A STUDY ON TECHNICAL ANALYSIS OF STOCKS LISTED IN NSE WITH REFRENCE TO BANKING SECTOR

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1 A STUDY ON TECHNCAL ANALYSS OF STOCKS LSTED N NSE WTH REFRENCE TO BANKNG SECTOR SHALAJA.M.L Associate Professor, Dept. of MBA, Dr Ambedkar nstitution of Technology B lore-56 DHARSHTHA.M Academic scholar, V Sem MBA Student, Dr. Ambedkar nstitution of Technology, B lore-56 ABSTRACT The investment decisions are made by the individuals on banking sector based on its performance in domestic and foreign nations, change in the banking regulation or Government policy which are considered to be as fundamental factors, it helps in knowing the intrinsic value. t is know that the market price fluctuations are also influenced by psychological factors which can be measured by analyzing the past share price movement of the banks traded in NSE on free float market capitalization. The psychological factors of traders in stock market can be studied and measured through technical analysis which is completely based on market forces. n this study the indicators adopted are MA & RS. The study also explains Dow Theory and identifying the charting pattern. The banks selected for study are HDFC & SB Bank. The result for the study states that the traders completely ignores the fundamental facts and figures, the indicators generates buy and sell signal at different price levels in a month. The study also makes an effort to compare the banking sector stock performance for a period but in this paper only two banks comparison is made to arrive at useful conclusions. Key words: Banking sector, MA, RS, Buy and sell signal, Dow Theory and charting pattern. ntroduction: The stock market investment decisions are made out of, by analyzing the fundamental factors and/or technical analysis. t is true that both these analysis aids the investors to make sound financial investment decision with the objective of increase in return either in the form of capital appreciation and/or investment income in the form of interest or dividend payment. Both the techniques of analyzing the stock market behavior are used and helpful to predict the price fluctuation in the future by considering historical data. n case of fundamental analysis the historical data collected would be based on economic and industry condition, market force, sales, company annual report etc. are taken into account; where as in technical analysis of stock the past data would be price and volume history. The important fact to be noticed that both this analysis are time based analysis. n fundamental mainly facts and figures are analyzed to identify the intrinsic value of the firm along with to make investment decision; which is really time consuming. n case of technical analysis the time involvement is less because of less data are considered. The technical analysis are helpful in identifying the entry and exit point which are identified by using market indicators such as Moving average, Relative Strength ndex, MACD, Rate of Change, Bollinger bands etc., the chartist believes that technical analysis 263

2 creates identifiable trading platform that can be exploited by investors and they identify the change in the price trend & takes a suitable long or short position. Review of Literature: The objective of review of literature is to find out the gap or the area s which are not at been explored by other researchers. Hence for the study through review of literature is carried on. t was found that one of the researcher has based on his study on RS & Elliot wave theory (Mishra, Sibanjan Jan-2016) the conclusion arrived by the study says that RS gives an approximate nearing answer. One of the researcher has studied in their paper (Thangjam Ravichandhra, Ashish Chacko & Shruthi Ganguly Jan- 2015) about T and banking sector through technical analysis, keeping the objective as to know the movement of stock price & select the best among them with needful justification.so far the kind of researcher is been carried on the present paper is highlighting about the psychological factor influencing the investors behavior as per banking sector is concern during the particular time period. Statement of the Problem: The technical analysis helps in a way to analyze the historical price movement of the equity shares; and to predict the future prospects of the scrip selected from banking sector in this project. The technical analyses also aid the traders to make short term sound financial decision with the help of technical indicators. The report mainly concentrates on the equity shares of banking sector, where this sector is highly fluctuates in its share price, in the ndian capital market are affected from the economic changes like demonetization, bank rates changes etc. and also changes took place in the organization like merger, expansion etc., This study mainly focuses on the short term traders who are willing to trade in the banking sector by analyzing the scrip price fluctuations in a year. n this project scrip are analyzed by using different technical indicators, which results out buy or sell signal at different price level in different months. Objective of study: To make a comparative analysis of the tools used to do the technical analysis of the two banks under study To understand the complexities of technical analysis in investment decision. Research methodology Research Design: The project report involves the analyzing the scrip with appropriate technical indicators designed for study and concluding the findings with appropriate reasoning, for the study the research is analytical, descriptive in nature by describing the characteristics of the phenomenon in depth. The descriptive research design attempts to describe and interpret the secondary data in much detailed approach. Sources of data collection: Primary data: gained through the direct interaction with internal & external guides. Secondary data: Collected from the Online Database source which is non-government publications from stock exchange directory. Sample design: For the purpose of the study the banking sector opted based on the convenient method of sampling. A sample of 2 banks was selected based on Stratified Random Sampling on proportionate basis by grouping the 42 banks listed in NSE Tools & indicators of technical analysis: MARKET NDCATORS The stock market indicators used for the study add a significant depth to the technical analysis, because it contains more information then price and volume. The typical approach is to use market indicators to determine where the overall market is headed and then use price indicators to determine when to buy or sell scrip. MOVNG AVERAGE: The moving average is used to smooth the data and study the movement of the individual scrip price. The moving average indicates the underlying trend in the scrip. The period of average is determines the period of the trend that is being identified. Hence for the purpose of study 20 days as short term (fast MA) and 50 days long term (slow MA). Arithmetical Moving Average: it is also called as Simple Moving Average. t is calculated by sum of the closing price over a 264

3 certain number of time period divided by the number of time period to get the average price of the scrip for that period. The formula for an Arithmetic Moving Average is as follows: SMA = (X 1 +X 2 +X 3 +X 4 +X 5 +.+X n )/n Where n = number of days; X = Closing price of the day Relative Strength ndex (RS): The RS is price following oscillator used to identify the inherent technical strength and weakness of scrip by monitoring changes in its closing price. t ranges between 0 and 100. t is also well known as momentum oscillators. The default look-back setting for the indicator suggested by Wilder is 14 period. The RS usually tops above 70 and bottoms below 30; above 70 is overbought territory and below 30 region is the oversold territory. The traders might sell as soon as the RS goes above 70 (overbought region); and the traders might buy when scrip is below 30 (oversold region). The RS formula is as follows: RS = 100 [100 (1+RS)] RSValue= AverageGainperday Averagelosperday Average gain = Summation of 14 days gain/14 Average loss = Summation of 14 days loss/14 Data Analysis and Data Presentation: HDFC BANK TECHNCAL NDECATORES:. MOVNG AVERAGE: Graph no: 1(a) 1300 HDFC BANK PRCE CHART & MOVNG AVERAGE R C Close Price 20 Day MA 50 Day MA 265

4 NTERPRETATON: From the above chart both the moving average are intersecting from downwards and rising in the month of March and intersecting from the upwards and falling from there onwards in the month of October. The price level fluctuates above as well as below the Moving Average.. RELATVE STRENGTH NDEX: Graph no: 1(b) R C HDFC BANK PRCE CHART AND RS S Close Price 14 Day RS NTERPRETATON: n the month of Jan, Feb & Nov the scrip has crossed the line 30 & reached the oversold region in the year; where as in the month of April the scrip has crossed the line 70 and the scrip has reached overbought region in the period of whole year. STATE BANK OF NDA TECHNCAL NDCATORES. MOVNG AVERAGE: Graph no: 2(a) R C SB PRCE CHART & MOVNG AVERAGE Close Price 20 Day MA 50 Day MA NTERPRETATON: From the above chart which clearly indicates that SB scrip price are moving upwards in a year. The moving averages intersecting in the month of March & June above as well as below the price level in their respective months and generating buy signal. n the month of October the price fluctuation has reduced compared to the previous months as well as generating sell signal by intersecting moving averages from the above and moving downwards. 266

5 . SB RELATVE STRENGTH NDEX: Graph no: 2(b). R C SB PRCE CHART & RS S Close Price 14 Day RS NTERPRETATON: n the month of Jan & Feb the RS is below the line 30 which indicates as oversold region in a year. On the other hand the RS of the scrip falls above the line 70 in the month of Sep & Oct at the same height which indicates the scrip has reached overbought region. Findings and Suggestions: t is observed that in the moving average graph when there is bull trend the 20 day MA will be above the 50 day MA and vice versa. n the bull trend it is found that price level will be above the MA and in bear trend the price level are below the moving average. The HDFC Bank scrip price level is primary bullish trend in the year, where in the month of Nov price level break down the support level and the trend has reversed its direction; in the month of Oct has formed the double bottom. The SB share price primary trend is bullish in nature, in the month of Oct & Nov the scrip breaks the resistance level and the trend has reversed its direction. n the month of Nov inverse V has formed can be identified. Conclusion: The investors select the stock to be owned in their portfolio on the basis of fundamental factors but because of future which is uncertain the need of money might arises at that point investors may withdrawing the investments made on the equity shares. Through the technical analysis the investors can also enjoy the price advantage at every price moment. The technical analysis is subjected to certain weakness such analyst bias, open to interpretation, timing the market etc., the technical analysis consider the market to be 80% psychological and remaining 20% would be logical. The buy & sell signal generated; when the demand and supply having counter move. The important aspect that the traders to have patience, in waiting for the trend to be developed because taking premature decision by assuming that the trend is taking place; which may results in incurring loss. The technical analysis do not considers the companies background and ignores the facts and nature of the company or bank. The analysis is completely based on demand andsupply of scrip at different level (i.e. ask bid and buy bid). Hence technical analysis would not only remain as technique or one of the method adopted to trading strategy but also the art in forecasting the possible trend in near future by using the experience and accuracy of the result involved. 267

6 Reference: 1. Mishra, Sibanjan. Technical analysis and Risk Premium in ndian Equity Market: A Multiple Regression Analysis UP Journal of Applied Economics; Hyderabad (Jan 2016) 2. S. Umaprabha& M. Malavika, A Study on Technical Analysis of Stocks Listed in NSE With Reference to Pharmaceutical ndustries (CAM 2015) 3. ThangjamRavichandhra, AshishChacko&ShruthiGanguly Technical analysis of equity shares Volume 5, ssue 1 (Jan- 2015) 4. Mrs. J. Nithya, Dr. G. Thamizhchelvan Effectiveness of technical Analysis in Banking Sector of Equity Marker OSR Journal of Business & Management. Volume 16, issue 7. Ver. V (July 2014) 5. 5.C.Boobalan Technical Analysis in Selected Stocks of ndian Company nternational Journal of Business and Administration Research Rev, Volume-2, ssue.4, Jan-Mar, Folger, Jean. A choser look at chart choices - Futures; Chicago (Sep 2013) 7. Varadharajan.P; Vikkramam. P. Effectiveness of technical analysis using candlestick chart for selection of equity stock in ndian capital market - Journal of Contemporary Management Research; Tiruchirappalli (Mar 2011) 8. Schill, Michael J; Wada Yosuke. An ntroduction to Technical Analysis Darden Graduate School of Business. (Sep 19,2008) 268