge in which two trend *ines are converging in a downward direction& 'f the price was to rise a(ove the +pper trend*ine# it wo+*d for- a contin+ation pattern# whi*e a -ove (e*ow the *ower trend*ine wo+*d signa* a reversa* pattern& Baps (Fitnessed ver) recent*) when the trade was ha*ted d+e to +pper free>e N 20M A gap in a chart is an e-pt) space (etween a trading period and the fo**owing trading period& /his occ+rs when there is a *arge difference in prices (etween two se3+entia* trading periods& 7or e9a-p*e# if the trading range in one period is (etween '=R 25 and '=R .0 and the ne9t trading period opens at '=R %0# there wi** (e a *arge gap on the chart (etween these two periods& 5ap price -ove-ents can (e fo+nd on (ar charts and cand*estic, charts (+t wi** not (e fo+nd on point and fig+re or (asic *ine charts& 5aps genera**) show that so-ething of significance has happened in the sec+rit)# s+ch as a (etter$than$e9pected earnings anno+nce-ent& /here are three -ain t)pes of gaps# (rea,awa)# r+nawa) (-eas+ring and e9ha+stion& A (rea,awa) gap for-s at the start of a trend# a r+nawa) gap for-s d+ring the -idd*e of a trend and an e9ha+stion gap for-s near the end of a trend&

.%

The use o, Trend

Dne of the -ost i-portant concepts in technica* ana*)sis is that of trend& /he -eaning in finance isnIt a** that different fro- the genera* definition of the ter- $ a trend is rea**) nothing -ore than the genera* direction in which a sec+rit) or -ar,et is headed& /a,e a *oo, at the chart (e*ow:

't isnIt hard to see that the trend in a(ove fig+re is +p& 6owever# itIs not a*wa)s this eas) to see a trend:

.5

/here are *ots of +ps and downs in this chart# (+t there isnIt a c*ear indication of which direction this sec+rit) is headed& A More Gormal e,inition

Unfort+nate*)# trends are not a*wa)s eas) to see& 'n other words# defining a trend goes we** (e)ond the o(vio+s& 'n an) given chart# )o+ wi** pro(a(*) notice that prices do not tend to -ove in a straight *ine in an) direction# (+t rather in a series of highs and *ows& 'n technica* ana*)sis# it is the -ove-ent of the highs and *ows that constit+tes a trend& 7or e9a-p*e# an +ptrend is c*assified as a series of higher highs and higher *ows# whi*e a downtrend is one of *ower *ows and *ower highs&

A(ove fig+re is an e9a-p*e of an +ptrend& Point 2 in the chart is the first high# which is .6

deter-ined after the price fa**s fro- this point& Point . is the *ow that is esta(*ished as the price fa**s fro- the high& 7or this to re-ain an +ptrend each s+ccessive *ow -+st not fa** (e*ow the previo+s *owest point or the trend is dee-ed a reversa*& Types o, Trend /here are three t)pes of trend:
F F F

Uptrends Bowntrends <idewa)s;6ori>onta* /rends

As the na-es i-p*)# when each s+ccessive pea, and tro+gh is higher# itIs referred to as an +pward trend& 'f the pea,s and tro+ghs are getting *ower# itIs a downtrend& Fhen there is *itt*e -ove-ent +p or down in the pea,s and tro+ghs# itIs a sidewa)s or hori>onta* trend& 'f )o+ want to get rea**) technica*# )o+ -ight even sa) that a sidewa)s trend is act+a**) not a trend on its own# (+t a *ac, of a we**$defined trend in either direction& 'n an) case# the -ar,et can rea**) on*) trend in these three wa)s: +p# down or nowhere& Trend "engths A*ong with these three trend directions# there are three trend c*assifications& A trend of an) direction can (e c*assified as a *ong$ter- trend# inter-ediate trend or a short$ ter- trend& 'n ter-s of the stoc, -ar,et# a -ajor trend is genera**) categori>ed as one *asting *onger than a )ear& An inter-ediate trend is considered to *ast (etween one and three -onths and a near$ter- trend is an)thing *ess than a -onth& A *ong$tertrend is co-posed of severa* inter-ediate trends# which often -ove against the direction of the -ajor trend& 'f the -ajor trend is +pward and there is a downward correction in price -ove-ent fo**owed () a contin+ation of the +ptrend# the correction is considered to (e an inter-ediate trend& /he short$ter- trends are

.7

co-ponents of (oth -ajor and inter-ediate trends& /a,e a *oo, a 7ig+re % to get a sense of how these three trend *engths -ight *oo,&

Fhen ana*)>ing trends# it is i-portant that the chart is constr+cted to (est ref*ect the t)pe of trend (eing ana*)>ed& /o he*p identif) *ong$ter- trends# wee,*) charts or dai*) charts spanning a five$)ear period are +sed () chartists to get a (etter idea of the *ong$ter- trend& Bai*) data charts are (est +sed when ana*)>ing (oth inter-ediate and short$ter- trends& 't is a*so i-portant to re-e-(er that the *onger the trend# the -ore i-portant it is: for e9a-p*e# a one$-onth trend is not as significant as a five$)ear trend&

Trendline A trend*ine is a si-p*e charting techni3+e that adds a *ine to a chart to represent the trend in the -ar,et or a stoc,& Brawing a trend*ine is as si-p*e as drawing a straight *ine that fo**ows a genera* trend& /hese *ines are +sed to c*ear*) show the trend and are a*so +sed in the identification of trend reversa*s&

.H

As )o+ can see in (e*ow fig+re# an +pward trend*ine is drawn at the *ows of an +pward trend& /his *ine represents the s+pport the stoc, has ever) ti-e it -oves fro- a high to a *ow& =otice how the price is propped +p () this s+pport& /his t)pe of trend*ine he*ps traders to anticipate the point at which a stoc,Is price wi** (egin -oving +pwards again& <i-i*ar*)# a downward trend*ine is drawn at the highs of the downward trend& /his *ine represents the resistance *eve* that a stoc, faces ever) ti-e the price -oves fro- a *ow to a high&

Channels A channe*# or channe* *ines# is the addition of two para**e* trend*ines that act as strong areas of s+pport and resistance& /he +pper trend*ine connects a series of highs# whi*e the *ower trend*ine connects a series of *ows& A channe* can s*ope +pward# downward or sidewa)s (+t# regard*ess of the direction# the interpretation re-ains the sa-e& /raders wi** e9pect a given sec+rit) to trade (etween the two *eve*s of s+pport and resistance +nti* it (rea,s (e)ond one of the *eve*s# in which case traders can e9pect a sharp -ove in the direction of the (rea,& A*ong with c*ear*) disp*a)ing the trend# channe*s are -ain*) +sed to i**+strate i-portant areas of s+pport and resistance& .J

7ig+re i**+strates a descending channe* on a stoc, chart: the +pper trend*ine has (een p*aced on the highs and the *ower trend*ine is on the *ows& /he price has (o+nced off of these *ines severa* ti-es# and has re-ained range$(o+nd for severa* -onths& As *ong as the price does not fa** (e*ow the *ower *ine or -ove (e)ond the +pper resistance# the range$(o+nd downtrend is e9pected to contin+e& The Importance o, Trend 't is i-portant to (e a(*e to +nderstand and identif) trends so that )o+ can trade with the- rather than against the-& /wo i-portant sa)ings in technica* ana*)sis are Lthe trend is )o+r friendL and LdonIt (+c, the trend#L i**+strating how i-portant trend ana*)sis is for technica* traders&

%0

#esistance and Support Dnce )o+ +nderstand the concept of a trend# the ne9t -ajor concept is that of s+pport and resistance& @o+I** often hear technica* ana*)sts ta*, a(o+t the ongoing (att*e (etween the (+**s and the (ears# or the str+gg*e (etween (+)ers (de-and and se**ers (s+pp*) & /his is revea*ed () the prices a sec+rit) se*do- -oves a(ove (resistance or (e*ow (s+pport &

As )o+ can see in this 7ig+re# s+pport is the price *eve* thro+gh which a stoc, or -ar,et se*do- fa**s (i**+strated () the (*+e arrows & Resistance# on the other hand# is the price *eve* that a stoc, or -ar,et se*do- s+rpasses (i**+strated () the red arrows & =hy does it happenH /hese s+pport and resistance *eve*s are seen as i-portant in ter-s of -ar,et ps)cho*og) and s+pp*) and de-and& <+pport and resistance *eve*s are the *eve*s at which a *ot of traders are wi**ing to (+) the stoc, (in the case of a s+pport or se** it (in the case of resistance & Fhen these trend*ines are (ro,en# the s+pp*) and de-and and the ps)cho*og) (ehind the stoc,Is -ove-ents is tho+ght to have shifted# in which case new *eve*s of s+pport and resistance wi** *i,e*) (e esta(*ished& %1

#ound %umbers and Support and #esistance Dne t)pe of +niversa* s+pport and resistance that tends to (e seen across a *arge n+-(er of sec+rities is ro+nd n+-(ers& Ro+nd n+-(ers *i,e 10# 20# .5# 50# 100 and 1#000 tend (e i-portant in s+pport and resistance *eve*s (eca+se the) often represent the -ajor ps)cho*ogica* t+rning points at which -an) traders wi** -a,e (+) or se** decisions& "+)ers wi** often p+rchase *arge a-o+nts of stoc, once the price starts to fa** toward a -ajor ro+nd n+-(er s+ch as '=R 50# which -a,es it -ore diffic+*t for shares to fa** (e*ow the *eve*& Dn the other hand# se**ers start to se** off a stoc, as it -oves toward a ro+nd n+-(er pea,# -a,ing it diffic+*t to -ove past this +pper *eve* as we**& 't is the increased (+)ing and se**ing press+re at these *eve*s that -a,es the- i-portant points of s+pport and resistance and# in -an) cases# -ajor ps)cho*ogica* points as we**& #ole #e)ersal Dnce a resistance or s+pport *eve* is (ro,en# its ro*e is reversed& 'f the price fa**s (e*ow a s+pport *eve*# that *eve* wi** (eco-e resistance& 'f the price rises a(ove a resistance *eve*# it wi** often (eco-e s+pport& As the price -oves past a *eve* of s+pport or resistance# it is tho+ght that s+pp*) and de-and has shifted# ca+sing the (reached *eve* to reverse its ro*e& 7or a tr+e reversa* to occ+r# however# it is i-portant that the price -a,e a strong -ove thro+gh either the s+pport or resistance&

%2

7or e9a-p*e# as )o+ can see in a(ove# the dotted *ine is shown as a *eve* of resistance that has prevented the price fro- heading higher on two previo+s occasions (Points 1 and 2 & 6owever# once the resistance is (ro,en# it (eco-es a *eve* of s+pport (shown () Points . and % () propping +p the price and preventing it fro- heading *ower again& !an) traders who (egin +sing technica* ana*)sis find this concept hard to (e*ieve and donIt rea*i>e that this pheno-enon occ+rs rather fre3+ent*)# even with so-e of the -ost we**$,nown co-panies& 7or e9a-p*e# as )o+ can see in (e*ow fig+re# this pheno-enon is evident on the "harat Rasa)an chart (etween 200. and 2005& =otice how the ro*e of the '=R 2J *eve* changes fro- a strong *eve* of resistance to a *eve* of s+pport&

'n a*-ost ever) case# a stoc, wi** have (oth a *eve* of s+pport and a *eve* of resistance and wi** trade in this range as it (o+nces (etween these *eve*s& /his is -ost often seen when a stoc, is trading in a genera**) sidewa)s -anner as the price -oves thro+gh s+ccessive pea,s and tro+ghs# testing resistance and s+pport&

%.

The Importance o, Support and #esistance <+pport and resistance ana*)sis is an i-portant part of trends (eca+se it can (e +sed to -a,e trading decisions and identif) when a trend is reversing& 7or e9a-p*e# if a trader identifies an i-portant *eve* of resistance that has (een tested severa* ti-es (+t never (ro,en# he or she -a) decide to ta,e profits as the sec+rit) -oves toward this point (eca+se it is +n*i,e*) that it wi** -ove past this *eve*& <+pport and resistance *eve*s (oth test and confir- trends and need to (e -onitored () an)one who +ses technica* ana*)sis& As *ong as the price of the share re-ains (etween these *eve*s of s+pport and resistance# the trend is *i,e*) to contin+e& 't is i-portant to note# however# that a (rea, (e)ond a *eve* of s+pport or resistance does not a*wa)s have to (e a reversa*& 7or e9a-p*e# if prices -oved a(ove the resistance *eve* of an +p trending channe*# the trend have acce*erated and not reversed& /his -eans that the price appreciation is e9pected to (e faster than it was in the channe*& "eing aware of these i-portant s+pport and resistance points sho+*d affect the wa) that )o+ trade a stoc,& /raders sho+*d avoid p*acing orders at these -ajor points# as the area aro+nd the- is +s+a**) -ar,ed () a *ot of vo*ati*it)& 'f )o+ fee* confident a(o+t -a,ing a trade near a s+pport or resistance *eve*# it is i-portant that )o+ fo**ow this si-p*e r+*e: do not p*ace orders direct*) at the s+pport or resistance *eve*& /his is (eca+se in -an) cases# the price never act+a**) reaches the who*e n+-(er# (+t f*irts with it instead& <o if )o+Ire (+**ish on a stoc, that is -oving toward an i-portant s+pport *eve*# do not p*ace the trade at the s+pport *eve*& 'nstead# p*ace it a(ove the s+pport *eve*# (+t within a few points& Dn the other hand# if )o+ are p*acing stops or short se**ing# set +p )o+r trade price at or (e*ow the *eve* of s+pport&

%%

=hat is 0olumeH Oo*+-e is si-p*) the n+-(er of shares or contracts that trade over a given period of ti-e# +s+a**) a da)& 6igher vo*+-e -eans the sec+rit) has (een -ore active& /o deter-ine the -ove-ent of the vo*+-e (+p or down # chartists *oo, at the vo*+-e (ars that can +s+a**) (e fo+nd at the (otto- of an) chart& Oo*+-e (ars i**+strate how -an) shares have traded per period and show trends in the sa-e wa) that prices do&

=hy 0olume is importantG Oo*+-e is an i-portant aspect of technica* ana*)sis (eca+se it is +sed to confir- trends and chart patterns& An) price -ove-ent +p or down with re*ative*) high vo*+-e is seen as a stronger# -ore re*evant -ove than a si-i*ar -ove with wea, vo*+-e& /herefore# if )o+ are *oo,ing at a *arge price -ove-ent# )o+ sho+*d a*so e9a-ine the vo*+-e to see whether it te**s the sa-e stor)& <a)# for e9a-p*e# that a stoc, j+-ps 5M in one trading da) after (eing in a *ong downtrend& 's this a sign of a trend reversa*G /his is where vo*+-e he*ps traders& 'f vo*+-e is high d+ring the da) re*ative to the average dai*) vo*+-e# it is a sign that the reversa* is pro(a(*) for rea*& Dn the other hand# if the vo*+-e is (e*ow average# there -a) not (e eno+gh conviction to s+pport a tr+e trend reversa*&

%5

Oo*+-e sho+*d -ove with the trend& 'f prices are -oving in an +pward trend# vo*+-e sho+*d increase (and vice versa & 'f the previo+s re*ationship (etween vo*+-e and price -ove-ents starts to deteriorate# it is +s+a**) a sign of wea,ness in the trend& 7or e9a-p*e# if the stoc, is in an +ptrend (+t the +p trading da)s are -ar,ed with *ower vo*+-e# it is a sign that the trend is starting to *ose its *egs and -a) soon end& Fhen vo*+-e te**s a different stor)# it is a case of divergence# which refers to a contradiction (etween two different indicators& /he si-p*est e9a-p*e of divergence is a c*ear +pward trend on dec*ining vo*+-e& 0olume and Chart &atterns /he other +se of vo*+-e is to confir- chart patterns& Patterns s+ch as head and sho+*ders# triang*es# f*ags and other price patterns can (e confir-ed with vo*+-e& 'n -ost chart patterns# there are severa* pivota* points that are vita* to what the chart is a(*e to conve) to chartists& "asica**)# if the vo*+-e is not there to confir- the pivota* -o-ents of a chart pattern# the 3+a*it) of the signa* for-ed () the pattern is wea,ened& 0olume &recedes &rice Another i-portant idea in technica* ana*)sis is that price is preceded () vo*+-e& Oo*+-e is c*ose*) -onitored () technicians and chartists to for- ideas on +pco-ing trend reversa*s& 'f vo*+-e is starting to decrease in an +ptrend# it is +s+a**) a sign that the +pward r+n is a(o+t to end& =ow that we have a (etter +nderstanding of so-e of the i-portant factors of technica* ana*)sis# we can -ove on to charts# which he*p to identif) trading opport+nities in prices -ove-ents&

%6

Indicators are ca*c+*ations (ased on the price and the vo*+-e of a sec+rit) that -eas+re s+ch things as -one) f*ow# trends# vo*ati*it) and -o-ent+-& 'ndicators are +sed as a secondar) -eas+re to the act+a* price -ove-ents and add additiona* infor-ation to the ana*)sis of sec+rities& 'ndicators are +sed in two -ain wa)s: to confir- price -ove-ent and the 3+a*it) of chart patterns# and to for- (+) and se** signa*s& /here are two -ain t)pes of indicators: *eading and *agging& A *eading indicator precedes price -ove-ents# giving the- a predictive 3+a*it)# whi*e a *agging indicator is a confir-ation too* (eca+se it fo**ows price -ove-ent& A *eading indicator is tho+ght to (e the strongest d+ring periods of sidewa)s or non$trending trading ranges# whi*e the *agging indicators are sti** +sef+* d+ring trending periods& /here are a*so two t)pes of indicator constr+ctions: those that fa** in a (o+nded range and those that do not& /he ones that are (o+nd within a range are ca**ed osci**ators $ these are the -ost co--on t)pe of indicators& Dsci**ator indicators have a range# for e9a-p*e (etween >ero and 100# and signa* periods where the sec+rit) is over(o+ght (near 100 or overso*d (near >ero & =on$(o+nded indicators sti** for- (+) and se** signa*s a*ong with disp*a)ing strength or wea,ness# (+t the) var) in the wa) the) do this& /he two -ain wa)s that indicators are +sed to for- (+) and se** signa*s in technica* ana*)sis is thro+gh crossovers and divergence& 2rossovers are the -ost pop+*ar and are ref*ected when either the price -oves thro+gh the -oving average# or when two different -oving averages cross over each other& /he second wa) indicators are +sed is thro+gh divergence# which happens when the direction of the price trend and the direction of the indicator trend are -oving in the opposite direction& /his signa*s to indicator +sers that the direction of the price trend is wea,ening& 'ndicators that are +sed in technica* ana*)sis provide an e9tre-e*) +sef+* so+rce of additiona* infor-ation& /hese indicators he*p identif) -o-ent+-# trends# vo*ati*it) and vario+s other aspects in a sec+rit) to aid in the technica* ana*)sis of trends& 't is i-portant to note that whi*e so-e traders +se a sing*e indicator so*e*) for (+) and se** signa*s# the)

%7

are (est +sed in conj+nction with price -ove-ent# chart patterns and other indicators& MAC : /he -oving average convergence divergence (!A2B is one of the -ost we** ,nown and +sed indicators in technica* ana*)sis& /his indicator is co-prised of two e9ponentia* -oving averages# which he*p to -eas+re -o-ent+- in the sec+rit)& /he !A2B is si-p*) the difference (etween these two -oving averages p*otted against a center*ine& /he center*ine is the point at which the two -oving averages are e3+a*& A*ong with the !A2B and the center*ine# an e9ponentia* -oving average of the !A2B itse*f is p*otted on the chart& /he idea (ehind this -o-ent+- indicator is to -eas+re short$ter-o-ent+- co-pared to *onger ter- -o-ent+- to he*p signa* the c+rrent direction of -o-ent+-&

MAC I shorter term mo)ing a)erage E longer term mo)ing a)erage

Fhen the !A2B is positive# it signa*s that the shorter ter- -oving average is a(ove the *onger ter- -oving average and s+ggests +pward -o-ent+-& /he opposite ho*ds tr+e when the !A2B is negative $ this signa*s that the shorter ter- is (e*ow the *onger and s+ggest downward -o-ent+-& Fhen the !A2B *ine crosses over the center*ine# it signa*s a crossing in the -oving averages& /he -ost co--on -oving average va*+es +sed in the ca*c+*ation are the 26$da) and 12$da) e9ponentia* -oving averages& /he signa* *ine is co--on*) created () +sing a nine$da) e9ponentia* -oving average of the !A2B va*+es& /hese va*+es can (e adj+sted to -eet the needs of the technician and the sec+rit)& 7or -ore vo*ati*e sec+rities# shorter ter- averages are +sed whi*e *ess vo*ati*e sec+rities sho+*d have *onger averages&

%H

Another aspect to the !A2B indicator that is often fo+nd on charts is the !A2B histogra-& /he histogra- is p*otted on the center*ine and represented () (ars& 4ach (ar is the difference (etween the !A2B and the signa* *ine or# in -ost cases# the nine$da) e9ponentia* -oving average& /he higher the (ars are in either direction# the -ore -o-ent+- (ehind the direction in which the (ars point As )o+ can see in (e*ow fig+re# one of the -ost co--on (+) signa*s is generated when the !A2B crosses a(ove the signa* *ine ((*+e dotted *ine # whi*e se** signa*s often occ+r when the !A2B crosses (e*ow the signa*&

#SI J#elati)e Strength Inde2K : 't is another one of the -ost +sed and we**$ ,nown -o-ent+- indicators in technica* ana*)sis& R<' he*ps to signa* over(o+ght and overso*d conditions in a sec+rit)& /he indicator is p*otted in a range (etween >ero and 100& A reading a(ove 70 is +sed to s+ggest that a sec+rit) is over(o+ght# whi*e a reading (e*ow .0 is +sed to s+ggest that it is overso*d& /his indicator he*ps traders to identif) whether a sec+rit)?s price has (een +nreasona(*) p+shed to c+rrent *eve*s and whether a reversa* -a) (e on the wa)&

%J

/he standard ca*c+*ation for R<' +ses 1% trading da)s as the (asis# which can (e adj+sted to -eet the needs of the +ser& 'f the trading period is adj+sted to +se fewer da)s# the R<' wi** (e -ore vo*ati*e and wi** (e +sed for shorter ter- trades&

50

Stochastic $scillator /he stochastic osci**ator is one of the -ost recogni>ed -o-ent+- indicators +sed in technica* ana*)sis& /he idea (ehind this indicator is that in an +ptrend# the price sho+*d (e c*osing near the highs of the trading range# signa*ing +pward -o-ent+- in the sec+rit)& 'n downtrends# the price sho+*d (e c*osing near the *ows of the trading range# signa*ing downward -o-ent+-& /he stochastic osci**ator is p*otted within a range of >ero and 100 and signa*s over(o+ght conditions a(ove H0 and overso*d conditions (e*ow 20& /he stochastic osci**ator contains two *ines& /he first *ine is the MC# which is essentia**) the raw -eas+re +sed to for-+*ate the idea of -o-ent+- (ehind the osci**ator& /he second *ine is the MB# which is si-p*) a -oving average of the MC& /he MB *ine is considered to (e the -ore i-portant of the two *ines as it is seen to prod+ce (etter signa*s& /he stochastic osci**ator genera**) +ses the past 1% trading periods in its ca*c+*ation (+t can (e adj+sted to -eet the needs of the +ser&

51

Conclusion
F

/echnica* ana*)sis is a -ethod of eva*+ating sec+rities () ana*)>ing the statistics generated () -ar,et activit)& 't is (ased on three ass+-ptions: 1 the -ar,et disco+nts ever)thing# 2 price -oves in trends and . histor) tends to repeat itse*f&

/echnicians (e*ieve that a** the infor-ation the) need a(o+t a stoc, can (e fo+nd in its charts& /echnica* traders ta,e a short$ter- approach to ana*)>ing the -ar,et& 2riticis- of technica* ana*)sis ste-s fro- the efficient -ar,et h)pothesis# which states that the -ar,et price is a*wa)s the correct one# -a,ing an) historica* ana*)sis +se*ess& Dne of the -ost i-portant concepts in technica* ana*)sis is that of a trend# which the genera* direction that a sec+rit) is headed is& /here are three t)pes of trends: Uptrends# downtrends and sidewa)s;hori>onta* trends& A trend*ine is a si-p*e charting techni3+e that adds a *ine to a chart to represent the trend in the -ar,et or a stoc,& A channe*# or channe* *ines# is the addition of two para**e* trend*ines that act as strong areas of s+pport and resistance& <+pport is the price *eve* thro+gh which a stoc, or -ar,et se*do- fa**s& Resistance is the price *eve* that a stoc, or -ar,et se*do- s+rpasses& Oo*+-e is the n+-(er of shares or contracts that trade over a given period of ti-e# +s+a**) a da)& /he higher the vo*+-e# the -ore active the sec+rit)& A chart is a graphica* representation of a series of prices over a set ti-e fra-e& /he ti-e sca*e refers to the range of dates at the (otto- of the chart# which can var) fro- decades to seconds& /he -ost fre3+ent*) +sed ti-e sca*es are intrada)# dai*)# wee,*)# -onth*)# 3+arter*) and ann+a**)&

F F

F F

/he price sca*e is on the right$hand side of the chart& 't shows a stoc,Is c+rrent price and co-pares it to past data points& 't can (e either *inear or *ogarith-ic& /here are fo+r -ain t)pes of charts +sed () investors and traders: *ine charts# (ar charts# cand*estic, charts and point and fig+re charts&

52

A chart pattern is a distinct for-ation on a stoc, chart that creates a trading signa*# or a sign of f+t+re price -ove-ents& /here are two t)pes: reversa* and contin+ation&

A head and sho+*ders pattern is reversa* pattern that signa*s a sec+rit) is *i,e*) to -ove against its previo+s trend& A c+p and hand*e pattern is a (+**ish contin+ation pattern in which the +pward trend has pa+sed (+t wi** contin+e in an +pward direction once the pattern is confir-ed&

Bo+(*e tops and do+(*e (otto-s are for-ed after a s+stained trend and signa* to chartists that the trend is a(o+t to reverse& /he pattern is created when a price -ove-ent tests s+pport or resistance *eve*s twice and is +na(*e to (rea, thro+gh& A triang*e is a technica* ana*)sis pattern created () drawing trend*ines a*ong a price range that gets narrower over ti-e (eca+se of *ower tops and higher (otto-s& Oariations of a triang*e inc*+de ascending and descending triang*es& 7*ags and pennants are short$ter- contin+ation patterns that are for-ed when there is a sharp price -ove-ent fo**owed () a sidewa)s price -ove-ent& /he wedge chart pattern can (e either a contin+ation or reversa* pattern& 't is si-i*ar to a s)--etrica* triang*e e9cept that the wedge pattern s*ants in an +pward or downward direction&

A gap in a chart is an e-pt) space (etween a trading period and the fo**owing trading period& /his occ+rs when there is a *arge difference in prices (etween two se3+entia* trading periods&

A -oving average is the average price of a sec+rit) over a set a-o+nt of ti-e& /here are three t)pes: si-p*e# *inear and e9ponentia*& !oving averages he*p technica* traders s-ooth o+t so-e of the noise that is fo+nd in da)$to$da) price -ove-ents# giving traders a c*earer view of the price trend& 'ndicators are ca*c+*ations (ased on the price and the vo*+-e of a sec+rit) that -eas+re s+ch things as -one) f*ow# trends# vo*ati*it) and -o-ent+-& /here are two t)pes: *eading and *agging&

/he acc+-+*ation;distri(+tion *ine is a vo*+-e indicator that atte-pts to -eas+re the ratio of (+)ing to se**ing of a sec+rit)&

5.

/he -oving average convergence divergence (!A2B is co-prised of two e9ponentia* -oving averages# which he*p to -eas+re a sec+rit)Is -o-ent+-& /he re*ative strength inde9 (R<' he*ps to signa* over(o+ght and overso*d conditions in a sec+rit)& /he stochastic osci**ator co-pares a sec+rit)Is c*osing price to its price range over a given ti-e period&

5%

References Dn*ine: 1& www&va*+enotes&co2& www&-icrosec&in .& www&nseindia&co%& www&(seindia&co5& www&-)iris&co6& www&*ivecharts&co&+, 7& www&se(i&gov&in H& www&e3+is&co-

"oo,s: 1& 7re3+ent*) as,ed 3+estions on Berivatives () Aja) <hah and <+san /ho-as# '5'BR# !+-(ai 2& 6ow to invest in shares () Br& /ejinder <ingh Rawa*&

55

Appendi2

S A M & " !

T ! C + % I C A "

# ! & $ # T S

56

S&$T %IGT<

AI"< C+A#T AS $% D8 MA<LD7 J6:98-DDK

S&$T %IGT<

AI"< SU&&$#T @ #!S G$# D9 MA<LD7 1 4 63:D 699D 6 65DD 69DD

#!SISTA%C! SU&&$#T

63DD 6:DD

AI"< T!C+%ICA" 0I!=

Another a-a>ing da)P Dne of the few a-ong the highest t+rnover da)s co+p*ed with h+ge intra da) gains and a*so the highest c*osing since Dct ?0H& /a,ing the a(so*+te*) positive g*o(a* c+es -ar,et opened with a h+ge gap +p in the -orning and ,ept the +p -o-ent+- intact thro+gh o+t the da) fina**) and <pot =ift) ended the da) at .65% gaining 1H0 points or 5&1HM&"<4 <ense9 a*so (reached cr+cia* 12000 -ar, and sett*ed at

57

121.%&75 with net gain of 7.1&50 or 6&%1M& Again it was the da) of se*ective !idcap stoc,s where the ster*ing show was contin+ed with renewed vigor& /he vo*+-e was 3+ite high and the (readth of the -ar,et was a(so*+te*) positive in the ratio of 5:1&
BS! S!CT$#A" I% IC!S T$& BAI%!#S C$M&A%< M!TA" IT BA%C CA& B$$ S T!C+ CU##!%T 0A"U! 3857-83 4553-D8 :166-96 5638-13 4457-35 BS! S!CT$#A" I% IC!S T$& "$S!#S M C+A%B! C$M&A%< 5-33 5-8D 3-57 9-55 9-5: %$ "$S!#S E E E E

CU##!%T 0A"U! E E E E E

M C+A%B! E E E E E

MA#C!T I% ICAT$#S T$& %IGT< BAI%!#S C$M&A%< +C" T!C+ ST!# +I% A"C$ + GC M@M C"$S! 198-49 835-D9 :1-89 17:9-D9 989-5D M C+A%B! 15-37 1:-95 18-66 16-37 11-5:

MA#C!T I% ICAT$#S T$& %IGT< "$S!#S C$M&A%< ABB CI&"A B&C" E E C"$S! 836-4D 465-99 658-89 E E M C+A%B! J4-56K JD-71K JD-56K E E

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ASIA% MA#C!T &!#G$#M!#S I% !; TAI=A% +A%B S!%B S+A%B+AI C$S&I C"$S! :66D-8D 1:651-D 9 4997-71 1673-74 &$I%TS $G 663-56 5:D-D: 54-68 45-9: IGG M C+A%B! 9-:8 9-98 6-64 4-D7

/echnica**) spea,ing in the <pot =ift) dai*) cand*e stic, chart a (ig da) (+**ish 2and*estic, has appeared& D+t of *ast .1 trading sessions 21 ended in green which shows the ongoing strength& Present*) the -inor trend is c*ear*) +p& /he -inor trend *ine s+pport e9ists at .500& A*so <pot =ift) is -oving a(ove a** its short and *ong ter- -oving averages& 'f we *oo, to the -o-ent+- indicators !A2B is in "U@ -ode# 1% da)s R<' and <tochastic Dsci**ator is in the over(o+ght territor) and there is no sign of an) coo*ing as of now& 1% da)s price RD2 and -o-ent+- indicators have a*so reached the over(o+ght >one& @esterda)?s -ar,et c*osing s+ggest higher opening toda) and in that evidence <pot =ift) -a) faces initia* resistance aro+nd .700 >one (reaching which it -a) head towards .760 and fina**) towards .H00 -ar,# on the contrar) in the down side <pot =ift) wi** finds initia* s+pport at .600 fo**owed () .550 8 thereafter at .500 which is a*so the -inor trend *ine s+pport& A-ong the sectors "an,ing# !eta*# Di* 8 5as are sti** *oo,ing technica**) good (+t -ost of the- are over(o+ght in the dai*) chart& 5*o(a* e3+it) especia**) the e-erging -ar,ets are showing f+rther strength& 'n the co--odit) space (+**ion (go*d and si*ver and cr+de a** are tr)ing to conso*idate at the c+rrent *eve*&

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60

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6istor) was -ade )esterda) in 'ndian stoc, -ar,et# where for the first ti-e trading was ha*ted for the da) at the 0+pper circ+it1 *i-it at 600 points in <pot =ift)& !ar,et opened with a gap +p of near*) %50 pts in the -orning thereafter trading was ha*ted for 2 ho+rs again when it opened it was at the +pper circ+it *i-it of 600 pts in <pot =ift)& /his is (asica**) attri(+ted to the th+-ping -ajorit) of r+*ing UPA where the econo-ic refor-s are *i,e*) to get new p+sh# a*so the *i,e*ihood of increased 7'' a**ocation for 'ndia& Fhi*e ha*ting of the -ar,et <pot =ift) was at %.0H +p () 6.6 pts or 17&..M& "<4 <ense9 was at 1%272&6. +p () 20JJ&21 points or 17&2%M# "<4 !idcap c*osed at %266&25 +p () %5J&1H points or 12&06M whereas <-a** 2ap 'ndices c*osed at %66H&62 gaining .HJ&02 points or J&0JM& /he vo*+-e was 3+ite *ower than the previo+s trading sessions and there were hard*) an) *ooser&

BS! S!CT$#A" I% IC!S T$& BAI%!#S S!CT$#S #!A"T< CA& B$$ S BA%C $I" @ BAS &$=!# CU##!%T 0A"U! 6D18-75 1D314-:9 3::3-74 1D139 4979-86

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61

MA#C!T I% ICAT$#S T$& %IGT< BAI%!#S C$M&A%< + GC #!" I%G#A U%IT!C+ ICICI BA%C B+A#TI A#T" C"$S! 4877 1D9D :8-39 347 1D18-89 M C+A%B! 45-71 45-D4 43-D7 4:-59 4:-56

MA#C!T I% ICAT$#S T$& %IGT< "$S!#S C$M&A%< %$ "$S!#S E E E E C"$S! E E E E E M C+A%B! E E E E E

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62

/echnica**) spea,ing in the <pot =ift) dai*) cand*e stic, chart a r+nawa) gap +p *ong da) (+**ish cand*estic, is visi(*e which depicts e9tre-e (+**ishness and a sort of e+phoria& Present*) the inter-ediate and -inor trend (oth are +p a*so <pot =ift) is -oving a(ove a** its *ong and short ter- -oving averages& 'f we *oo, to the -o-ent+indicators !A2B has again entered in "U@ -ode# 1% da)s R<' and <tochastic is c*ear*) tr)ing to go +p fro- the ne+tra* >one& /he QB' (Positive Birectiona* 'ndicator is constant*) -oving a(ove the $B' (=egative Birectiona* 'ndicator & @esterda)?s -ar,et c*osing s+ggests another gap +p opening toda) and in that evidence <pot =ift) wi** face initia* resistance aro+nd %.60 >one (reaching which it -a) head towards %%20 and fina**) towards %500 -ar,# on the contrar) in the down side <pot =ift) finds initia* s+pport at %2%5 fo**owed () %1J0 thereafter at %150& <pot =ift) had a*read) given p+** (ac, of 50M of the entire fa** at <pot =ift) %.00 (frothe high of 6.57 to the *ow of 2252 & 6ere it is to -ention that at a stretch fro- !arch first wee, <pot =ift) has given p+** (ac, of near*) 176J points or 6JM# (fro- <pot =ift) 2.5J in !arch first wee, to %.0H on 17th !a) & !ar,et is over(o+ght in the dai*) and wee,*) charts there() at higher *eve* so-e sort of profit (oo,ing cannot (e r+*ed o+t toda)& 7'' inf*ows are +na(ated and it is *i,e*) to (e contin+ed& 5*o(a* e3+it) -ar,et is showing so-e wea,ness& 'n co--odities front (+**ion (go*d and si*ver is tr)ing to go +p and cr+de is tr)ing to conso*idate at the c+rrent *eve* of 57R&

6.

"e*ow is a 2and*estic, chart of 0=ift) 501 J+ne 200H to J+ne 7# 200J& Bifferent *ines represent different B!A (200# 100# 50at# .0 # where 200 8 100 B!A are considered *ong ter- and others *ower than that are ca**ed short ter- B!A

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