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TECHNICAL ANALYSIS
OF SECURITIES
SUMMER TRANING REPORT
SUBMMITED
In partial fulfillment of the requirement
For the award of the
Master of Business Administration
For theSession-2009-2010
Supervisor Submitted by:
Name: Harinder Singh Ullas Bassi
Indiainfoline ltd. MBA-2
ND
SEMFeroze Gandhi mkt.
Ludhiana.
AMITY GLOBAL BUSINESS SCHOOL
CHANDIGARH
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Summer Training Report
On
Technical Analysis Of
Securities
Undertaking at
India Infoline limited
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Table of Contents
Page no.
Acknowledgement 4
Preface 5
About the Project 6
Introduction to the Securities market 7 to 9
Introduction to the Stock Market 10 to 15
About IIFL 16 to 24
Objective of the study 25
Scope of the study 26
Introduction to the study 27 to 41
MACD & MACD-H 42 to 58
Financial ReviewBudget 2009 59 to 78
Research design & Methodology 79 to 80
Questionnaire & Analysis 80 to 89
Limitations of the study 90
Suggestions and Findings 91 to 92
Bibliography 93
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AcknowledgementSurpassing milestones towards a mission give us degree
of jubilance that we tend to forget the precious help
extended by people to whom the success of mission is
solely dedicated.
Concentration, dedication, hard work & application are essential but
not the only factor to achieve the desired goal .It must be supplemented
by guidance, assignment & cooperation of people to make it a success.
Every complete successful assignment is the result of many hands joined
together and we must thank all of themMy summer training at India Infoline ltd. was an ardent,
unforgettable and fruitful experience. I was overwhelmed with the
friendly and cooperative attitude, the enlightened advice and
information extended to me by everyone.
To start with, I would like to thank Mr. Harinder Pal Singh
(Territory manager)for giving me an opportunity to do my summer
training in this esteemed organization. I would like to thanks Mr. SUNNY
AHUJA (Training Officer)who helped us to complete our project. Theynever hesitated to answer our never ending queries
I would like to thank Prof. MONIKA THAKUR for smooth and
unhurdled completion of my training.
At last but not the least, my warmest thanks to my parents and
all my friends as their motivation proved to be of great help in the
completion of this project
ULLAS BASSI
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PREFACE
Life is too short & art is too long the occasion fleeting
experience fallacious andjudgment difficult
As a part of degree of MBA, a student has to undergo for training in a
commercial organization with the help of this training research students come to
know that how the academic knowledge is applied in an actual business situation.
They also come to know about the working conditions under which they will have to
work in the future
In our summer training report we are studied Technical Analysis of
Securities. It is the student attempt towatch, record, analyzed and understand the
trends of the stocks and practical aspect of the stocks and applying the theoretical
knowledge and concept.
Today the corporate world is related to the stock exchange in many
ways even the political, economic, regional, and many more factors affect the stock
exchanges. Basically all these things are inter related and have effect on each other
in one or another way. So this report has been prepared keeping all these in minds
and it includes the basic of stock market and stock exchange.
Every effort has been made to satisfy the readers but in spite of this all the critical
appraisals are also welcome.
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ABOUT THE PROJECT
I have made a project during my two months summer training
undertaking at INDIAINFOLINE LIMITED FEROZE GANDHI MARKET
LUDHIANA. The project is about the implement of MACD and MAC-H as a
tool of Technical Analysis of Securities. For this purpose I have collected some
historical data just to make my stand clear on the concept of MACD and MAC-
H as a tool of Technical Analysis of Securities. To make this concept clear to
understand I have used some examples, charts with interpretation and some
historical data
TITLE OF THE PROJECT:
TECHNICAL ANALYSIS OF SECURITTIES
ULLAS BASSI
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Introduction to securities marketThe money you earn is partly spent and the rest saved for meeting future
expenses. Instead of keeping the savings idle you may like to use savings in
order to get return on it in the future .This is called investment and the
security market provide you the place for investment. Securities market is
a place where buyer and seller enter in to transactions to purchase and sell
shares, bonds, debentures etc. one can invest in various securities i.e.
shares , government securities, derivative products, unit of Funds etc.
Functions of the securities market
Securities markets provide channels for reallocation of savings to
investments and entrepreneurship.
Savings are linked to investment by a variety of intermediaries, through a
range of financial products, called securities.
To ensure that the investor reap full benefit.
To ensure recognized code of conduct.
To provide update rates for actual and potential investors.
It enables the corporate, entrepreneur to raise resources for their
companies and business ventures through public issues.
Security market helps the buyer and sellers of the securities to enter
into transaction to purchase and sell the shares, bonds, debentures etc.
The securities market is structured to provide liquidity and marketability to
the securities industry. It is a place where stock certificates can be turned
into cash at the prevailing price. This kind of liquidity makes investing in
stock attractive. It provides the market quotation of shares, bonds and
debentures, which is sort of buying and selling in the market.
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Segments of security marketIt has two interdependent segments
The primary (new issues) market and.
Secondary markets (stock exchanges).
The primary market provided the channel for sale of new securities
while the secondary market deals in securities previously issued and are listed
on the stock exchange. Majority of the trading is done on the secondary
market, which compromises of equity market and debts market. Secondary
market could either be dealer or auction market. While stock exchange is the
part of auction market, over-the-counter (OTC) is a part of the dealer market.
Introduction to stock exchange
A stock exchange is a nervous system of the capital market. The changes in
the capital market are brought about by a complex set of factors, all
operating on the market simultaneously.
A stock exchange is a key institution facilitating the issue and sale of various
types of securities. It is a pivot around which every activity of the capital
market revolves. In the absence of stock exchange, the people with savings
would hardly invest in corporate securities for which there would be no
liquidity (buying and selling). Corporate investments from the general public
would have been thus lower.
A stock exchange is a place or a market where securities, shares,
debentures, bonds, mutual funds of joint stock companies, central and state
government organizations, local bodies and foreign government are brought
and sold. A stock exchange is a platform for the trade of already issued
securities through primary market.
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It is the essential pillar of the private sector and corporate economy.
It is the open auction market where buyer sellers met and involve a
competitive price for the securities. It reflects hope aspirations and
Meaning of stock exchanges in India
The Securities Contract (Regulation) Act, 1956 *SCRA+ defines ,Stock
Exchanges as any body of individuals, whether incorporated or not,
constituted for the purpose of assisting, regulating or controlling the business
of buying, selling or dealing in securities
Point to be noted is that stock exchange could be regional stock
exchange whose area of operation/ jurisdiction is specified at the time of its
recognition or national exchanges, which are permitted to have the
nationwide trading since inception. LSE is a regional stock exchange whose
area of jurisdiction is J&K, Punjab, Himachal Pradesh and NSE was
incorporated as national stock exchange.
History of stock exchanges in India
In INDIA only registered stock exchanges can operate the stock market
activities and recognition is governed under the provision (Regulation) Act, 1956.There are 24 Regional stock exchanges in INDIA. Bombay Stock Exchanges (BSE)
and National Stock Exchange (NSE) are the two major stock exchanges of INDIA.
BSE is the oldest stock exchanges in ASIA. It was established as The
Native Share & Stock Brokers Association in 1875. It was the first stock exchange
in INDIA to obtain the permanent recognition in 1956 from the government of
INDIA under the Securities Contract Act, 1956. BSE in 1986 came out with a stock
index i.e. SENSEX that subsequently became the barometer of the Indian stock
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market. BSE played a pivotal role in the development of the Indian capital market
and its index, SENSEX, is tracked worldwide. The exchange has the nation wide
reach with a presence in 417 cities and town in India. It provides an efficient and
transparent market for trading in equity, debt instrument and derivatives.
NSE on the other hand was in incorporated as a tax paying company in
1992. In 1993 NSE was recognized as a stock exchange under the Securities
Contract Regulation Act, 1956 and it commenced operations in the wholesale debt
market (WDM) segment in June1994. The capital market equities segment
commenced operations in November 1994 and operations in derivatives segment
were started in June 2000. In October 1995, NSE became the largest stock exchange
in the country.
NSE launched S&P CNX Nifty in April1996. NSE is one of the largest
interactive VSAT based exchanges in the world. Presently, it supports more than
three 3000 VSATs. The NSE network is the largest private wide area network in
India and first C- Band VSAT. History of stock exchanges of Indian capital market
can be back to the 18thcentury as follows:
History of Indian Capital market at a glance
18th
Century
1800- Trading of shares of East India Company in Kolkata and Mumbai
1850- Joint stock companies came into existence
1860- Speculation and feverish dealing in securities
1875- Formation of stock exchange of Mumbai
1894- Formation of Ahmadabad Stock Exchange
19th
Century
1908- Formation of Calcutta Stock Exchange
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1939- Formation of Lahore and Madras stock exchange
1940- Formation of U.P. and Delhi stock exchange
1956- Securities Contract Regulation Act regulated
1957- Scam of Haridas Mundhra
1988- Securities and exchange board of India set up
1991- Scam of MS Shoes
1992- SEBI given power under SEBI Act, 1992
1993- Formation of National Stock Exchange (NSE)
1995- HARSHAD MEHTA Scam
1995- SESA GOA Scam
1998- BPL and Videocon Scam
20th
Century
2000- Depositories came into existence (electronic form of shares)
2001- Ketan parikh Scam
2002- Start of rolling settlement and banning of BADLA Trading
2003- Introduction of T + 3 settlements in April
2003- Introduction of T + 2 settlements in April
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Features of Stock Exchange
It provides the training platform where buyers and sellers meet to
transact in securities.
The stock exchange in India is under the supervision of the regulatory,
the Securities and Exchange Board of India.
It is the place where sale and purchase of existing securities is done.
It enables an investor to adjust his holdings of securities in response to
changes in assessment about risk and return.
It enables to meet the liquidity needs by providing market for sale of
securities.
Stock exchange is an association of individual members called member
brokers.
Stock exchanges are formed for the purpose of regulating and facilitating
the buying and selling of securities.
Stock exchange operate with due recognition from the govt. under
securities and contract regulation act 1956.
Stock exchange facilitates trading in securities of the public sector
companies as well as govt. securities.
It acts as a host of intermediaries which assist in trading of securities and
clearing and settlement of trade.
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Trading in Stock Exchange
The trading in stock exchange is done through the authorized members who
have duly registered with concerned stock exchange through Securities and
Exchange Board of India (SEBI). They have to pay a certain some of money as
security and some margin money in advance for dealing in securities to the
stock exchange.
After depositing the money he can start trading. Nowadays as screen base
trading has started through satellite, so now a person can also deal in
securities on web from some particular sites as ICICIDIRECT.COM,
INDIABULLS.COM, and SHAEKHAN.COM etc.
Trading Mechanism
The operation of sale and purchase of scrips is as follows:
Walk to any broker /sub broker
See the prices of the shares
Scan the counter at broker place
It display the 3best bidding offer for all the scrips traded
Decide to buy or sell, asks your broker to deal on your behalf
Make the payment /margin money/share certificate
Collect confirmation slip
Visit the same counter on pay out day to collect delivery/payment
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Who is benefited from the stock market?
Investor: It provide them liquidity, marketability, safety etc. of the
investment.
Companies: It provides them the access to market funds, higher rating and
public interests.
Brokers:They receive commission in lieu of their services to investor.
Economy and country: There is a large flow of savings, better growth,
higher incomes and it helps the industries to grow.
The recognition according to a stock exchange is normally valid for
the period of five years. However the Stock Exchange of Bombay, Delhi,
Chennai, Hyderabad, and Bangalore have been granted permanent
recognition.
Importance of Stock Exchange
The stock exchange regarded as an institution of vital importance in every
country where joint stock companies are regarded in trade and industrial
activities under competitive condition. Industrial growth and development
depends to a large extent on capital formation that is saving being invested in
industrial concern thus possible on a large scale due to the existence of stock
exchange. Individuals and Institutions interested in investing their saving are
generally attracted towards securities issued by companies they are also
interested in those securities which suit their estimates of risk and return on
investment.
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STOCK EXCHANGES IN INDIA
ZONE PLACE NAME OF THE STOCK EXCHNGE
North
Zone
Kanpur Uttar Pradesh Stock Exchange Association
Ltd.
Ludhiana Ludhiana Stock Exchange Association Ltd.
Delhi Delhi Stock Exchange Association Ltd.
Jaipur Jaipur Stock Exchange Ltd.
East Zone Bhubaneswar Bhubaneswar Stock Exchange Ltd.
Calcutta Calcutta Stock Exchange Association Ltd.
Gauhati Gauhati Stock Exchange Ltd.
Patna Magadh Stock Exchange Ltd.
West Zone Ahmedabad Ahmedabad Stock Exchange Ltd.
Baroda Vadodara Stock Exchange Ltd.
Indore Madhya Pradesh Stock Exchange Ltd
Mumbai Bombay Stock Exchange Ltd.
Mumbai OTC Exchange of India
Mumbai National Stock Exchange of India Ltd.
South
Zone
Bangalore Bangalore Stock Exchange Ltd.
Chennai Madras Stock Exchange Ltd.Cochin Cochin Stock Exchange Ltd.
Coimbatore Coimbatore Stock Exchange Ltd.
Hyderabad Hyderabad Stock Exchange Ltd.
Mangalore Mangalore Stock Exchange Ltd.
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INDIAINFOLINE
LIMITEDItsall about money honey
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INDIAINFOLINE LIMITED
India Infoline is a growing organization, which is an ideal place for
individuals with high ambitions. The working atmosphere is highly
charged with a young and energetic team of qualified professionals. The
average age of the team is 28. Further it provides an environment
where conventions, protocols do not come in the way of good ideas.
Individuals who are dynamic and result oriented will find their own niche
in this environment. The strength of the organization has been to
continuously innovate and reinvent itself. The organization as a team is
continuously learning and is in sync with the rapidly charging
environment. India Infoline ltd. is a one-stop financial services shop,
most respected for quality of its advice, personalized service and
cutting-edge technology. A network of 1,361 business locations spread
over 428 cities and towns across India facilitates the smooth acquisition
and servicing of a large customer base. All IIFL offices are connected
with the corporate office in Mumbai with cutting edge networking
technology
. IIFL has overseas offices in Singapore, Dubai and New York. With a
team of 25 research analysts, IIFL provides in-depth analysis of India
with plans to extend its presence to other Asia Pacific markets.
It is listed on both the leading stock exchanges in India, viz. the Stock
Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and
is also a member of both the exchanges. It is engaged in the
businesses of Equities broking, Wealth Advisory Services and Portfolio
Management Services. It offers broking services in the Cash and
Derivatives segments of the NSE as well as the Cash segment of the
BSE. IIFL is registered with NSDL as well as CDSL as a depository
participant, providing a one-stop solution for clients trading in the
equities market. IIFL has recently launched its Investment banking and
Institutional Broking business.
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HISTORY
India Infoline limited was originally incorporated on October 18, 1995 as
Probity Research and Services Private Limited at Mumbai under the
Companies Act, 1956 with Registration No. 11 93797. It commenced
our operations as an independent provider of information, analysis and
research covering Indian businesses, financial markets and economy,
to institutional customers. It became a public limited company on April
28, 2000 and the name of the Company was changed to Probity
Research and Services Limited. The name of the Companywas changed to India Infoline.com Limited on May 23, 2000 and later to
India Infoline Limited on March 23, 2001.
In 1999, they identified the potential of the Internet to cater to a mass
retail segment and transformed its business model from providing
information services to institutional customers to retail customers.
Hence it launched its Internet portal, www.indiainfoline.com in May,
1999 and started providing news and market information, independent
research, interviews with business leaders and other specialized
features.
In May 2000, the name of the Company was changed to India
Infoline.com Limited to reflect the transformation of its business. Over a
period of time, it has emerged as one of the leading business and
financial information services provider in India. In the year 2000, it
leveraged its position as a provider of financial information and analysis
by diversifying into transactional services, primarily for online trading in
shares and securities and online as well as offline distribution of
personal financial products, like mutual funds and RBI Bonds. These
activities were carried on by its wholly owned subsidiaries.
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Its broking services was launched under the brand name of 5paisa.com
through its subsidiary, India Infoline Securities Private
Limited and www.5paisa.com, the e-broking portal, was launched for
online trading in July 2000. It combined competitive brokerage rates and
research, supported by Internet technology, besides investment advice
from an experienced team of research analysts, we also offer real time
stock quotes, market news and price charts with multiple tools for
technical analysis.
India Infoline fixes a price band between Rs 70 and Rs 80 for
its forthcoming public issue. The company is coming outwith public issue of 1.18 crore shares with a face value of Rs 10 through
the book building route. The issue is slated to open on April 21 and
close on April 27. Enam Financial Consultants Private Ltd would be the
sole book running lead manager to the issue while In time Spectrum
Registry Ltd is the registrar to the issue.
India Infoline public issue gets 6.6 times oversubscription
Facilities
IIFL main offices are located in approximately 4,000 square feet of
office space located in Mumbai, India. India Infoline Branches
collectively occupy an additional 10,000 square feet of office spacelocated throughout India, as on March 31, 2005, we have 73 branches
across 36 locations in India.
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Key executive
Products & Services
India Infoline ltd. is a one-stop financial services shop, most respected
for quality of its advice, personalized service and cutting-edge
technology. Products & services offered by Indiainfoline limited are:
1. Equity
2. Portfolio Management services
3. Research
4. Commodities
5. Mortgages
6. Insurance
7. Wealth Management Services
8. Investment Online
a) Investment in MF. b) Apply in IPOs
S.No Name Designation
1 Mr. Nirmal JainChairman and Managing director
2 Mr. R VenkataramanExecutive Director
3 Mr. Nilesh VikamseyIndependent Director
4 Mr. Kranti SinhaIndependent Director
5 Mr. A K Purwar
Independent Director
6 Mr. Sat Pal Khattar Non Executive Director
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Achievements
India Infoline has recently been awarded the 'Best Broker, India' by
Finance Asia and the 'Most improved brokerage, India' in the Asia
Money polls. India Infoline has also won the 'Fastest Growing Large
Broking House' award by Dun & Bradstreet. A forerunner in the field of
equity research, India Infoline's research is acknowledged by none
other than Forbes as 'Best of the Web' and '...a must read for
investors in Asia'. India Infoline's research is available not just over the
Internet but also on international wire services like Bloomberg,
Thomson First Call and Internet Securities where it is amongst one of
the most read Indian brokers.
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COMPETITORS
1) SHARE KHAN LIMITED: Services provided by Share khan are asfollows;
Online + offlineInternet Telephonic
Also provide software namely Trade Tiger and Fast trade
internet services to the customer, who want to operate
their own account while sitting at home.
Offers- They offer two plans
Rs.250+ margin money Prepaid plan (Rs.6,000)
AMC-Rs.300 p.a. No such charges
Brokerage - .05 on Intraday .025 on Intraday
.50 on delivery .25 on delivery(Excluding taxes) (Excluding taxes)
In prepaid plan Rs.6,000 which would be given in advance, is
refundable in the form of brokerage with the one year
validity.
Transaction charges / Scrip charges would be depend on thetransaction (max.Rs.16).
Limitations-
1. They do unauthorized trading on the part of the customers.
2. They give very limited period of debit.
3. Services provided to the customer are not satisfactory.
4. No lifetime plan given by them .
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2.RELIGARE- Services provided by Religare are as follows:
Online + offlineInternet Telephonic
Offers They have only one plan in which the customer have to pay
Rs.10,500ce in advance out of which Rs.250 will be deducted as AMC
and Rs.100 will be deducted as new account opening.
They give four times limit to trade in Intraday by default and two time
limits for delivery.
They charge .o3%/100 brokerage for Intraday and .30%/100 for
delivery (excluding other charges).
Limitations
They have only one plan and no life time plan They 18% p.a. rate of interest on the debit amount
They required higher initial investment in the form of margin money.
They charge very high scrip charges.
3.HDFC bank- Now a days Banks also provided services of trading
trough net banking or telephonic banking. But they charge very high rate of
brokerage as they avail this services from some other trading firm.
HDFC bank also provided this service, they open demat +trading account
with Rs.799. No physical place is provided by them to the investors. You can
check your account on bank website www.HDfcsee.com.
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4. INDIABULLS-Services provided by Indiabulls are as follows:
Online + offlineInternet Telephonic
Offers- they offer one lifetime plan of Rs. 900. In which no AMC will
be charge in future
They give six times limit to trade in Intraday by default and two time
limits for delivery.
They charge .o3%/100 brokerage for Intraday and .30%/100 fordelivery (excluding other charges)
Limitations
They have only one lifetime plan, no other option for the customers.
They charge very high transaction charges
They give very limited period of debit.
DEMAT ACCOUNT - In all the companies for opening of the Demat
account we have to fulfill following formalities:-
PAN CARD
Resident proof
One cancel cheque.
One cheque of margin money.
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OBJECTIVE OF THE STUDY
Whenever a study is conducted, it is done on the basis of certain objectives
in the mind. A successful completion of the project is based on objective of
the study that could be stated as follows:
1) To determine the expectations and apprehensions of investors in the
stock market.
2) To study the awareness level of investors about Technical Analysis
3) To determine the measure which can be taken to improve the quality
of technical Research?
4) To determine the investment criteria of investors.
5) To save the existing and initial investor from high losses.
6) To increase the ROI of existing and initial investor.
7) To overcome the difficulties for decision making.
8) To study volatility in different sector of the market.
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SCOPE OF THE STUDY
The scope is related to study of TECHNICAL ANALYSIS OFSECURITIES. But this is very vast. There are many tools of Technical
Analysis of the securities. Each tool has its own importance as well as
limitations. Our scope of the project is limited to the study of MACD
and MACD-H as tools of Technical Analysis of Securities.
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INTRODUCTION TO THE STUDY
In introduction of study wee generally give the brief introduction about the topic
under study or on the research is being conducted.
The project named TECHNICAL ANALYSIS OF SECURITIES is generally
related to the investments in INDIAN economy. In this study we find out the factors
which effect the investments in INDIA and try to understand the problem in deep to
sort out the all the threats and remove all the limitation of the decisions regarding
investments.
The existing investors and initial investors face many problems while he invests in
IPOs & in Equities. Because there are many type of shares which are divided in
different categories. This makes the investments a complex decision. There are many
difficulties while they invest. In this study we elaborated the factors to be considered
before investing in any sector.
For this, the study is divided into two parts:
How we can analyze and invest in the equities.
Which current sector should be used for high return?
How can we use MACD and MACH as a tool of technical analysis
This project is mainly concerned with how we can get knowledge regarding
investment in Equities and get best returns on our investments.
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SECURITY ANALYSIS
There are two main types of analysis of predicting the performance of a
companys stock FUNDAMENTAL and TECHNICAL analysis.
Fundamentalists forecast stock prices on the basis of Economic-Industry-
Company statistics. The principal decision variables ultimately take the
form of earning and dividend. The latter looks for peaks, bottoms, trends,
patterns, and other factors affecting a stocks price movement and then
making a buy/sell decision based on those factors. It is a technique many
people attempt though very few are truly successful.
FUNDAMENTAL ANALYSIS
Fundamental Analysis is an approach to determine the expected value
of a security. Its objective is to identify the under- priced and over-
priced and over-priced securities in the market place so that
investment decision (buying &selling ) can be made.
The fundamental analysis includes the three components:
Economy Analysis
Industry Analysis
Company Analysis
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ECONOMY ANALYSIS
The economic activity affects corporate profits, investors attitude andexpectations and ultimately security prices/ return. Thus the performance of
the company depends on the performance of the economy. If the economy is
in the recession or stagnation, the performance of the company will be bad
in general. If the economy is booming, incomes are rising and the demand is
good, the industries in general may be prosperous.
Industry Analysis
The industry analysis can be viewed as one security analysis. Industry
analysis involves several steps. As a first step, industries are analyzed in
terms of their stage in life-cycle. The analysis indicates the value to
investors of selecting certain industries while avoiding others.
Company Analysis
In the company analysis, all the factors affecting the earnings of a particular
company are considered. Both internal and external information is
considered in the company analysis.
Thus the fundamental analysis involves making careful estimates of theexpected stream of benefits and the required rate of returns for a common
stock.
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Limitations of fundamental analysis
The following are the main obstacles in the way of successful fundamental
analysis:
Incorrectness of data
An analyst has to often analysis the incorrect data. An experienced
and skilled analyst may be able to defect Miss-representation and
concealment but sometimes he is mislead by them into wrong
conclusion.
Future uncertainties
Future changes are largely unpredictable, more so when the economic and
business environment has frequent winds of change.
Irrational market behavior
The slow correction of under or over-valuation poses a threat to the
analyst. Before the market reflects the value established by the analyst,
new forces may emerge.
Fallibility of experts
The investment decision requires interactive reasoning and not linear
reasoning. When multiple factors interact in complicated way and point in
different directions, human judgments, however well-informed and well-
reasoned, tend to be fallible.
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TECHNICAL ANALYSIS
Meaning and Concept of TechnicalAnalysis
We can define technical analysis as a study of stock market
considering factors related to the supply and demand of the stocks.
Technical analysis doesnt look at underlying earnings potential of a
company while evaluating stocks. It uses charts and computer programs tostudy the stocks trading volume and price movement of the stock on the
basis of the trend. Technical analyst assumes that the market is efficient and
the price has already taken into consideration the other factors related to the
company and industry.
The technical analysts believe that the past patterns of the
market will recur in future and can, therefore, be used for predictivepurposes. Technical analysis records historical data on charts, study these
charts in an effort to find meaningful patterns, and use these patterns to
predictive future prices. Some techniques are used to predict the single
security, some are used to predict movement of market index, and some are
used to predict both the action of individual securities and the market action.
Technical analysis is frequently used as a supplement to
fundamental analysis rather than as a substitute for it.
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History of Technical Analysis
Technical Analysis as a tool of investment for the average investor thrived in
the late nineteenth century when Charles Dow, the 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.
ASSUMPTIONS of the Technical
Analysis
The techniques of Technical Analysis are based on the following main
assumptions:
1. Market prices are determined by the interaction of demand and
supply forces.
2. Supply and demand are influenced by a variety of factors, both
rational and irrational. These include fundamental as well as
psychological factors.
3. The stock prices tend to move in fairly persistent trends, expect minor
deviations.
4. Shifts in demand and supply bring about changes in trends.
5. Shifts in demand and supply can be detected with the help of charts
of market action.
6. Because of the persistence trends and patterns, analysis of past
market data can be used to predict future price behaviors.
7.
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Purpose of Technical Analysis
The Technical Analysis is done from four important points of view,
discussed as follows:
1.Price
The changes in price reflect change in investor attitude and demand
for and supply of securities.
2.Time
The degree of movement in price is the function of time. The longer
it takes for reversal in trends, the greater the price change that would
follow.
3.Volume
The intensity of price changes is reflected in the volume of the
transactions that accompany the change. An increase in price
accompanied by a low volume implies that the change is not strong
enough.
4.Breadth
The quality of price change is measured by studying whether a change in
trend spreads across most sector and industries or is concentrated in few
type of scrip. Study of the breadth of the market indicates the extent to
which the price changes have taken place in the market in accordancewith a certain overall trend.
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Difference between F.A. & T.A.
Both fundamental and technical analyses are used to measure the
price/return of securities but T.A.is frequently used as supplement rather
than substitute for it. However the following difference may be noted
between the two.
Fundamentalists forecast stock on the basis of Economy
Industry Company statistics considering the future growth of
EPS, DPS, Price of security. On the other hands, the technical
analysis believe that past patterns of the market action will recur
in future and, therefore, stock prices depend upon historical
trends.
T.A. mainly seeks to predict short term price movements,
whereas, fundamental analysis tries to establish long term values.
The focus of technical analysis is mainly on internet market data,
particularly price and volume data. The force on fundamental
analysis is on fundamental factors relating to the economy, the
industry, and the firm.
T.A. appeals mostly to the short term traders, whereas,
fundamental analysis appeals to the long term investors.
Fundamentalists believe that stock price behavior is 90% logical
and 10% psychological, while technical analysts believe that stock
price behavior is 90% psychological and 10% logical.
Thus we can conclude that speculators, who want to make quick money
mostly, use results of technical analysis whereas investors, who invest onlong- term basis, use the results of fundamental analysis.
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Tools of Technical Analysis
Technical analysis believes that price of stock depends on supply anddemand in the market place. It has little co-relation with its intrinsic
value. All financial data and market information of a given stock is
already reflected in its market price. As such, charts are drawn to
identify price movement pattern to predict future movement of the
stock.
Technical tools may be used to assess the overall market as well as
individual stocks. The following are different tools of Technical
Analysis.
TOOLS OF Technical Analysis
Tools of overall Tools ofindividual
Market Analysis StockAnalysis
Dow Theory Bar and linecharts
Breadth of Market Point andFigureAnalysis Charts
Moving Average
Analysis
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How is Technical Analysis done?
Technical Analysis is done by identifying the trend from past movements
and then using it as a tool to predict future price movement of the stock.
It can be done by using any of the above methods.
Types of Trends
Trends can be classified in to following types. They are
Uptrend
Generally a stock moves in any direction with the phases of
consolidation or moving against the trend for short period. But
still it creates a higher HIGH and LOWS in case of an uptrend. In
short each short rally will create new high for the stock. In an
uptrend each, each rally reaches a higher high than the preceding
rally and each decline stops at a higher level than the preceding
decline.
An uptrend emerges when bulls are
stronger than bears and their buying forces prices up.
DowntrendsIn this case as against Uptrend the stock creates lower Highs and
Lows. Furthermore in case of downtrend the fall is much steeper
than the rise in case of Uptrend. In a downtrend each decline falls
to a lower low than the preceding declined and each rally stops at
a lower level than the preceding rally.
Downtrend occurs when the Bears are stronger than the
Bulls and their selling pushes market down.
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Range bound
In case of such a trend the price moves in a small range for
the long period. There is no apparent direction as far as trend is
concerned in this case.
Primary, Medium-term and Short-termtrends
The main or primary trend often referred to as bull or bear market. Bulls
go up and bears go down. They typically last about nine months to two
years with bear market troughs separated by just under four years. These
trends revolve around the business cycle and tend to repeat whether the
weak phase of the cycle is an actual recession, or if there is no recession
and just slow growth.
Primary trends
bull market Bear market
Secondary reactions
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Primary trends are not straight-line affairs, but series of rallies
and reactions. These series of rallies and reaction are intermediate or
medium-term trends. This trend can vary in length from as little as six
week to as nine months, or a length of a very short primary trend.
Intermediate trends typically develop as a result of changing perceptions
concerning economic, financial or political events. It is important to have
some understanding of the direction of the main or primary trend because
rallies in bull markets strong and reaction are weak. On the other hand,
reactions in bear markets are strong and rallies are short, sharp and
generally are unpredictable.
Bull and Bear trend
Bull and Bear trend are always referred by primary trends as a
already told. Bulls go up and bears go down.
BULL TREND
Bull trend: Start and End LH
Start of bull trend
End of bear trend
HL
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BEAR TREND
LH End of bear trend
Start of bear trend LL HL
LH = Lower High
LL= Lower LowHL= Higher Low
Bull Market Runs Bear Market Runs9 months to 2 years 9 months to 2 years
Approximately 4 years
Bulls and Bears typically last about nine months to two years.
Bull trend shows the bullish market and bear trend shows the bearish
market. For practical purposes: Only accept the large corrections as trend
changes in the primary trend:
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A bull trend start when price rallies above the previous high,
A bull trend ends when price declines below the previous lows
A bear trend starts at the end of bull trend and vice versa.
Role of Volume
Volume plays a key role in deciding about the kind of future movement
in stocks. Whenever there is a sudden rise in the volume of the stock and if it
is not followed by a price fall, it is a sign of consolidation and that the price
may rise in near future. Generally if any stock break any trend it is
accompanied by huge rise in volume. In case of range bound trend the
volume trend to die down to a great extent. Smart investor uses technical
analysis to judge the rise in volume and take early positions in the stock
during breakthroughs.
APPLICATION
Investors for their short term trading decisions use technical
analysis. This short term may be further divided in day trading, short
term investment and for hedging purposes. The role played by
Technical Analysis in each case is as follows:
Day traders
A day trader is one who takes and square off his position both on
the same day. Mostly a day traders count on turnover rather than
margin.
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Short-term investors
These people from the biggest clientele base of both the brokersand Technical Analyst.
Hedgers
These are generally big investors, who have lot of money at stake
and hence they took to have some hedging of their risk. The
strategy followed by this section of investors is that they comparethe stock in consideration with the index on the basis of the result
of this comparison: they take their position in the stock.
Is Technical Analysis Helpful?
If we use only technical Analysis in itself and do not consider other
aspects, it is very unlikely we will have much success the long run,
particularly in the short term investment. But if we use Technical
Analysis along with Fundamental Analysis or discount the industry and
company related news while considering the valuation, our chances
minimizing the risk brightness.
One thing we must realize is that technical analysis provide us
only with the trend and judge future on that basis, it can be far form
actual in few cases. The best use of technical analysis is to realize the
trend and levels at which it will break the trend so that one is prepared
to task positions when such trends breaks. It is because of this
disadvantage that technical analysis more useful only for short term
investing.
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MACD
MACD stands for Moving Average Convergence/Divergence. The MACDmethod, developed by GERALD AAPLE is a trending indicator, telling us
whether the stock is in an uptrend or a downtrend. The direction of the long
term trend is the first assessment which one should make out of the market.
If it is trending up, one want to be long (buying). If it is trending down, one
want to be short (selling). This technique is one of the most often used by
the different simulator software as performing the technical analysis of the
stock trend using this method is easy and very straightforward. The MACD
works well both for a long term, middle term and intraday systems.
The MACD is a trend following indicator momentum indicator that shows
the relationship between two moving averages of the prices.
It is used to signal trend changes and to indicate trend direction. To calculate
the MACD subtract the 26-days EMA. A9day dotted of the MACD called
the SignalLine is then plotted on the top of the MACD.
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TERMS USED:-
MA
The term MA stands for Moving Averages. The moving average is
one of the most useful, objective and oldest analytical tools around. Some
patterns and indicators can be somewhat subjective, where analysts may
disagree on if the pattern is truly forming or if there is a deviation that is
might be an illusion. The moving average is more of a cut-and-dry approach
to analyzing stock charts and predicting performance, and it is one of the
few that doesnt require a genius intelligence to interpret. There are few
types of moving averages, the most important (for the technical analysis )
are simple MA (SMA), where all points have equal weight and
exponential MA (EMA), that all are assigning higher weight to the latest
points, therefore making the method more sensitive to the resent changes in
a stock price.
EMA
Exponential MA (EMA), are those averages which assign higher
weight to the latest points, therefore making the method more sensitive to
the resent changes in the stock price.
This approach is better for most applications, however being
more sensitive it can produce more false signals. Some traders would
suggest using the traditional MA instead (all points have equal weight) for
the situations when signals should be more reliable.
To calculate the EMA, use the following approach:
Current EMA= {2/ (1+Number_of_period_for_EMA)*(Current Price-
Previous EMA)} +Previous _EMA.
The MACD calculation is usually based on exponential moving averages,
meaning that earlier points have less weight than latest ones.
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PRICE LINE
Price line is the line which shows the movement of the stock prices based onits frequency. The frequency may be hourly, daily, weekly, or yearly. It
shows ups and downs in the market. The price line is the actual value of the
stock price of a particular company in the current market.
SIGNAL LINE
The basic MACD trading rule is to buy when the MACD rises
above its signal line; similarly a sell signal occurs when the MACD crosses
below its signal line. The crossing of the MACD line above the signal can
denote the beginning of a trend. An uptrend typically pauses or stops when
the MACD line crosses and falls below the signal line.
When the bullish crossover occurs above the zero line, the uptrend
gains more momentum and the price raises with more intensity.
Bullish MACD crossovers are probably the most common signals and as
such can be less reliable. If not used in conjunction with other technical
analysis tools, these crossovers can leads to whipsaws and many false
signals.
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INTERPRETATION
The MACD proves most effective in trending markets rather than choppy,sideways markets. There are two main sets of signals generated by the
MACD: Crossovers and Divergence.
Crossovers
There are two main MACD crossover signals:
1. Signal Line Crossovers: MACD crosses above or below the
Signal Line
2. Zero Line Crossovers: MACD crosses above or below the
zero line
Signal Line CrossoversThe basic MACD trading rule is to BUY when the MACD rises above its
Signal Line. Similarly, a SELL signal occurs when the MACD crosses
below its Signal Line. The crossing of the MACD line above the signal line
can denote the beginning of a trend. An uptrend typically pauses or stops
when the MACD line crosses and falls below the signal line.
The location relative to the signal line is also important in Indicating
how strong a trend might be. A crossover above the signal line is
considered more bullish than one below the signal line.
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Zero line Crossovers
The zero line can also be use to produce a signal.
It is popular to buy/sell when the MACD crosses above/below the zero
line.
A bullish zero line crossovers occur when MACD moves above the zero
line and into positive territory. This is a clear indication that momentum
has changed from negative to positive or from bullish to bearish. After a
positive divergence and bullish MACD crossover, the zero line crossovers
can act as a confirmation signal.
DIVERGENCE
MACD can provide forewarning of important market turns through
divergence. When the MACD trend diverges from the price trend, it can
provide a signal that a trending market may slow or reverse. A negative or
bearish divergence occurs when the MACD is making new lows while price
fails to reach new lows. A positive or bullish diverges occurs when the
MACD is making new highs while price trend fail to reach new highs. Both
of these diverges are most significant when they are occur at relatively high
/low levels. A positive divergence is shown when MACD begins to advance
and the market is still in a downtrend and makes a new low. MACD can
either form a series of higher lows or a second low that is higher than the
previous low. Positive divergence is not very common, but is usually
reliable and can lead to good moves.
.
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MACD CHART WITH SIGNAL LINE
Microsoft Corporation chart with: MACD, and MACD signal line.
1. Go short [S] MACD crosses to below the signal line after a large
swing.
2. Go long [L]when MACD crosses to above signal line.3. Strong short signal [S] the MACD crosses after a large swing and
bearish divergence (shown by the trend line).
4. Go long [L] Flat MACD signals that the market is ranging we are
more likely to be whipsawed in /out of our position.
5. Exit long trade [X] but do not go short MACD is significantly
below the zero line.
6. Re-enter your long trade [L].
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Combination
The best way is to use the basic MACDis to use a combination of signal to
confirm one another. In addition, a fast MACD line can be added to enhancethe signals generated and to often provide early warning of changes in
trends. Combination with the signal line, the fast MACD line and the slow
MACD line. The MACD Histogram is also commonly used to clarify the
relationship between the two MACD lines.
When to apply
In order to use buy and sell signals successfully, we need to apply them
when the trend is changing. To do it, we need to have a trend to reverse. The
MA- sideways, or for trend that are not yet established.
Indicators should be used together, and it is particularly useful to avoid
using similar indicator (MA and MACD). MAs can be used not only with
the prices of stocks, but also with other indicators.
MA & MACD
MOVING AVERAGES
The moving average is one of the most useful, objective and oldest
analytical tools around. Some patterns and indicator can be somewhat
subjective, where analysts may disagree on if the pattern is truly forming
or if there is a deviation that is might be an illusion. The moving average
is more of a cut and dry approach to analyzing stock charts and
predicting performance.
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Types of Moving Average
There are three type of moving average:
2. Simple Moving Average
3. Exponential Moving Average
4. Weighted Moving Average
Simple Moving Average
The simple moving average (or SMA) is the easiest to construct. A 5day SMAtakes the sum of the last 5 prices and divides by 5. Easy but not always
accurate: the indicator has a tendency to bark twice consider this example;
Day 1 2 3 4 5 6 7 8 9
Price(
$)
1
6
1
7
1
7
1
0
17 18 17 17 17
5 Day
SMA
15.
4
15.
8
15.
8
15.
8
17.
2
You can see that on day 9 there is a big step in the simple moving
average, but price has been constant at $17. This distortion is caused
by the low price on day 4dropped from the SMA on day 9.
Exponential Moving Average
To calculate an exponential moving average (EMA):
Take todays price multiplied by an EMA%
Add this to yesterdays EMA multiplied by (1 EMA%).
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If we recalculate the earlier table we see that the exponential moving
average presents a far smoother trend:
Day 1 2 3 4 5 6 7 8 9
Price 16 17 17 10 17 18 17 17 17
33.3% (or 1/3)EMA
16.3 16.5 14.4 15.2 16.2 16.4 16.6 16.8
Weighted Moving Average
A Weighted Moving Average (WMA) attaches greater weight to the most
recent data. The weighting is calculated from the sum of days.
Example: For a 5-day weighted moving average the sum of days
1+2+3+4+5 = 15
The weighting is shown below:
Weighed values are calculated by multiplying todays price by 5/15,
yesterday by 4/15, and so on. The weighted moving average is the
sum of the 5 weighted values
Day 1 2 3 4 5
Price ($) 16 17 17 10 17
Weighting 1/15 2/15 3/15 4/15 5/15
Weighted value 1.07 2.27 3.40 2.67 5.67
5 Day WMA 15.07
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MOVING AVERAGE CHART
Intel Corporation is plotted with a 63 dayexponentialmoving average.
The single moving average is used with two filters:
Moving average direction, and
The moving average must be crossed by closing priceon two
consecutive days.
1. Go shorttwo closes below a falling moving average.
2. Go long moving average is now rising and price has closed
above the moving average for 2 days. The following dip below the
moving average (in early January) is filtered out.
3. The long trade is exited as there are two closes below the moving
average. No short trade is entered as the moving average is
sloping upwards.
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4. Go longtwo closes above a rising moving average.
5. Go short as there are two closes below a falling moving
average.
6. Go long - two closes above a rising moving average.
7. Go shorttwo closes below a falling moving average.
8. Go long moving average is rising again and there are 2 closes
above it.
Note how profitable the long trade [2] is during the strong
upward trend, compared to when price whipsaws around the relatively
flat moving average, frequently switching you in and out of trades.
Trend indicators are normally unprofitable, and should be avoided,
during ranging markets.
What do the different days mean?
The general assumption behind all moving averages is that once
the stock price moves above the average that it may substantial
momentum behind it and is worth buying. The opposite is true is if price
if a security moves below the moving average.
20 dayprovides a very volatile, choppy line. It isnt the most accurate,
but is probably the most useful for short term traders.
30 daysimilar to 20 daybut more certainty for the trend.
50 daymoving average a much less volatile, smooth line. This can
be used to detect somewhat longer trends.
100 daysimilar to the 5o day, it is less volatile, and one of the most
widely used for long trends.
200 dayeven less volatile, it is rarely used.
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MA Trading Signals
Single Moving Average
Compares price to a single moving average. The system is often used
with filters.
Filters
when price has crossed the moving average.
MOVING AVERAGE DIRECTIONAL FILTER
Uses the slope of the moving average as a filter
Two Moving Averages
Use a fast moving average instead of a filter.
Three Moving Averages
The third moving average indentifies when price is ranging.
Multiple Moving Averages
A series of five fast moving averages and five slow moving averages
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Combination
The best way to use the MA is to use a combination of signals to
confirm one another say: fast, middle and slow.
For example of such is given as:
Intel Corporation chart with 5 day (fast), 21 day (middle), and 63
day (slow).
1. Close previous long trade as the fastmoving average has fallen
below the middlemoving average.
2. Go long as the middlemoving average has risen above the slow
moving average (and the fastmoving average above the middle
moving average).
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3. Close long trade - fastmoving average has fallen below middle
moving average.
4. We are whipsawed in and out of a long position as the fast
moving average crosses to above then back under the middle
moving average.
5. Another whipsaw.
6. Go long as the fastmoving average crosses to above the middle
moving average (and the middlemoving average is above the
slowmoving average).
ASSUMPTION
Technical Analysis is a method of evaluating securities by analyzing
generated by market activity, past performance, and volume. The
method assumes that the historical performances of stocks are
indications of future performance this method is based upon following
assumption:
Securities move with very predictable trends and patterns.
These trends remain intact until something happens to change
the trend.
Until this change occurs, price levels are predictable.
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Weakness of MACD
MACD is a trend following indicator, and as such, sacrifices early
signals in exchange for keeping you in line with the trend. When a
significant trend develops, MACD is often able to capture the majority of
the move.
When the trend is short lived, however, MACD often provide unreliable.
This is because moving averages themselves are lagging indicators.
Even though the MACD represents the difference between two moving
averages, there is still some lag in the indicator itself. This is more likely
to be the case with weekly charts more than daily charts.
One solution of this problem is the use of the MACDHistogram.
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MACD-Histogram
Intel Corporation is shown with MACD histogram and 21-day
Exponential moving average. Trend lines show divergences.
1. Price is ranging - indicated by the flatMA.Go long [L] when the
histogram turns up (far from the zero line). Place a stop below the
recent Low.
2. Go short [S] as the histogram turns down (far from the zero line).
Place a stop above the recent High.
3. Go long [L] - the histogram turns up and is reinforced by a bullish
divergence. Place a stop below the recent Low.
4. Go short [S] as the histogram turns down - reinforced by a
bearish divergence. Place a stop above the recent High.
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5. Ignore the signal as it is too close to the zero line.
6. Go long [L] as the histogram turns up when well below zero.
Place a stop below the recent Low.
7. A further signal to go short [S]. Place a stop above the recent
High.
8. Go long [L] - the histogram has turned up and is reinforced by a
bullish divergence. Price has broken clear of the trading range
and the MA is rising - exit [X] when price closes below the MA.
Setup
The default settings are:
Slowmoving average - 26 days
Fast moving average - 12 days
Signal line - 9 day moving average of the difference between fastand slow.
All moving averages areexponential.
http://www.incrediblecharts.com/technical/macd_histogram.php#macd_histogram-setup#macd_histogram-setuphttp://www.incrediblecharts.com/technical/moving_average.phphttp://www.incrediblecharts.com/technical/moving_average.php#Exponential+Moving+Averagehttp://www.incrediblecharts.com/technical/moving_average.php#Exponential+Moving+Averagehttp://www.incrediblecharts.com/technical/moving_average.phphttp://www.incrediblecharts.com/technical/macd_histogram.php#macd_histogram-setup#macd_histogram-setup8/13/2019 Ullas Project Report.
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Financial Review
BUDGET 2009
The Union budget presented on 9thJuly, 2009 was overall touted as
being a long-term growth budget. However, many felt that there was
definitely lot more that the Finance Minister could have achieved.
Broadly, there are three areas which have been given a
thrustagriculture and related infrastructure development, initiatives on
improving overall health standards, development of rural sector and
increasing the literacy rate, not only at primarily level but also higher
education. None of these initiatives will result in significant short-term
benefits. The benefits will trickle in to begin with impact only if these
plans are executed well, will gain momentum and ultimately havesignificant impact on long-term economic growth.
If India has to move to a higher growth plane, it will definitely
need to improve the state of the primary sector, on which over 60% of
the population is dependent. Conversely, any significant improvement in
the primary sector will have a huge impact on national income as there
will not only be a growth in production, but consumption too will get a
boost as the not-so-well-off people living in rural India will also have
more money to spend.
An improvement in the health standards and the literacy rate will
increase the overall productive capacity of the economy. There will also
be productivity related benefits that are linked to a healthy and better
educated work force. So, from a long-term perspective, it is a thumbs-
up. We can only hope that the execution of these plans will be a lot
better as compared to the past.
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BudgetNot As Bad As It Looks
Why the Disappointment?
It will be an understatement to say that people were disappointed by the
Budget presented by the Finance Minister on Monday. Expectations were
quite high for two reasons. Firstly, the UPA Government had said in its earlier
tenure in office
said that it could not push through many reforms because the Communists
who were lending support for five years would not allow them to. So it wasnatural to expect that when the Communists were out of it, this Government
would bring in new reforms. Secondly, the Economic Survey presented by the
Finance Ministry had talked about many reform measures though admittedly
it had not given any time frame for it. This being so, when the Finance
Minister presented a rather routine Budget the markets reacted very
negatively sensing a lost opportunity.
The Gold Nuggets
Having had this, let me say that the Budget is not bad as it looks and surely did
not deserve the 870 pounding it got on Monday. There is a lot that the one
should be happy about. The Government investment in infrastructure is being
stepped up very sharply; so is the investment in Agriculture, Rural
Development, Healthcare and Education. All this should translate into large
contracts for private sector companies and more money among the masses.
The plan to move from a Company based subsidy to Nutrient based subsidy in
Fertilizer and commitment to do away with controlled pricing of petrol and
diesel big steps forward.
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There is something for individual wage earners to take home. Apart from
increasing the exemption limit in a modest way, the Budget has removed
surcharge on income tax for those whose income exceeds 10 lakhs. This
should put lot more disposable money into the hands of the high spending
upper middle class.
Industry and Market Dont Get Much
For industry, itsbeen a mixed package. It did get FBT abolished but MAT has
been increased. Taxes have been kept broadly unchanged except that huge
concessions given in the Interim Budget have not been removed.
Markets wanted STT to be removed and that did not happen
Let a Thousand Flowers Bloom
UPA is following the above line of the Chinese Dictator. To my mind the
biggest positive from this Budget is that the Government has not succumbedto the temptation of tightening the belt. It has voted for growth rather than
taking refuge under financial prudence. It has let the fiscal deficit unchanged,
at a fairly high level. I am sure RBI does not like this much. A borrowing
program of Rs 4.5 lack crores and an uncovered deficit of 6.6%- highest since
1991- should give Governor Rao sleepless nights.
Best Is To Move On
In India we have learnt to live on hope. So one will hope that all the big
things that one lead in the economic survey would get implemented at some
point in time. Meanwhile, investors would do well to put this Budget behind
as one more event and get back to normal investing..
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Highlights of Budget 2009/10
Poll result is mandate for inclu sive grow th.
A single Budget Speech cannot solve all our problems.
Budget an important mean to present the view of the government
Aim: To reduce number of people living below poverty line to less than halfof
current level by 2014
Aim to susta in a growth ra te of 9% over a per iod of t ime
Aims at farm growth of over 4%
Ensure 4% agriculture growth
Highlights of 2008-09:
Sharp risein inflation to nearly 13% and a equally sharp fall to 0%
GDP dips from over 9% average in past three years to 6.7% in 2008-09
Gross capital flow rose to over 9% over GDP
Infra investm ent to be o ver 9% of GDP by 2014
Foreign investors are returning to Indian markets
FIIs are back in the market, the worst two quarters are behind us
Govt has some success in attracting investments in certain sectors through
PPP
Govt needs to provide further stimulus for the economy
There are signs of revival in domestic industry
Stepp ed up al locat ion of fu nds from Rs 10,800 cr. to Rs 15,800 cr. for
Rai lways
Highw ay and rai lways - al locat ion h iked by 23%
IIFCL and bank s in po sit ion to s upp ort Rs 1,00,000 cr. in Infrastructu re
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JNNURM support raised by 87%
The Assam gas cracker project estimated at Rs 5,160 cr.
Loan for farmers Rs 300,000 at 7% per annum
Govt anno unc es rebate for farmers paying loan o n t ime, and lower
Rate of 6% prop osed
Proposes to extend deadline to farmers to pay off 75%of loans by sixmonths
To December 31, 2009
Exporters borne the brunt of eco crisis, will provide adj assistance till March
2010
The market development assistance scheme allocation hiked by 148% to Rs
124 cr.
Budget makes subvention of 1% tobenefit farmers
30% rise in Rashtriya Krishi Vikash Yojana allocation over 2008-09
Micro and SMEs affected by global crisis;credit flow at reasonable rate out of
Rural infra dev fund
Specia l fund of Rs 4,000 cr from Rural Infrastructu re Dev fund to help
MSME sector
Return to FRBM target as soon as possible
To increase fertiliser usage - govt proposes to move from product pricing
Basis
Institutional reforms to cover subsidies, expenditure
Fiscaldeficit up to 6.2% from 2.7% of GDP
IT Saral 2 form to be introduced
Proposes people's participation in disinvestment programme
Turbulence in world markets left Indian financial sector unaffected
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PSU Banks , insur ance f irm s outsid e disinvestment plan
Only for Internal Circulation 2
Govt to set-up expert committee to advise on petro pricing products
Rs 1 lakh crore pro jects for Infrastructure revival
PSUs to remain under govt control
Govt wants public shareholding in PSUs to go up
8.5% growth in recent past fuelled by private sector investment
Income-tax return form s to be made mo re user-f r iendly
NREGA min wages set at Rs 100/day
NREGA outlay increased by 144%
Govt to move food security bill very soon
59% increase in allocation for Pradhanmantri Gram Sadak Yojna
Allocation for Indira Awaas Yojana to be increased by 63%
Food security to provide rice, wheat at Rs 3 a kg to poor
Bharat Nirman outlay raised by 59%
Indira Awaas Yojana outlay increased by 63%
NHB refinance to rural housing sector to be raised
PM's Adarsh Gram Yojana starts with Rs 100 cr funding
To launch n at ional mission o n female l i teracy
Unorganised Social Security Bill passed by both houses of the Parliament
Plan to cut female illiteracy by half in three yrs
Govt aims to have socialsecurity for informal sector
National Web Portal for employer and employee to be launched
More than 46 lakh people received biometrics card
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To add handloom clusters in West Bengal and Tamil Nadu
Right to Information Act been successful
NREGA hasbeen and outstanding success
46 lakh BPL families to come under new health insurance plan
Unique ID cards in 12-18 mon ths
Govt proposes to launch housing for 1 lakh para military forces
Paramilitary housing cost estimated at Rs 1,000 cr
Certain Pension related benefits extended to war hounded
Paramilitary housing project to cost Rs 1,000 cr
Allocation for flagship Bharat Nirman progamme raised by 45%
Rashtriya Mahila Kosh corpus to be raised to Rs 500 crore
Govt to s pend Rs 120 cr in FY10 in uniqu e ID
Allocation of Rs 2,113 cr for IIT
National Mission for Female Literacy to be launched
Govt to build 100,000 homes for paramilitary forces
50% of all rural women to be brought into self-help group programmes
Allocation Commonwealth Games raised by more than 50% to Rs 3,472crore
Plan outlay increased by 74%
Allocation for new Aligarh Muslim Univ. campuses in Bengal, Kerala at Rs
25 cr each
Proposes Rs 500 cr for rehabilitation of displaced persons of northern and
eastern areas of Sri Lanka
Bu dg et estimates: Rs 10,20,830 cr, Rs 6,95,600 cr n on -plann ed and
plan ned Rs 3,29,100 cr
Aila hurricane relief at Rs 1,000 cr
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Plan expenditure up 34% to Rs 3.75 lakh cr
Interest payment seen exceeding Rs 2 lakh cr
To spend Rs 1.42 lakh o n d efence
Interest payment is a third of expenditure plan
Budget estimates: Interest payment expected at Rs 2,25,511 cr
Enhance bu dgetary sup por t by Rs 40,000 cr
Only for Internal Circulation 3
Non tax revenue receipts are likely to be better
Total estimated expenditure for 2009-10 is Rs 10 lakh crore
Fiscal d eficit seen at 6.8% in FY10
To eliminate tax distortion
Increasing automation in direct tax collection
Federal Tax/ GDP ratio is 11.5%
TO INTRODUCE GST BY APRIL 1, 2010
To release new direct tax code in 45 days
FBT to be abolished
To pursue structural changes in Direct Tax
New direct tax code to be released in 45 days
To finalise New Direct Tax Code in House winter session
State finance ministers agreed on GST basic structure
Tax rates can be lower if tax base is higher.
No ch ange in c orpo rate tax FR10.
FY10 non-plan expenditure 6.97 trln rupees
Senior ci t izen incom e tax l imit h iked by 15,000 rupee/yr.
Women inc ome tax l imit u p 10,000 rupee to 190,000 rupee.
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Senior ci t izens IT exempt ion hiked to 240,000 rupees.
IT exemption limit raised to 190,000 rupees for women.
IT exemption hiked to 160,000 rupees for others.
MAT rate to be increased to 15% vs 10% of book profit
To remove surcharge of 10% on persona l income tax
Commodi ty t ransaction tax abo l ished
Tax holiday extended for commercial production of natural gas
Political funding will get 100% tax deduction
National Pension Scheme exempted from STT
MAT reduced to 15% of boo k pro f i ts, MAT tax credit increased from 7
years to 10 years
Dividend un der New Pension Scheme to get tax exempt ion
New Pension Scheme inv estment no t to att ract STT
Alternate dispute redressal mechanism for Tax disputes.
Investment boost needs timely Tax disputes resolution.
Donation to electoral trust to be 100% exempt for donor.
100% exemption for donations to electoral trust
Anonymous donations - grant relief 5% of total income or Rs 1,00,000
whichever is higher
Tax holiday on commercial production of mineral oil and natural gas onNELP VII
5% Custom duty on STBs
Custom duty reduced on LCD panels from 10% to 5%
Li fe sav ing d rugs, inc lud ing breast cancer, custom du ty reduced to
5% from 10%
Life saving devices on heart condition exempted from custom duty
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Custom duty on silver, excluding jewellery, hiked by Rs 500/ kh to Rs1,000/kg
Li fe sav ing devices on heart cond i t ion exempted f rom custom duty
To extend Customs exemption to some more EoUs
Cuts customs duty on wind power equipment by 2.5%
To reintroduce CVD exemption on parts of mobile phones.
Rough corals exempted from Customs duty.
Customs duty on windmill inputs cut to 5% vs 7.5%.
Customs duty on life saving drugs cut to 5% from 10%.Only for Internal
Circulation 4
Basic customs duty on life-saving drugs down to 5% from 10%.
Full Customs duty exemption on rough corals.
Customs duty on gold bars up at 200 rupees/10 gms.
Customs duty on life-saving equipment down to 5% from 7.5%.
Customs duty for permanent magnets down to 5% from 7.5%.
8% excise duty on man made fibre.
Excise on pure cotton textiles restored to 4%.
Customs duty on silver hiked to 1,000 rupee/kg.
Hike on customs duty on silver excludes jewellery.
Wool waste, cotton waste customsduty down to 10% vs 15%.
4% excise on paper, paper goods, kitchen appliances.
Excise on paper, paperboard articles retained at 4%.
Blended petrol To be exempt from excise duties.
To scrap excise o n petro l , diesel blended with b io-diesel.
4% excise to stay on items of mass consumption.
Custom duty on bio-fuel diesel cut to 2.5% from 7.5%.
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Bio-diesel exempt from excise duty FY10.
Construction sector gets some excise sops.
No excise duty on branded jewel le ry
Excise duty on petrol diven trucks cut
No new tax on edible oil imports
Some law services brought under service tax
Service tax on advise, technical assistance in the field of law on applicablefor individuals
Over 2000cc vehicle engine surcharge flat at 15,000 rupee.
Exporters exempt from paying svc tax to transporters.
Service tax levy on goods transported via rail, waterway.
Svc tax extended to legal consultancy, not individuals.
Direct tax proposals are revenue neutral.
20 bln rupee gain via indirect tax proposals FY10.
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INDIAN TAXATION SYSTEMA REVIEW FOR THE INVESTMENT
TAXATION in INDIA
India has a well developed tax structure with a three tier federal structure
composing the Union government, the State governments, and the
Urban/Rural Local Bodies. The power to levy taxes and duties is distributed
among the three tiers of governments, in accordance with the provisions of
the Indian Constitution. The main taxes/duties that the Union Government is
empowered to levy are Income Tax except tax on agricultural income, which
the State Government can levy), Custom Duties, Central Excise and Sale Tax
and Service Tax. The principal taxes levied by the State Governments are
Sales Tax (tax on intra-state sales of goods), Stamp Duty (duty on transfer of
property), State Excise (duty on manufacture of alcohol ), Land Revenue (levy
on land used for agricultural/non agricultural purpose), Duty on Entertainment
and tax on Professions & Callings. The Local Bodies are empowered to levy
tax on properties (buildings etc). Octroi (tax on entry of goods for
use/consumption within areas of the Local Bodies), tax on Markets and
Tax/User charges for utilities like water supply, drainage etc.
Since 1991 tax system of India has under gone a radical change, in line with
liberal economic policy and WTO commitments of the country. Some of the
changes are:
Reduction in custom and excise duties
Lowering corporate tax
Widening of the tax base and toning up the tax administration.
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Direct Taxes
Personal Income Tax
Exemption limit in Personal income tax raised by Rs. 15,000 from
2.25lac to 2.24lac for Senior citizen, by Rs. 10,000 from 1.8lac to 1.9lac
for Women tax payers and by Rs. 10.000 from 1.5lac to 1.6lac for all
other categories of Individual tax payers.
Deduction u/s 80-DD in respect of maintenance, including medical
treatment of a dependent who is a person with severe disability being
raised from the present limit of Rs. 75,000 to Rs. 1lac.
Surcharge on various Direct Taxes to be phased out; in the first
instance, by eliminating the surcharge of 10% on Personal Incom