Tag: technical analysis

Analysis: ITC

This week’s pick is [stockquote]ITC[/stockquote]. Trading at 52 week high of Rs. 280, the stock has a return of close to 40% over the last 12 month period. The stock has been in a consistent uptrend for the last year, a small correction happened close to Rs. 250, but a pullback was seen from the Rs. 227 levels with affirming volumes. 

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Oscillators like RSI and CMO are at currently at the levels of 66 and 60. At this high level, there surely can be a correction in the short term. Although looking at the previous highs of RSI, the stock can see an up move till RSI reaches 80. MACD line and signal line are drifting apart from each other and histogram levels are on a rise. Not suggesting any corrections.

Looking at GMMA for a medium to long term outlook is not giving a lot of indication. The long term lines are moving away from each other (signaling a continuation of the previous trend). The increasing separation in the short term lines also suggests a positive outlook for the near term. The stock seems to be on a roll. It is a long term green flag for this stock.

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ITC’s average correlation of 0.49 with the [stockquote]NIFTYBEES[/stockquote] suggests that the correlation is strong and positive, Although the movements will not be of the same magnitude as Niftybees.

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ITC has volatility in the range of 0.4 to 0.6 for the most part (except for the high regions during 2010) which is not a very big range. The volatility is currently at 0.70, higher compared to the recent past. A constant eye is required on the scrip in case it makes a sudden move.

The up-trend is quite prominent. For a short term until the RSI levels start to decrease it is suggested to hold the scrip. And for the long term we do not have any standard to measure if it has any resistance at any levels. This stock can just be another example to prove the proverb “the trend is your friend” true.

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Analysis: SBIN

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This week’s pick is [stockquote]SBIN[/stockquote]. Trading somewhere close to its 52 week high of 2475, the return over the last 12 month period is about 21%. In the last few months, the scrip has tested the 1800 levels a few times, but a strong support is visible because of the pullbacks with higher volumes.

Oscillators like RSI and CMO are at currently at the levels of 76 and 79. At this high level, there surely can be a correction for a short while. MACD line and signal line are distant apart from each other and you can also pinpoint the decrease in the histogram levels. The histograms can be an early warning sign of a correction again.

Looking at GMMA for a medium to long term outlook is not giving a lot of indication. The long term lines are holding up very close to each other (signaling an upcoming change in the previous trend). Although the increasing separation in the short term lines does suggests a positive outlook for the near term. To wait and see how the long term lines wind out is what can be done best for the outlook.

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SBIN’s average correlation of 0.7 with the [stockquote]NIFTYBEES[/stockquote] suggests that the correlation is strong and positive, Although the movements will not be of the same magnitude as NIFTYBEES.

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SBIN has a volatility in the range of 0.3 to 0.6, which is not a very big range. And hence a close above and below this volatility range can act as a good selling or buying signal.

Looking at the trend-line we can say that it is on an uptrend. Also, the stock has tested 2380 levels thrice during the last 4 quarters, which has acted as a strong resistance for the up-move. With the current up-trend (both long term and short term) the scrip can move up to the same level and test it again. For a short term until the RSI and CMO levels decrease it is suggested to keep out / Sell the scrip. And for the long term we might want to look at the long term lines of GMMA and also the resistance levels at 2380 to take a stand.

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Analysis: ACC

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This week’s pick is [stockquote]ACC[/stockquote] limited. Trading somewhere close to it’s 52 week high, the return over the last 9 month period is about 16%. Recently, the stock saw a close below the level of 1300, but picked up quite strongly the next day, signaling a support at those levels.

Currently oscillators like RSI and CMO are at 59 and 39, which is in the mid zone for this particular scrip. It has still got some time to reach the overbought/oversold signals and hence they don’t suggest much. MACD line and signal line are moving very close to each other and hence again are not giving any signal currently.

Looking at GMMA for a medium to long term outlook proves to be quite positive. The long term lines are holding quite distinctly and are separated from each other (signaling a continuing long term trend). Also the increasing separation in the short term lines backs up the positive outlook given by the long term lines for the near term. It would be suggested to hold your breath and be long the stock until you come across the squeezing long term lines following the overlaps in the short term lines.

Looking at the trend-line we can say that it is in the right place. Also, the stock has tested 1400 levels quite many times during the last 3 quarters. It can act as a strong resistance for the up-move, but a breakout above this level might prove to be a real deal for the portfolios. So this stock currently is a hold from our side and can continue the current uptrend if it closes successfully above 1400 levels.

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Technical Analysis of the Financial Markets: Ch 10

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This is a review of the 10th chapter of John J. Murphy’s Technical Analysis of the Financial Markets.

Oscillators

Oscillators are extremely useful in non-trending markets and can be used to detect short-term market extremes in trending markets as well. They are most useful when:

  1. Their values reach an extreme reading
  2. There is divergence between the price action and the oscillator at the extremes
  3. There is a zero/midpoint crossing

Commodity Channel Index

The CCI is an index constructed out of comparing the current price with a 20 day average and normalizing it based on mean deviation. The CCI usually falls in a channel of -100 to 100. A basic CCI trading system is: Buy if CCI rises above 100 and sell when it falls below 100. Sell if CCI falls below -100 and buy when it rises above -100.

Relative Strength Index

The RSI is plotted on a scale of 0 to 100. Movements above 70 are considered overbought and below 30 are considered oversold. When a trend develops, an extreme reading in the RSI is typically observed. However, acting on it might make us exit prematurely. It is important to consider the trend of the RSI itself before you act on it.

Williams %R

The %R compares the latest close to the price range over a period of days. It is used in the same fashion as other indicators to identify overbought and oversold conditions.

Moving Average Convergence/Divergence (MACD)

The MACD combines the oscillator approach with exponential moving averages. The faster line (MACD line) is the difference between EMA12 and EMA26. The slower line (Signal line) is a 9 period exponential smoothed MACD line.

  1. A Buy is given when the MACD crosses higher than the Signal line.
  2. A Sell is given when MACD crosses lower than the Signal line.
  3. A Strong Buy is given when #1 occurs and both the lines are below the zero line.
  4. A Strong Sell is given when #2 occurs and both the lines are above the zero line.

Additionally, you can use the histogram provided in the charts to get an early warning of crossovers; turns in the histogram back towards the zero line always precede crossovers.

Up Next: Chapter 12 – Candlesticks. Also discussed here. 

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Technical Analysis of the Financial Markets: Ch 9

Cover of "Technical Analysis of the Finan...

Cover via Amazon

This is a review of the 9th chapter of John J. Murphy’s Technical Analysis of the Financial Markets.

Moving Averages

A moving average looks back at the closing prices over a specific number of days (10, 20, 50…) and averages them. It can be used to generate signals.

The Double Crossover Method

A buy signal is generated when the shorter average crosses over the longer. A typical pair is the 10 and 50 day SMAs. Buy when SMA10 crosses above the SMA50, sell if it crosses down.

The Triple Crossover Method

The 4-9-18 day is the most popular system. It is important to understand that SMA4 hugs the trend, followed by SMA9 and then SMA18. Hence, in an uptrend, SMA4 will be above the SMA9 which will be above SMA18. It will be the reverse in a downtrend.

Say the stock is in a downtrend. A buy signal is generated when SMA4 crosses the SMA9 & SMA18. A confirmed buy signal is generated when SMA9 also crosses the SMA18. When the uptrend reverses to the downside, SMA4 will dip below SMA9 (sell alert) and then SMA9 will dip below SMA18 (sell confirmation).

Bollinger Bands

Two trading bands are placed around a moving average. The bands are two standard deviations from the average. i.e., 95% of the price movements will fall between these bands. As a rule, the market is overbought when they touch the upper band and oversold when the touch the lower band. If the prices bounce of the lower band and cross the average, then the upper band becomes a price target. A crossing below the average will identify the lower band as a target.

Also, in a strong uptrend, prices will fluctuate between the upper band and the average and a crossing below the average might warn of a trend reversal to the downside.

One last thing: The width of the bands are directly proportional to the volatility. When the bands are unusually far apart, it is often a sign that the current trend might be ending.

Read more about Bollinger Bands.

Donchian Channel or the 4 Week Rule

The system is:

  1. Cover short positions and go long whenever the price exceeds the highs of the four preceding calendar weeks
  2. Liquidate long positions and go short whenever the price falls below the lows of the four preceding calendar weeks

 Read more about the Donchain Channel.

Coming Up Next: Chapter 10 – Oscillators

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