TECHNICAL ANALYSIS

INTRODUCTION
Technical analysis involves the study of the stock market prices is an attempt to
predict future price movements for the common stock of a particular firm.Intially, past
prices are examined in order to identify recurring trends or patterns in price movements.
Then more recent stock prices are analyzed in order to identify emerging trend or patterns
that are similar to past ones. Thus by identifying an emerging trend or pattern the analyst
hope to predict accurately future price movement’s of that particular stock.

Prices of securities in the stock market fluctuate daily on account of continuous buying
and selling. Stock prices move in trend and cycles and never stable. An investor in the
stock market is interested and buying securities at a low price and selling them at a high
price so as to get a good return on his investment.

Technical Analysis is a good method of evaluating securities by analyzing the statistics

generated by market activity, such as fast prices and volume. Technical analysis does not
give the intrinsic value of a security, but instead it includes charts and other tools to
identify patterns that can suggest future activity. The rationale behind the technical
analysis is that the share price behaviour repeats itself over time and analysts attempt to
derive methods to predict any patterns. He then looks at the current price data to see if
any of the established patterns are applicable and if so, extra extrapolations can be made
to predict the future movements. Although past share prices are the major data used by
technical analysts, other statistics such as volume of trading and stock market indices are
also utilized to some extent.

Technical analysis studies supply and demand in a market in an attempt to determine

what direction or trend will continue in future. In other words , technical analysis attempts
to understand the emotions in the market by studying the market itself as opposed to its
components.

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The project work deals with not only on analyzing the movements of stock prices to
determine buy and sell opportunity but also to know which tool is comparatively more
effective than others in predicting the future trend.

PROBLEM STATEMENT
Technical analysis is one of tools used to analysis stocks to make decisions (buy, hold
and sell) but, technical analysis alone cannot prove to be device. So, it can be used as a
supplement to fundamental analysis.

Technical analysis is very important to invest smartly. Every investor would like to
have handful information to decide:

• On what type of security to invest?

• When it should be bought?
• When it should be sold?
• Whether to hold the security?

The basic idea behind the research is to make buy, hold and sell decisions of
stocks. To make this decision one should have sound information base. The
increasing trend towards complexity in investment decision calls for security
analysis.

OBJECTIVE OF THE STUDY

The objectives of the study are stated as under:-

1. To learn when to buy, sell and hold the securities. A sample of four is taken
for this purpose.
2. To analyze the recent pattern of price movement and help investor to make
profits.
3. To know the method of calculating the various technical indicators and to
interpret it.
4. To understand the repetitive trends which reappear in the course of time.

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 5. To analyze the pattern of price movement and its relation with volume
traded, determining the proper timing of investment.

SCOPE OF THE STUDY

1. The study mainly focuses on guiding the investor’s in making decisions
(buy, hold or sell) by determine the value of the stocks through technical
analysis.
2. The analysis has been done on five stocks of IT companies listed at national
stock exchange and Bombay stock exchange.
3. Out of various tools of technical analysis only three such tools are used in
this study.
4. To help the investor in making decisions based on report.
5. Helps to identify trend reversal at an earlier stage to formulate the buying
and selling strategy

RESEARCH METHODOLOGY
The type of research adopted here is both exploratory and descriptive. This
project seeks to describe technical analysis and the procedure adopted in conducting it.

Technical tools used for the study are

CHARTS:-

1. Line charts.
2. Candle sticks.

INDICATORS:-

1. Moving average convergence and divergence (MACD).

2. Relative strength index.
3. Rate of change method.

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DATA RESOURCES:-

The study comprises of data collection from secondary source.

SECONDARY DATA:-
It includes data collected from the following

1. Websites
2. Journal and magazines
3. Manuals
4. Text books
5. News papers

LIMITATIONS OF THE STUDY

1. The tools used for analysis are limited.
2. Data taken as input pertains to only one year
3. The analysis is being done only for five companies stocks.
4. The study is only for academic purpose only.
5. The study is too subjective and based on historical interpretations and may
not continue with the same trend.
6. The conclusion made is based on limited knowledge.

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 CHAPTER -- 1
REVIEW OF LITERATURE

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.

EQUITY ANALYSIS.

ENVIRONMENT & ECONOMICAL ANALYSIS.

FUNDAMENTAL TECHNICAL
ANALYSIS ANALYSIS

Technical analysis :-

“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.

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 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
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.

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In any case, technical analysts' exclusive use of historical price and volume data is what
separates them from their fundamental counterparts. Unlike fundamental analysts,
technical analysts don't care whether a stock is undervalued the only thing that matters is
a security's past trading data and what information this data can provide about where the
Security might move in the future.

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 behaviours.
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.
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.
Usually the following tools & instruments are used to do the technical
analysis:

Price Fields
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.

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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.
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).

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Price Styles

Price in a chart can be displayed in four styles:

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.

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 2) Line Chart:

It gives the detailed information about every aspect. 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.

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 3) Candlestick Chart:

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 bar chart, but in a manner that extenuates the relationship between the
opening and closing prices. Candlestick
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

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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 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.

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

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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 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.

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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 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).

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 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 filled in.

6.) 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.

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 7.) 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.

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.

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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.

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.

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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.

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 a long body is
followed by a weak bearish (filled in) line. This implies a decrease in the
bullish momentum.

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 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).

Example:-

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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 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 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

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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

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 direction in which a security or
market is headed.

Types of Trend

There are three types of trend:

1. Uptrend

2. Downtrend

3. Sideways/Horizontal Trends

Up Trend

Describes the price movement of a financial asset when the overall direction is upward. A
formal uptrend is when each successive peak and trough is higher than the ones found
earlier in the trend (Higher Highs and Higher Lows).

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Down Trend

Describes the price movement of a financial asset when the overall direction is
downward. A formal downtrend occurs when each successive peak and trough is lower
than the ones found earlier in the trend (Lower Highs and Lower Lows).

Sideway Trend

Describes the horizontal price movement that occurs when the forces of supply and
demand are nearly equal. A sideways trend is often regarded as a period of consolidation
before the price continues in the direction of the previous move. A sideways price trend is

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also commonly known as a “horizontal trend”. Sideways trend is generally a result of the
price traveling between strong levels of support and resistance. It is not uncommon to see
a horizontal trend dominate the price action of a specific asset for a prolonged period
before starting a move higher or lower.

CHART PATTERNS
When the price bar charts of several days are drawn close together, certain patterns
emerge. The patterns are used by technical analysts to identify trend reversal and predict
the future movements of prices. The chart patterns may be classified as support and
resistance, reversal patterns and continuation patterns.

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).

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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 movements is thought to have shifted, in which case new
levels of support and resistance likely be established.

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 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.

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 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.

TREND REVERSAL PATTERNS

The sideway price action of a reversal pattern signifies that upon breaking out of the
pattern there will be a turnaround in the current trend. Other reversal patterns such as
Rounded Tops and bottoms, V-Formations, and Diamond Formations are not as common and
harder to see.

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 HeadAndShoulders
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 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 are 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 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.

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TYPES OF INDICATORS:

Moving Averages

Introduction
Moving averages smooth the price data to form a trend following indicator. They do not
predict price direction, but rather define the current direction with a lag. Moving averages
lag because they are based on past prices. Despite this lag, moving averages help smooth
price action and filter out the noise. They also form the building blocks for many other
technical indicators and overlays, such as Bollinger Bands, MACD and the McClellan
Oscillator. The two most popular types of moving averages are the Simple Moving
Average (SMA) and the Exponential Moving Average (EMA). These moving averages
can be used to identify the direction of the trend or define potential support and resistance
levels.

SMA Calculation

A simple moving average is formed by computing the average price of a security over a
specific number of periods. Most moving averages are based on closing prices. A 5-day
simple moving average is the five day sum of closing prices divided by five. As its name
implies, a moving average is an average that moves. Old data is dropped as new data
comes available. This causes the average to move along the time scale. Below is an
example of a 5-day moving average evolving over three days.

Daily Closing Prices: 11,12,13,14,15,16,17

First day of 5-day SMA: (11 + 12 + 13 + 14 + 15) / 5 = 13

Second day of 5-day SMA: (12 + 13 + 14 + 15 + 16) / 5 = 14

Third day of 5-day SMA: (13 + 14 + 15 + 16 + 17) / 5 = 15

The first day of the moving average simply covers the last five days. The second day of
the moving average drops the first data point (11) and adds the new data point (16). The
third day of the moving average continues by dropping the first data point (12) and
adding the new data point (17). In the example above, prices gradually increase from 11

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to 17 over a total of seven days. Notice that the moving average also rises from 13 to 15
over a three day calculation period. Also notice that each moving average value is just
below the last price. For example, the moving average for day one equals 13 and the last
price is 15. Prices the prior four days were lower and this causes the moving average to
lag.

EMA Calculation

Exponential moving averages reduce the lag by applying more weight to recent prices.
The weighting applied to the most recent price depends on the number of periods in the
moving average. There are three steps to calculating an exponential moving average.
First, calculate the simple moving average. An exponential moving average (EMA) has to
start somewhere so a simple moving average is used as the previous period's EMA in the
first calculation. Second, calculate the weighting multiplier. Third, calculate the
exponential moving average. The formula below is for a 10-day EMA.

SMA: 10 period sum / 10

Multiplier: (2 / (Time periods + 1)) = (2 / (10 + 1) ) = 0.1818 (18.18%)

EMA: {Close - EMA (previous day)} x multiplier + EMA (previous day).

Moving Averages (usually abbreviated MA in technical analysis software) are key

technical indicators that confirm the trend of a stock’s price. Moving averages come in
three varieties (simple, weighted, and exponentially smoothed) but I’ll stick to simple
moving averages because they are the easiest to understand and work perfectly well for
the purpose of analyzing charts.

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A simple moving average is simply a curve created by connecting the closing stock price
for each time period (usually days, but it could be minutes if you are using intra-day
charts). Most charting software (Clear station has decent charting capabilities and is free)
can overlay multiple moving averages on a candlestick chart. The most common is the
200-day moving average because it often serves as both support and resistance. ”200-
day” means that the curve is created by taking the average of the last 200 days’ closing
prices. Because moving averages can only use past data, they are considered to be
“lagging indicators.” The charts below show how a moving average serves as support or
resistance and how this can generate buy and sell signals.

In general, you would want to avoid entering bullish positions on stocks that are currently
trading below their 200-day moving averages because of the strong overhead resistance
that the moving average may create. Likewise, you want to avoid entering bearish
positions on stocks that are trading above their 200-day moving averages as these stocks
may encounter support from the moving average that breaks the downtrend

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Other commonly used moving averages are the 50-day, 20-day, and 10-day moving
averages. These shorter-term moving averages are useful in providing entry and exit
triggers via the MACD oscillator (Moving Average Convergence Divergence).

Relative Strength Index (RSI)

Introduction
Developed J. Welles Wilder, the Relative Strength Index (RSI) is a momentum oscillator
that measures the speed and change of price movements. RSI oscillates between zero and
100. Traditionally, and according to Wilder, RSI is considered overbought when above 70
and oversold when below 30. Signals can also be generated by looking for divergences,
failure swings and centerline crossovers. RSI can also be used to identify the general
trend.

RSI is an extremely popular momentum indicator that has been featured in a number of
articles, interviews and books over the years. In particular, Constance Brown's book,
Technical Analysis for the Trading Professional, features the concept of bull market and

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bear market ranges for RSI. Andrew Cardwell, Brown's RSI mentor, introduced positive
and negative reversals for RSI. In addition, Cardwell turned the notion of divergence,
literally and figuratively, on its head.

Wilder features RSI in his 1978 book, New Concepts in Technical Trading Systems. This
book also includes the Parabolic SAR, Average True Range and the Directional
Movement Concept (ADX). Despite being developed before the computer age, Wilder's
indicators have stood the test of time and remain extremely popular.

Calculation

100

RSI = 100 - -------- 1 + RS

RS = Average Gain / Average Loss

To simplify the calculation explanation, RSI has been broken down into its basic
components: RS, Average Gain and Average Loss. This RSI calculation is based on 14
periods, which is the default suggested by Wilder in his book. Losses are expressed as
positive values, not negative values.

The very first calculations for average gain and average loss are simple 14 period
averages.

• First Average Gain = Sum of Gains over the past 14 periods / 14.

• First Average Loss = Sum of Losses over the past 14 periods / 14

The second, and subsequent, calculations are based on the prior averages and the current
gain loss:

• Average Gain = [(previous Average Gain) x 13 + current Gain] / 14.

32
• Average Loss = [(previous Average Loss) x 13 + current Loss] / 14.

Taking the prior value plus the current value is a smoothing technique similar to that used
in exponential moving average calculation. This also means that RSI values become more
accurate as the calculation period extends. SharpCharts uses at least 250 data points prior
to the starting date of any chart (assuming that much data exists) when calculating its RSI
values. To exactly replicate our RSI numbers, a formula will need at least 250 data points.

Wilder's formula normalizes RS and turns it into an oscillator that fluctuates between zero
and 100. In fact, a plot of RS looks exactly the same as a plot of RSI. The normalization
step makes it easier to identify extremes because RSI is range bound. RSI is 0 when the
Average Gain equals zero. Assuming a 14-period RSI, a zero RSI value means prices
moved lower all 14 periods. There were no gains to measure. RSI is 100 when the
Average Loss equals zero. This means prices moved higher all 14 periods. There were no
losses to measure.

Moving Average Convergence-Divergence (MACD)

Introduction

Developed by Gerald Appel in the late seventies, Moving Average Convergence-

Divergence (MACD) is one of the simplest and most effective momentum indicators
available. MACD turns two trend-following indicators, moving averages, into a
momentum oscillator by subtracting the longer moving average from the shorter moving
average. As a result, MACD offers the best of both worlds: trend following and
momentum. MACD fluctuates above and below the zero line as the moving averages
converge, cross and diverge. Traders can look for signal line crossovers, centerline
crossovers and divergences to generate signals. Because MACD is unbounded, it is not
particularly useful for identifying overbought and oversold levels.

Calculation

MACD: (12-day EMA - 26-day EMA)

Signal Line: 9-day EMA of MACD

33
MACD Histogram: MACD - Signal Line

MARKET INDICATORS

All of the technical analysis tools discussed up to this point were calculated during a
security’s price. There is another group of technical analysis tools designed to help you
gauge changes in all securities with in a specific market. These indicators are usually
referred to as market indicators, because they gauge an entire market, not just an
individual security. Market indicators typically analyze the stock market, although they
can be used for other markets.

While the data fields available for an individual security limited to its open, high, low,
close, volume, and sparse financial reports, there are numerous data items available for
the overall stock market. For example, the no of stock that made new highs for the day,
the no. of stock that increased in price, the volume associated with the stock that
increased in price, etc. Market indicators cannot be calculated for an individual security
because the required data is not available.

Market indicators add significant depth to technical analysis, because they contain much
more information that price and volume. Typical approach is to use market indicators to
determine where the overall market is headed and then use price/volume indicators to
determine when to buy or sell an individual security.

34
Categories of market indicators

Market indicators typically fall into 3 categories:

• Monetary
• Sentiment
• Momentum

• MONETORY INDICATORS:

They concentrate on economic rate such as interest rates. They help you to determine the
economic environment in which businesses operate. These external forces directly affect
a business’s profitability and share price.

Examples of interest rates are the money supply, consumer and corporate debt, and
inflation.

• SENTIMENT INDICATORS:

They focus on investor expectation-often before those expectations are discernible in

prices. With an individual security, the price is often the only measure of investor
sentiment available. However, for a large market such as the New York stock exchange,
many more sentiment indicators are available. These include the no. of odd lot sales, the
put/call ratio, the ratio of bullish versus bearish investment advisors, etc.

• MOMENTUM INDICATORS:

It shows what prices are actually doing but does so by looking deeper than price.
examples of momentum indicators include all of the price/ volume indicators applied to

35
the various market indices, the no. of stock that made new highs versus the no. of stocks
making new lows, the relationship between the no. of stocks that advanced in price versus
the no. that declines, the comparison of the volume associated with increased price with
the volume associated with decreased price, etc.

CHAPTER ---2

COMPANY PROFILE

. Tata Consultancy Services Ltd.

TCS House
Raveline Street Fort
Mumbai, 400001
India - Map
Phone: 91 22 6778 9999
Fax: 91 22 6778 9000
Website: http://www.tcs.com

Sector: Technology

Industry: Information Technology Services

BUSINESS SUMMARY:

36
Tata Consultancy Services Limited provides information technology (IT) services,
business solutions, and outsourcing services primarily in the Americas, Europe, and India.
It offers IT services, such as custom application development and management, migration
and re-engineering, system integration, testing, and performance engineering; and IT
infrastructure services comprising infrastructure readiness assessment, IT service desk,
data center management, end user computing, database and command center, and
managed security services. The company also provides enterprise solutions consisting of
supply chain, master data, and customer relationship management, as well as RFID, call
management, Oracle, and SAP; business and IT consulting services; business process
outsourcing services; business intelligence and performance management solutions;
engineering and industrial services; and business solutions to small and medium
businesses. In addition, it offers software products, including financial solutions under the
TCS BaNCS brand name; and technology products; and products for enterprises in the
insurance, health, and life science industries. The company serves banking and financial
services, energy, resources, utilities, government, health care and life sciences, high tech,
insurance, manufacturing, media and information services, retail and consumer products,
telecom, travel, transportation, and hospitality industries. It has strategic partnership with
Alcatel-Lucent, Cisco, EMC, Google Enterprise, HP, IBM, Microsoft, Oracle, RIM,
Thunderhead Ltd., and SAP, as well as with JDA Software Group, Inc., Sun
Microsystems, Inc., and Xerox Corporation. The company was founded in 1968 and is
based in Mumbai, India. Tata Consultancy Services Limited is a subsidiary of Tata Sons
Limited.

KEY EXCUTIVES:

Mr. N. Chandrasekaran B.Sc., MCA,

Chief Exec. Officer, Managing Director and Exec. Director

Mr. Seturaman Mahalingam B.Com., ACA,

Chief Financial Officer and Exec. Director

Shri Phiroz Vandrevala B.Com., ACA,

37
Head of Global Corp. Affairs and Exec. Director

Dr. M. Vidyasagar M.Sc., Ph.D.,

Head of Bio Suite-Products and Exec. VP of R&D

Mr. N. G. Subramaniam M.Sc.,

Head of TCS Financial Services

MONTHLY PRICE MOVEMENTS OF TATACONSULTANCY SERVICE LTD:

Date Open High Low Close Volume

2/5/2011 1170 1177.5 1108.1 1145 1308100

1/4/2011 1185 1246.95 1140 1162.6 2122000

1/3/2011 1113 1198 1057.25 1182 1797400

1/2/2011 1165 1198.9 1055.9 1111.7 1868100

3/1/2011 1167 1220 1087.8 1160 1941200

1/12/2010 1064 1180 1048.4 1164 1323500

1/11/2010 1052.05 1108 998.95 1080.45 1358400

1/10/2010 927 1072.95 869 1050 1824000

1/9/2010 842 960 835.1 920 1867900

2/8/2010 843 885 828.55 843.7 1308700

38
 1/7/2010 750 859.8 725.75 835 1822500

1/6/2010 743.05 794 730 752 1310500

6/5/2010 767.95 843 685.25 743.5 1595200

LINE CHART:

39
By observing the line chart of TCS Company and also drawing the trend line as the line
of support, one can identify the market trend by connecting the higher tops and bottoms.

By observing the Line Chart of TCS,

From July 10 to May -11 there has been a appreciation in the value of shares. The upward
and downward line indicates equal pressure being exercised by buyers and sellers. There
was a clear break out from the support line on Jul – 10 which change the direction
towards the up. The breakout accompanied by high volume.

CANDLE STICK CHART:

40
We can see a upward pattern in the candlestick chart of Tata Consultancy Services.

When we look at the candlestick chart we observe that there was a bearish trend till July-
10, followed by bullish trend till May-11. However there were some crest and trough in
between.

In April-11 the stock prices went to the peak and slowly moved towards
downwards.

MOVING AVERAGE CONVERGENCE AND DIVERGENCE:

41
If the MACD line crosses the zero line from above, the trend can be considered to have
bearish, signalling a sell opportunity. On the other hand if MACD line moves above the
zero line from below, the trend turned bullish and indicates a buying opportunity.

In the following chart of TCS Company we can observe that,

• The MACD rises above the signal line i.e.:- from Aug10 to Feb11, indicating a
bullish signal, which indicates that it may be time to buy.
• The MACD falls below the signal line i.e.:- on Mar11, indicating a bearish signal,
which indicates that it may be time to sell.

RELATIVE STRENGTH INDEX:

42
When the RSI has crossed the 20 line from below to above and is rising, a buying
opportunity is indicated. When it has crossed the 70 line from above to below and is
falling, a sell signal is indicated.

In the following chart of TCS Company we can observe that,

• The RSI has crossed 20 line from below and is rising in the month of Feb11,
indicating a buy signal.
• The RSI has crossed 70 line from above and is falling in the month of Aug10,
Oct10, Nov10, Jan11 and Apr11, indicating a sell signal.

RATE OF CHANGE:

43
If ROC raises 50 line from above, a sell signal is indicated. If ROC falls 50 line from
below, a buy signal is indicated.

In the following chart of TCS Company we can observe that,

• The ROC has raised 50 line from above in the month of Aug10, Nov10, Jan11 and
Apr11, indicating a sell signal.
• The ROC has fallen 50 line from below in the month of Jul10, Sep10, Dec10,
Mar11 and May11, indicating a buy signal.

Wipro, Technologies Ltd.

44
Doddakannelli Sarjapur Road
Bangalore, 560035
Phone: 91 80 2844 0055
Fax: 91 80 2844 0256
Website: http://www.wipro.com

Details:
Sector: Technology

Industry: Information Technology Services

BUSINESS SUMMARY:

Wipro Limited provides information technology (IT) products and services, and
consumer care and lighting products primarily in India, the United States, and Europe.
The IT Services segment provides IT and IT enabled services, including software
application development, application maintenance, research and development services for
hardware and software design, data center outsourcing services, and business process
outsourcing services. The IT Products segment sells a range of personal desktop
computers, servers, and notebooks. This segment provides computing, storage,
networking, security, and software products. It also acts as a value added reseller of
desktops, servers, notebooks, storage products, networking solutions, and packaged
software for various brands, as well as delivers hardware, software products, and other
related deliverables. This segment serves enterprises in the government, defence, IT and
IT-enabled services, telecommunications/telecom service providers, manufacturing, and
banking sectors. The Consumer Care and Lighting segment manufactures, distributes, and
sells personal care products, baby care products, lighting products, and hydrogenated
cooking oils. It provides products in the toilet soaps, toiletries, deodorants, wellness,
skincare, and hair care categories; and commercial lighting, office modular furniture, and
security solutions. The company also manufactures cylinders and truck hydraulics;
distributes hydraulic steering equipment and pumps, motors, and valves for international
companies; and provides water solutions business, as well as provides consulting on

45
renewable energy solutions. Wipro Ltd. has a strategic partnership with Red Hat, Inc.
Wipro was founded in 1945 and is headquartered in Bangalore, India.

MONTHLY PRICE MOVEMENTS OF WIPRO TECHNOLOGIES LTD:

Date Open High Low Close Volume

2/5/2011 450 453.9 428 440.65 1218700

1/4/2011 477 490 439.5 450 1503600

1/3/2011 440 484.7 431.4 476 1331000

1/2/2011 438.6 460 407.5 437.1 1577000

3/1/2011 496.8 496.8 424.6 441.3 1873900

1/12/2010 421 496.25 412.15 491 1792400

1/11/2010 428 441.9 397.5 418.5 1187200

1/10/2010 448 500 415 419 1939200

1/9/2010 400.25 454.4 398.25 452.2 1497000

2/8/2010 415 439.6 393.05 398.25 1091300

1/7/2010 384 430.45 372.1 412.05 1296400

1/6/2010 673.9 675.9 380 385 1145100

6/5/2010 671 692.7 626.4 673.9 1010700

LINE CHART:

46
 It can be seen that it is not favourable for the investor to buy in the months of
Jul10, Aug10, and Sep10, as the prices are fluctuating and not shown any increase. The
prices fluctuated within a price range of 250-400 rupees without any significant change in
the volume, Wipro has maintained significant uptrend in the month of Jan11, and
therefore the ideal time to invest is on Dec10.

47
CANDLE STICK CHART:

From the year-10, July, the stock price of Wipro Ltd. had begun to take the bearish trend
in the stock market up to the month of Sep10, with small fluctuations, which indicates the
time to sell the securities of Wipro Ltd.

From Oct10, it has seen a bullish market upto some period and again it had gone
under small fluctuation in the month of Nov10 and Mar11, which indicates to hold the
security until it gets a better position in the market.

In the month of Oct10, it had reached the maximum value and in the month of Jul10 it
had reached the minimum value.

48
MOVING AVERAGE CONVERGENE AND DIVERGENCE:

If the MACD line crosses the zero line from above, the trend can be considered to have
bearish, signalling a sell opportunity. On the other hand if MACD line moves above the
zero line from below, the trend turned bullish and indicates a buying opportunity

In the following chart of Wipro Company we can observe that,

• The MACD rises above the signal line i.e.:- on Oct10, Jan11 and Apr11,
indicating a bullish signal, which indicates that it may be time to buy.

49
 • The MACD falls below the signal line i.e.:- on Jul10, Nov10 and Mar11,
indicating a bearish signal, which indicates that it may be time to sell.

RELATIVE STRENGTH INDEX:

When the RSI has crossed the 20 line from below to above and is rising, a buying
opportunity is indicated. When it has crossed the 70 line from above to below and is
falling, a sell signal is indicated.

In the following chart of Wipro Company we can observe that,

• The RSI has crossed 20 line from below and is rising in the month of Jul10, Sep10
and Feb11, indicating a buy signal.

50
 • The RSI has crossed 70 line from above and is falling in the month of Aug10,
Oct10, Jan11 and Apr11, indicating a sell signal.

RATE OF CHANGE:

If ROC raises 50 line from above, a sell signal is indicated. If ROC falls 50 line from
below, a buy signal is indicated.

In the following chart of Wipro Company we can observe that,

51
 • The ROC has raised 50 line from above in the month of, Jan11, indicating a sell
signal
• The ROC has fallen 50 line from below in the month of, Sep10, Dec10, Mar11
and May11, indicating a buy signal.

Patni Computer Systems, Ltd.

Akruti Softech Park

MIDC Cross Road No 21

Mumbai, 400 093

India - Map

Phone: 91 22 6693 0500

Fax: 91 22 6693 0211

Website: http://www.patni.com

Details :
Sector: Technology
Industry: Technical & System Software
Full Time Employees:17,739

Business Summary:

Patni Computer Systems Limited, together with its subsidiaries, provides information
technology services. Its services include application development, application
maintenance and support, packaged software implementation, infrastructure management
services, product engineering services, business process outsourcing, and quality
assurance services. The company offers its services to customers through industry
practices in the insurance, manufacturing, retail and distribution, financial services and
communications, media and utilities, life sciences, and other industries. It also has

52
technology practices that offer research, design, and development services for product
engineering and independent software vendors. The company primarily operates in
United States, Europe, Japan, and India. Patni Computer Systems Limited was
incorporated in 1978 and is headquartered in Mumbai, India.

KEY EXCUTIVES:

Mr. Rajiv Ranjan ,

Exec. VP and Global Head of Bus. Operations.

Vijay P. Khare ,
Exec. VP and Global Head of Industry Verticals

MONTHLY PRICE MOVEMENTS OF PATNI COMPUTER SYSTEMS LTD:

Date Open High Low Close Volume

2/5/2011 429 431 363.65 392.2 496200

1/4/2011 476.85 483.8 422.4 423.75 379200

1/3/2011 448.75 478.95 444.05 476.5 424900

1/2/2011 468.25 474 445.6 447.5 336100

3/1/2011 477 489.8 440.85 467.6 724700

1/12/2010 465 503 426 475 521600

1/11/2010 464 508.75 442 464.3 547100

1/10/2010 420.5 485 416.1 464 465200

1/9/2010 453.55 470 411 415 491600

2/8/2010 471.9 554.8 431.9 454.05 2061400

53
 1/7/2010 517.9 543.4 458 467.3 504400

1/6/2010 546.15 602.7 486.35 519.85 580700

6/5/2010 605 613.95 531.15 554 436900

LINE CHART:

By observing the line chart of Patni computer system Ltd, from Jul10 to May11and also
by drawing line of support and line of resistance by connecting the higher tops and lower
bottoms.

There was a clear breakout from the support line on Sep10 with the change in direction of
the trend towards down with this volume has decreased its clear gives the signal to
investor to sell the shares.

54
On Oct10, there was a breakout in the trend, which gives signal to investor to sell the
shares or take long position.

From Nov10 till Apr11, there was a slight increase in the trend with less fluctuation,
which gives signal to investor to buy the shares.

On May11, the stock price of Patni computer system Ltd, showed a minimum value of Rs
370.

CANDLE STICK CHART:

From the year-10, July, the stock price of Patni computer system Ltd. had begun to take
the bearish trend in the stock market up to the month of early Sep10, with small
fluctuations, which indicates the time to sell the securities of Patni computer system Ltd.

55
 From the middle of Sep10, it has seen a bullish market upto some period and again it
had gone under small fluctuation in the month of Oct10, and thereafter a steady growth,
which indicates to hold the security until it gets a better position in the market.

In the month of Sep10, it had reached the maximum value and in the month of May11, it
had reached the minimum value.

MOVING AVERAGE CONVERGENCE AND DIVERGENCE:

If the MACD line crosses the zero line from above, the trend can be considered to have
bearish, signalling a sell opportunity. On the other hand if MACD line moves above the
zero line from below, the trend turned bullish and indicates a buying opportunity.

56
In the following chart of Patni computer system Ltd we can observe that,

• The MACD rises above the signal line i.e.:- on Sep10, Nov10, and Apr11,
indicating a bullish signal, which indicates that it may be time to buy.
• The MACD falls below the signal line i.e.:- on Jul10, Aug10, Oct10, Feb11 and
Mar11, indicating a bearish signal, which indicates that it may be time to sell.

RELATIVE STRENGTH I NDEX:

57
When the RSI has crossed the 20 line from below to above and is rising, a buying
opportunity is indicated. When it has crossed the 70 line from above to below and is
falling, a sell signal is indicated.

In the following chart of Patni computer system Ltd we can observe that,

• The RSI has crossed 20 line from below and is rising in the month of Jul10,
Aug10 and Mar11, indicating a buy signal.
• The RSI has crossed 70 line from above and is falling in the month of Sep10,
Nov10, Feb11 and Apr11, indicating a sell signal.

RATE OF CHANGE:

58
If ROC raises 50 line from above, a sell signal is indicated. If ROC falls 50 line from
below, a buy signal is indicated.

In the following chart of Patni computer system Ltd we can observe that,

• The ROC has raised 50 line from above in the month of Sep10, indicating a sell
signal
• The ROC has fallen 50 line from below in the month of Nov10, indicating a buy
signal.

HCL Technologies Ltd.

59
A-10/11 Sector-3

Noida, 201301

India - Map

Phone: 91 12 0253 5071

Fax: 91 12 0253 0591

Website: http://www.hcltech.com

Details:
Sector: Technology
Industry: Information Technology Services
Full Time Employees:73,420

Business Summary:

HCL Technologies Limited offers integrated portfolio of services, including software-led

IT solutions, remote infrastructure management, engineering, research and development,
and business process outsourcing (BPO) services worldwide. Its custom application
services include custom application development, application re-engineering and
integration, legacy migration and modernization, application portfolio optimization, and
maintenance and production support. The company’s engineering, and research and
development services comprise hardware product engineering, embedded engineering,
mechanical engineering, and software product engineering. Its enterprise application
services consists of blue printing, development, deployment, global rollouts, and
application maintenance and support in the areas of ERP, CRM, and SCM. HCL’s
enterprise transformation services include business transformation; technology
transformation; mainframe and midrange services; data warehousing and business
intelligence; middleware and SOA; enterprise content management and portals;
independent verification and validation; IT governance; and governance, risk, and
compliance consulting. The company’s infrastructure management services comprise end
user computing, datacenter services, network services, security services, application
operations services, and process and tools services. Its BPO services consist of business

60
generation, operations management, management support, and platform based services.
The company serves aerospace and defence, automotive, consumer electronics, energy
and utilities, financial services, government, healthcare, industrial manufacturing, life
sciences, media and entertainment, retail and consumer, semiconductors, telecom,
transportation and logistics, and travel and hospitality sectors worldwide. HCL
Technologies Limited has strategic partnerships with SAP, Oracle, and Microsoft. The
company was founded in 1976 and is based in Noida, India.

KEY EXECUTIVES:

Mr. Vineet Nayar MBA,

Vice Chairman, Chief Exec. Officer, Member of Nominations Committee and Member of
Employees Stock Option Allotment Committee

Mr. Anil Kumar Chanana CA,

Chief Financial Officer and Member of Employees Stock Option Allotment Committee

Mr. Ramamurthy Vaidyanathan B.E (Metallurgy),

Exec. VP

Mr. Gunaseelan Narayanan M.Tech (Computer Science),

Head of Technology Consulting Services and Sr. Corp. VP

Mr. Ranjit Narasimhan MBA,

Head of New Strategic Initiatives

MONTHLY PRICE MOVEMENTS OF HCL TECHNOLIGIES LTD:

61
Date Open High Low Close Volume

2/5/2011 523 526.9 490.1 500.5 966200

1/4/2011 476.45 528 460.1 523 1218800

1/3/2011 445 485.6 436.7 480 892400

1/2/2011 494.4 503.45 425.5 442.25 1185000

3/1/2011 460 517.15 451.25 493 1262300

1/12/2010 407 460.75 406.75 455 804300

1/11/2010 405.15 416.95 367.7 405 737000

1/10/2010 422.5 455.5 399 405.1 840200

1/9/2010 384.15 431.95 376.8 424.4 902900

2/8/2010 396.55 421.65 378.45 381.5 965000

1/7/2010 364 395.85 351 392 1115900

1/6/2010 383 398 353 363.25 1100400

6/5/2010 406.5 410 349.1 382.6 791100

LINE CHART:

62
By observing the line chart of HCL technologies Ltd and also drawing the trend line as
the line of support, one can identify the market trend by connecting the higher tops and
bottoms.

From early Sep10 to Dec10, there has been depreciation in the value of shares. The
upward and downward line indicates equal pressure being exercised by buyers and
sellers.

There was a clear break out from the support line on Sep10, which change the direction
towards the down. The breakout accompanied by high volume. The breakout from early
Jan11 has shown a tremendous increase in the share prices.

CANDLE STICK CHART:

63
From the year Sep10, the stock price of HCL technologies Ltd. had begun to take the
bearish trend in the stock market up to the month of early Dec10, with small fluctuations,
which indicates the time to sell the securities of HCL technologies Ltd.

From the early Jan11, it has seen a bullish market upto some period and again it had
gone under small fluctuation in the month of Mar11, which indicates to hold the security
until it gets a better position in the market.

In the month of early May11, it had reached the maximum value and in the month of
Dec10, it had reached the minimum value.

MOVING AVERAGE CONVERGENCE AND DIVERGENCE:

64
If the MACD line crosses the zero line from above, the trend can be considered to have
bearish, signalling a sell opportunity. On the other hand if MACD line moves above the
zero line from below, the trend turned bullish and indicates a buying opportunity.

In the following chart of HCL technologies Ltd we can observe that,

• The MACD rises above the signal line i.e.:- on Sep10, Oct10, Jan11 and May11,
indicating a bullish signal, which indicates that it may be time to buy.
• The MACD falls below the signal line i.e.:- on Jul10, Nov10 and Mar11,
indicating a bearish signal, which indicates that it may be time to sell.

RELATIVE STRENGTH INDEX:

65
When the RSI has crossed the 20 line from below to above and is rising, a buying
opportunity is indicated. When it has crossed the 70 line from above to below and is
falling, a sell signal is indicated.

In the following chart of HCL technologies Ltd we can observe that,

• The RSI has crossed 20 line from below and is rising in the month of Nov10 and
Feb11, indicating a buy signal.
• The RSI has crossed 70 line from above and is falling in the month of Aug10,
early Nov10, Jan11 and Apr11, indicating a sell signal.

RATE OF CHANGE:

66
If ROC raises 50 line from above, a sell signal is indicated. If ROC falls 50 line from
below, a buy signal is indicated.

In the following chart of HCL technologies Ltd we can observe that,

• The ROC has raised 50 line from above in the month of Dec10 and Jan11,
indicating a sell signal
• The ROC has fallen 50 line from below in the month of Aug10 and Apr11,
indicating a buy signal.

Oracle Financial Services Software Ltd.

67
Oracle Park Off Western Express Highway

Goregaon East

Mumbai, 400063

India - Map

Phone: 91 22 6718 3000

Fax: 91 22 2829 2767

Website: http://www.iflexsolutions.com

Sector: Technology
Industry:Business Software & Services
Full Time Employees:9,566

Business summary

Oracle Financial Services Software Limited provides information technology (IT)

solutions and knowledge processing services to the financial services industry worldwide.
The company provides Oracle FLEXCUBE, a banking product suite for consumer,
corporate, investment, mobile and Internet banking, consumer lending, asset
management, and investor servicing, including payments; Oracle FLEXCUBE Enterprise
Limits and Collateral Management, which enables centralized collateral management,
limits definition, tracking, and exposure measurement; Oracle FLEXCUBE Private
Banking solution that offers a wealth management portal, a customer interaction tool, and
portfolio management capabilities for private banking; and Oracle FLEXCUBE Investor
Servicing, a process enabled transfer agency and investor servicing solution. Its product
suite also includes Oracle Reveleus, which offers a suite of analytical applications; Oracle
Mantas, a solution for financial crime and compliance management; and Oracle Daybreak
that enables banks to reduce risk in the consumer-lending lifecycle. The company also
offers consulting services in the areas of business transformation, risk and compliance,
program management, IT architecture, IT governance, and process improvement, as well
as application services and technology services to financial institutions. In addition, it
engages in the conceptualization, design, evaluation, implementation, and management of
IT infrastructure. Further, the company provides business process outsourcing services

68
ranging from back office work to contact centre services for the banking, capital markets,
insurance, and asset management domains. It was formerly known as i-flex Solutions
Limited and changed its name to Oracle Financial Services Software Limited in August
2008. The company was incorporated in 1989 and is based in Mumbai, India. Oracle
Financial Services Software Limited is a subsidiary of Oracle Global (Mauritius) Limited.

69
MONTHLY PRICE MOVEMENTS OF ORACLE FINANCIAL SERVICE
SOFTWARE LTD.

Date Open High Low Close Volume

2/5/2011 2036.6 2046.9 1926 1950 69600

1/4/2011 1999 2168.5 1843.7 2016.1 47900

1/3/2011 2145 2149.8 1929 1999 19600

1/2/2011 2290 2300 1959.8 2055 44300

3/1/2011 2348 2400 2142 2290 35800

1/12/2010 2089.95 2349 2062.8 2332.55 38000

1/11/2010 2215 2390 2015 2076 42200

1/10/2010 2250 2482.8 2075.2 2206 65300

1/9/2010 2043 2290 2035.05 2232 73900

2/8/2010 2130 2189 2011.1 2045 56600

1/7/2010 2250 2288 2070 2105 26800

1/6/2010 2060 2269.8 2018.75 2255.1 85500

6/5/2010 2095 2156.8 1986 2060.25 50100

LINE CHART:

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By observing the line chart of Oracle Financial Services Software Ltd. and also drawing
the trend line as the line of support, one can identify the market trend by connecting the
higher tops and bottoms.

By observing the Line Chart of Oracle Financial Services Software Ltd,

On Sep10, Dec10, and from Mar11 till May11, there has been depreciation in the value
of shares. The upward and downward line indicates equal pressure being exercised by
buyers and sellers.

There was a clear break out from the support line on Mar11, which change the direction
towards the down. The breakout accompanied by high volume. However, on Nov10 there
was a tremendous increase in the share price of Oracle Financial Services Software Ltd

CANDLE STICK CHART:

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From the year Sep10, it has seen a bullish market with small fluctuations till the month of
early Dec10.

From the year Dec10, the stock price of Oracle Financial Services Software Ltd, had
begun to take the bearish trend in the stock market till the month of May11, with
fluctuations, which indicates the time to sell the securities of HCL technologies Ltd.

In the month of Oct10, it had reached the maximum value and in the month of Apr11, it
had reached the minimum value.

MOVING AVERAGE CONVERGENCE AND DIVERGENCE:

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If the MACD line crosses the zero line from above, the trend can be considered to have
bearish, signalling a sell opportunity. On the other hand if MACD line moves above the
zero line from below, the trend turned bullish and indicates a buying opportunity.

In the following chart of Oracle Financial Services Software Ltd, we can observe that,

• The MACD rises above the signal line i.e.:- on Jul10, Oct10 and Jan11, indicating
a bullish signal, which indicates that it may be time to buy.
• The MACD falls below the signal line i.e.:- on Aug10, Dec10, Mar11, Apr11 and
May11, indicating a bearish signal, which indicates that it may be time to sell.

RELATIVE STRENGTH INDEX:

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When the RSI has crossed the 20 line from below to above and is rising, a buying
opportunity is indicated. When it has crossed the 70 line from above to below and is
falling, a sell signal is indicated.

In the following chart of Oracle Financial Services Software Ltd we can observe that,

• The RSI has crossed 20 line from below and is rising in the month of Aug10 early
Dec10 and Feb11, indicating a buy signal.
• The RSI has crossed 70 line from above and is falling in the month of Sep10, and
Jan11, indicating a sell signal.

RATE OF CHANGE:

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The right to invest is on Nov10, Oct10, and Feb11, as it is more favourable when the
ROC is -200% and the price is expected to rise. Investors should be aware when ROC is
high and has a positive value, the scripts should be sold.

CHAPTER - 3

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 SUMMARY OF FINDINGS

The study conducted is technical analysis. The study is conducted on five stocks of IT
sectors. They are TCS, Wipro, HCL, Patni and Oracle. Technical analysis is a method,
which is used to evaluate the worth of a security by studying the market. It involves
analyzing the recent patterns in the movement of the stock prices. There are many tools
that are used for this analysis some of them are Line chart, relative strength index,
moving average convergence/divergence.

The data collected is for a period from July-10 to May-11.

MACD: -
While analyzing MACD, a sell signal is drawn when it is below the signal line and buy
signal is line and a buy signal; is drawn when it is above the signal line. If the moving
average line crosses the price pattern any thing below the line is an indication to buy and
anything above the line is a sell signal.

RSI: -
The RSI ranges from 0 to 100. A stock is considered overbought around the 70 level and
is considered selling. In a bull market 80 is a better level to indicate an over bought stock
since stocks often trade at higher valuation during bull markets likewise, if the RSI
approaches 30 a stock is considered oversold considered buying again, adjusted is made
to 20 in bear market.

ROC: -

The ROC values may be positive, negative or zero, the X Axis represents the Time and
the Y Axis represents the Values of the ROC. The ROC values oscillate across the zero
line. When the ROC line is above the zero line, the prices is rising and when it is below
the zero line, the prices falling.
Ideally one should buy a share that is over sold and sell a share that is over bought. In the
ROC chart the over bought zone is above the zero line and the oversold zone is below the
zero line. Many analysts use the zero line for identifying buying and selling opportunities.

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Upside crossing ( from below to above the zero line ) indicates a buying opportunity
while the downside crossing ( from above to below the zero line ) indicates the selling
opportunity.

Summary of findings:

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Company Bull Bear Decision

TCS From Aug10 till ------------------ Sell

May11.

---------------------- July10 Buy

Wipro From Oct10, with ------------------------ Sell

small fluctuations till
May11.

--------------- From July10 to Sep10. Buy

Patni computer Ltd Middle of Sep10 to ------------- Sell

Apr11.

----------------- From July10 to early Buy

Sep10.

HCL Early Jan11 till -------------------- Sell

May11.

---------------------- From Sep10 to Dec10. Buy

Oracle systems Ltd From Sep10 to early ----------------- Sell

Dec10.

-------------------------- From Dec 10 till Buy

May11.

CHAPTER 4

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 SUGGESTIONS/RECOMMENDATIONS

1. An investor should be very careful; in identifying the primary trend.

2. Once he identifies the primary trend any pull back in the rally is an opportunity
for a re-entry provided the primary trend is intact.
3. One must take the help of indicators while taking the investment decisions.
4. An investor is supposed to identify the breakout in the RSI and MACD to its
moving average and use this at an early entry level.
5. Investors must follow the principles laid down with portal clarity and in good faith
which will help in reducing the psychological strain and pressure.
6. One most get away from market roomers and wrong information in order to take
protection from market manipulation.
7. Investors should have knowledge regarding the market trends so that they can take
maximum return with maximum investments.
8. The investor should not hesitate in increasing his position on identifying the
strength and hold on to his position until the trend gives a reverse signal.

CHAPTER 5

79
 CONCLUSION

Technical analysis is a method of evaluating securities by analyzing the statistics

generated by market activity. It is based on three assumptions:

1) The market discounts everything,

2) Price moves in trends and

3) History tends to repeat itself.

One of the most important concepts in technical analysis is that of a trend, which the
general direction that a security is headed is. There are three types of trends: uptrend,
downtrends and sideways/horizontal trends.

1. A trendline is a simple charting technique that adds a line to a chart to

represent the trend in the market or a stock.
2. A channel, or channel lines, is the addition of two parallel trend lines that act
as strong areas of support and resistance.
3. Support is the price level through which a stock or market seldom falls.
Resistance is the price level that a stock or market seldom surpasses.
4. Volume is 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.
5. A chart is a graphical representation of a series of prices over a set time frame.
6. The time scale refers to the range of dates at the bottom of the chart, which
can vary from decades to seconds. The most frequently used time scales are
intraday, daily, weekly, monthly, quarterly and annually.
7. The price scale is on the right-hand side of the chart. It shows a stock's current
price and compares it to past data points. It can be either linear or logarithmic.
8. There are four main types of charts used by investors and traders: line charts,
bar charts, candlestick charts and point and figure charts.

80
9. A chart pattern is a distinct formation on a stock chart that creates a trading
signal, or a sign of future price movements. There are two types: reversal and
continuation.
10. A triangle is a technical analysis pattern created by drawing trendlines along a
price range that gets narrower over time because of lower tops and higher
bottoms. Variations of a triangle include ascending and descending triangles.
11. A gap in a chart is an empty space between a trading period and the following
trading period. This occurs when there is a large difference in prices between
two sequential trading periods.
12. The moving average convergence divergence (MACD) is comprised of two
exponential moving averages, which help to measure a security's momentum.
13. The relative strength index (RSI) helps to signal overbought and oversold
conditions in a security.
14. ROC is classed as a price momentum indicator or a velocity indicator because
it measures the rate of change or the strength of momentum of change.

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 BIBILOGRAPHY

 TEXT BOOKS:

Technical Analysis---------------------------ICFAI

Active Portfolio Management--------------Richard C. Grinold and Ronald N. Kahn

Investments------------------------------------Bodie Kane Marcus
Investment Analysis and Portfolio Management ------Prasanna Chandra
Practical Investment Management---------- -Robert A. Strong

 WEBSITES:
www.nseindia.com
www.bseindia.com
www.google.com
www.yahoofinance.com
www.stockcharts.com

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