Use Trend and Moving Average Tools To Calculate Technical Analysis

Technical Analysis of NTC and Axis Bank
Use trend and moving average tools to calculate technical analysis. Write down the
Interpretation implication and limitation of the result. Do intrinsic value calculation and
technical analysis gives the same result? Why? Why not?
A. NTC
We have taken NTC from Nepali stock market in order to do the technical analysis through the
trend analysis and moving average from three methods as they are simple moving average,
weighted moving average, exponential moving average and the result obtained are illustrated in
the table below and they are shown through the graph as below.
Close
Date
Price
SMA(3)
SMA(5) EMA(3)
10/26/2014
618
10/27/2014
620
10/28/2014
616
618
618
10/30/2014
619 618.3333
617.5
11/2/2014
616
617
617.8
617.5
11/3/2014
607
614
615.6
611.5
11/4/2014
609 610.6667
613.4
608
11/5/2014
610 608.6667
612.2
609.5
11/6/2014
612 610.3333
610.8
611
11/9/2014
610 610.6667
609.6
611
11/10/2014
600 607.3333
608.2
605
11/11/2014
610 606.6667
608.4
605
11/12/2014
600 603.3333
606.4
605
11/13/2014
601 603.6667
604.2
600.5
11/16/2014
600 600.3333
602.2
600.5
11/17/2014
591 597.3333
600.4
595.5
11/18/2014
600
597
598.4
595.5
11/19/2014
600
597
598.4
600
11/20/2014
600
600
598.2
600
11/23/2014
607 602.3333
599.6
603.5
11/24/2014
600 602.3333
601.4
603.5
11/25/2014
600 602.3333
601.4
600
11/30/2014
597
599
600.8
598.5
12/1/2014
600
599
600.8
598.5
12/2/2014
600
599
599.4
600
12/3/2014
599 599.6667
599.2
599.5
W1=0.2
W1= 0.1
EMA (5)
618
614.3333333
612.5555556
612.5555556
612.3703704
612.3703704
608.2469136
608.8312757
605.8875171
604.2583448
602.8388965
598.8925977
599.2617318
599.5078212
599.6718808
602.1145872
601.4097248
600.9398165
599.6265444
599.7510296
599.8340197
599.5560131
WMA(3) WMA(5)
617.6
618.3
616.9
612.1
609.8
609.1
610.8
610.6
605.4
607
603
602.5
600.3
595.7
597.3
598.2
600
603.5
602.1
601.4
598.5
599.1
599.4
599.5
W4=0.2
Submitted By: Usha Panth (13123), Surendra Pandey (13121) and Rabin Regmi (13127)
617.6
614.3
612.7
611.3
610.4
609.9
607.3
608.4
605.2
603.3
602.2
598.5
598.4
598.3
598.2
601.2
601.4
601.4
600.5
600.1
599.4
599.1
12/3/2014
12/1/2014
11/29/2014
11/27/2014
11/25/2014
11/23/2014
11/21/2014
590
580
12/3/2014
12/1/2014
11/29/2014
11/27/2014
11/25/2014
11/23/2014
11/21/2014
11/19/2014
W3= 0.2
11/19/2014
W3=0.5
11/17/2014
W2= 0.2
11/17/2014
11/15/2014
11/13/2014
11/11/2014
11/9/2014
11/7/2014
11/5/2014
11/3/2014
11/1/2014
10/30/2014
10/28/2014
10/26/2014
W2=0.3
11/15/2014
11/13/2014
11/11/2014
11/9/2014
11/7/2014
11/5/2014
11/3/2014
11/1/2014
10/30/2014
10/28/2014
10/26/2014

W5=0.3
EMA= (price (t)-EMA(Y))*K+EMA(Y)
K=2/ (N+1)
a. Trend analysis:
Close Price
630
620
610
600
Close Price
570
b. Simple Moving Average
620
615
610
605
600
595
SMA(3)
SMA(5)
590
585

c. Weighted Moving Average
620
615
610
605
600
595
WMA(3)
590
WMA(5)
585
12/3/2014
12/1/2014
11/29/2014
11/27/2014
11/25/2014
11/23/2014
11/21/2014
11/19/2014
11/17/2014
11/15/2014
11/13/2014
11/11/2014
11/9/2014
11/7/2014
11/5/2014
11/3/2014
11/1/2014
10/30/2014
10/28/2014
10/26/2014
580
d. Exponential Moving Average

620
615
610
605
600
595
EMA(3)
590
EMA (5)
585
12/3/2014
12/1/2014
11/29/2014
11/27/2014
11/25/2014
11/23/2014
11/21/2014
11/19/2014
11/17/2014
11/15/2014
11/13/2014
11/11/2014
11/9/2014
11/7/2014
11/5/2014
11/3/2014
11/1/2014
10/30/2014
10/28/2014
10/26/2014
580
Interpretation and implication

1. In the above figures of trend analysis, we can see the decreasing trend of the stock at the
beginning and it has increased slightly at the time period from November 19 to
November 23, and it has shown the decreasing trend of the stock.

2. From the trend analysis of closing stock, price of the stock is in decreasing trend. So, it is
best time to sell the stock after analyzing the resistance level of the price.
3. Time period of 5 and 3 days is taken into consideration for the calculation of moving
average; this shows the clear picture of the fluctuation of the stock price. But time period
of 5 days shows clear picture and it is reliable as compared to 3 days moving average.
4. From the moving average we can get the buy and sell signal, if the price of the security
rises or goes below the moving average. When the price of the stock rises above the
moving average, we get the buy signal. This would be the appropriate time to purchase
the stock. Likewise, when the price of the stock falls below the moving average, we get
the sell signal. This would provide us the signal to sell the stock.
5. We have used the price of the stock till 3rd December, stock price of the NTC on todays
date i.e. 4th December is 598. So the simple moving average (3), weighted moving
average (3) and exponential moving average (3) are 599.67, 599.5 and 599.5 respectively.
This means that price of the stock is below the moving average, so we get a sell signal to
sell the stock.
6. When taking the long period moving average of 5 years into consideration, SMA (5),
WMA (5) and EMA (5) are 599.2. 599.56 And 599.1 respectively and it also shows the
similar result i.e. sell signal.
Limitation:
1. These results are completely based on the historical data and the trend of the stock price,
so it does not take fundamental analysis of the stock selection into consideration.
2. This sort of analysis will be suited for the short time period and company financial
strength comes into account while doing analysis of the stock investment for long period
time.
3. In the context of Nepal, some factors may cause intense increase in the price of the stock
at particular period of time, which may cause the moving average higher at that particular
period and vice versa. Basing the stock investment decision on that basis of moving
average may not work so; it is essential to identify the reason for the increase or decrease
for that particular period and should do our analysis accordingly.
4. To sum up, we should not only solely base our decision on the moving average only, but
also take fundamental analysis into account for the investment decision. Because
fundamental analysis involves the analyzing the characteristics of the company in order
to estimate the value.
Do intrinsic value calculation and technical analysis gives the same result? Why? Why not?
No, intrinsic value calculation and technical analysis did not give the same result because of the
following reason:

1. In the intrinsic value, stock was undervalued and the decision was to buy the stock but
the decision got reverse in the condition of the trend and moving average analysis.
2. In the calculation of moving average, we take the closing price of the stock only but in
the calculation of intrinsic value of the stock factor such as dividend, market rate of
return, growth of the company is taken into consideration.
B. Technical Analysis of Axis Bank

Axis Bank is the one of the top four largest private sector banks in terms of asset and which has
been awarded with the best company to work for in India. (Axis Bank, 2014) The bank is listed
on the Bombay Stock Exchange. Fundamental analysis of the bank shows that the intrinsic value
of the bank is Rs. 292.98 while market price of the stock on 3rd Dec, 2014 is 489.9. But this
number does not always tell us about the future flow of price in the market. There are other
factors such as behavioral difference of the investor, overall economic influence, and particular
price movements. One of the way that investor base their decision is also based on the technical
analysis.
Fundamental analysts largely base their decision in the value of a particular stock but technicians
are rarely bothered about the company value but are interested in the price movements.
Technical Analysis is moreover based on the assumption that price of the stock is determined by
the market itself, price often move in the same trend and history is a great source for the future
analysis. By saying that, we are trying to predict the future movements in price of the stock
based on the historical figures, trends and patterns. But these analysis techniques are very
complimentary to each other.
For the purpose of this technical analysis, we have taken the data of last 80 days trading from
Bombay stock exchange. Recently, the company has split its shares, and we are basing that date
as out base period. (Bombay Stock Exchange, 2014) Moreover, technical analysis is very
important tool for timing the market. As a short term investor with time horizon of one to two
weeks, we are only concerned about the change in price of axis bank for a very short period of
time. We have analyzed this stock based on the following parameters of technical analysis.
Line Chart

Line chart is one of the widely used tools for technical analysis which shows the
upward/downward/horizontal movement of the stock over a period of time. One of the most
important concepts in technical analysis is that of trend, a trend is really nothing more than the
general direction in which a security or market is headed. Investors generally analyze the line
chart with two possible future movement i.e. either continuation or reversal of the trend. It is the
subject of differing behavioral aspects in stock market but purely based on technical analysis, we
can have some prediction based on the volume of the transaction but at other times, it is often
supplemented by the fundamental analysis.
600
500
400
300
Close Price
200
100
0
5-Aug-14
5-Sep-14
5-Oct-14
5-Nov-14
5-Dec-14
Figure 1: Line Chart

From the above figure, we can clearly observe two movements in this last 4 months of time.
Until, 5th Oct, 2014, there was a horizontal movement of the stock while thereafter there is
upward movement of the stock price. Similarly, there are pattern of high lows even in the upward
trend. Lately, the price has increased for some days; therefore we can expect that if such trend
prevails, the price may go down in the coming week of this stock.

Another major issue in this case is whether that upward movement will hold for some time or
not. For this, it is better to look at the volume section of the trading in BSE of this stock which
will give us overall hint on the demand and supply side of the market. Generally high volume
with high price can be regarded as high demand where as high volume with low price or low
volume with decreasing price can be a situation with low demand of the stock.
No.of Shares
1500000
1000000
500000
No.of Shares
Figure 2: Volume of Transactions

There is no hint as such of high volume been transacted in the market recently compared to few
months ago. Therefore, there is real doubt on whether price will continue to move upwards.
Which pattern is this stock following lately?
Observing the line chart been discussed above in the figure 1, we can identify not a clear but a
blur head and shoulder pattern in the stock price. At this point in time, it is in the head position;
therefore we can further expect that the price may go down for few days.
Support and Resistance Level
Support level and rsistance level explain the attitude of the general investor.

600
500
400
300
Close Price
200
100
0
5-Aug-14
5-Sep-14
5-Oct-14
5-Nov-14
5-Dec-14
Figure 3: Support and Resistance Level

Looking at the above chart, we can clearly recognize that the stock market is at support level for
this stock recently. This is a good sign for interested investor to invest in the stock based lonely
on this parameter.
Investor Psychology
Investor psychology is compared and measured on the following basis.
600
500
400
300
Close Price
200
100
0
Figure 4: Investor Psychology

By looking at the figure, there is clear of upward movement in the price of this stock in the
market. Therefore, therefore we can deduce that there is some optimism in the market about this
stock, if not excitement. From this point, we can expect that the price of this stock will further go
up.
Candlestick Chart
Candlestick chart of this stock is presented in the following figure.

600
500
400
Open Price
High Price
300
Low Price
Close Price
200
100
0
5-Aug-14
5-Sep-14
5-Oct-14
5-Nov-14
5-Dec-14
Figure 5: Candlestick Chart

From candlestick chart, we can clearly find out that there are more white spots indicating price
increase compared to black spots indicating price decline. This reflects continuing price increase
of the stock.
Moving Averages
We have taken 5 days moving average because of our short term investment decision which is
also of about 5 days most of the time. For this purpose, we have calculated simple, exponential
and weighted moving average. They are explained as below.

600
500
400
300
Close Price
200
Simple Moving
Average
100
0
Figure 6: Simple Moving Average

600
500
400
300
Close Price
200
Exponential Moving
Average
100
0
Figure 7: Exponential Moving Average

600
500
400
300
Close Price
200
Weighted Moving
Average
100
0
Figure 9: Weighted Moving Average

In all of the above moving average analysis, we can see that the all the moving average are
approaching towards cross over points which is the point of interaction between closing price
and moving average. Till now, closing price is above moving average, but we expect that the
moving average may have an upper hand over closing price since it is targeting the cross over
point. Therefore, price may go down for few days.
Recommendations:
Based on all these technical analysis, some of the recommendations are as under.
There is some optimism in the market and the price of this stock is in upward trend,
therefore we can expect that the price may go up. Therefore it is a good choice for
investor.
As far as timing is concerned, it is advised to wait for few days before making the choice
of investment, which may be for 5 days or so.
Limitations:
Following are the limitations of technical analysis.
These results are completely based on the historical data and the trend of the stock price,
so it does not take fundamental analysis of the stock selection into consideration.
This sort of analysis will be suited for the short time period and company financial
strength comes into account while doing analysis of the stock investment for long period
time.
Moreover, it does not tell the exact price of the stock, rather indicates us about the timing
of the investment decision.
Difference between Intrinsic Value and Technical Analysis

As per the intrinsic value of the stock, it was overvalued. But considering overall optimism in the
market and upward trend of the stock, we have decided to buy the stock in few days time when
closing price is in upper hand to moving averages.
The difference is because of the following reasons:
Fundamental analysis and technical are two different methods used for analysis and they
have no correlation at all when it comes to how the stock is analyzed.
Technical analysis base the decision based only on historical figures and trends followed
and is subject to vary due to subjective evaluation of it by the investors. On the other
hand, fundamental analysis is not driven so much by the subjective evaluation. Therefore
there are certainly some differences in the investment decision.
Furthermore, fundamental analysis is largely employed for long term decision while
technical analysis is a tool for the short term investors in the stock market. Therefore
there is some difference in their objectivity as well. This may be another reason behind
the different decision coming for the investment decision.
Works Cited
Axis Bank. (2014, Dec). Axis Bank. Retrieved Dec 7, 2014, from Axis Bank Website:
www.axisbank.com
Bombay Stock Exchange. (2014, July 28). Bombay Stock Exchange. Retrieved December 7,
2014, from Bombay Stock Exchange Web Site: http://www.bseindia.com/stock-share-price/axisbank-ltd/axisbank/532215/#

Use Trend and Moving Average Tools To Calculate Technical Analysis

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Technical Analysis of NTC and Axis Bank

Technical Analysis of NTC and Axis Bank

EMA= (price (t)-EMA(Y))*K+EMA(Y)

b. Simple Moving Average

Technical Analysis of NTC and Axis Bank

d. Exponential Moving Average

Interpretation and implication

Technical Analysis of NTC and Axis Bank

Technical Analysis of NTC and Axis Bank

B. Technical Analysis of Axis Bank

Technical Analysis of NTC and Axis Bank

Figure 1: Line Chart

Technical Analysis of NTC and Axis Bank

Figure 2: Volume of Transactions

Technical Analysis of NTC and Axis Bank

Figure 3: Support and Resistance Level

Technical Analysis of NTC and Axis Bank

Figure 4: Investor Psychology

Technical Analysis of NTC and Axis Bank

Figure 5: Candlestick Chart

Technical Analysis of NTC and Axis Bank

Figure 6: Simple Moving Average

Figure 7: Exponential Moving Average

Technical Analysis of NTC and Axis Bank

Figure 9: Weighted Moving Average

Technical Analysis of NTC and Axis Bank

Difference between Intrinsic Value and Technical Analysis

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