CHART WATCH

CHART WATCH

SEE THE PICTURE AND TELL THE STORY

EXERCISE- 6

Charts are Graphical representation of price movement of anything over a period of time. The trend depicted by these charts is governed by the forces of demand and supply.  ‘History Repeats’ is a dictum that is operative in the markets also. Markets include all kinds, such as Stock, Commodity, Crude, Metals, and Foreign exchange etc.

I have started using names for the patterns in the charts. Watch them with attention.

Market Lesson 4  :   Sell around  ‘Resistance  Line’  

                                             Support Line                                            

_______________________________ 

                                             Resistance Line

What is a ‘Resistance  Line’?

The price level at which a stock or market can trade, but not exceed, for a certain period of time is called Resistance.

‘Resistance Line’ is an imaginary line or the point at which sellers (“bear”) take control of prices and prevent them from rising higher. The price at which a trade takes place is the price at which a “bull” and “bear” agree to do business. It represents the consensus of their expectations.

Resistance line indicates the price at which most investors feel prices will move lower.

The breaking through support/resistance lines can be triggered by fundamental changes that are above or below investor's expectations. Support and resistance is formed by supply and demand of a particular stock in the market.

‘Support and Resistance’ line:

Like two sides of a coin Support and Resistance are two sides of the same line.

When a resistance line is successfully broken through, that line becomes a support line.

Similarly, when prices drop below a support line, that line often becomes a resistance line.

In both the cases prices have a difficult time breaking through. Crossing of support and resistance lines are usually termed as breakouts.

If the breakouts are associated with huge volume of trade then it generally confirms the direction of the trend.

Note:

1. Buy on the breakout and Buy around Support line conveys the same meaning.

2. Sell on the breakdown and sell around the resistance line conveys the same meaning.

Are you able to comprehend the meaning? If not you will understand it as you advance further.

About the charts: (Dated 1.12.2010)

* To enlarge the chart Double click by keeping the cursor above the chart. 

1. CITY  UNION  BANK

2. GITHANJALI GEMS

FAQ:

5. What is “annual report”?

The write-ups and financial statements of an entity given every year to investors and regulatory bodies.

6. What is balance sheet?

A firm's financial statement that provides a picture of its assets, debts, and net worth at a specific time

7. What is dividend?

A sum of money, determined by a company's directors, paid to shareholders of a corporation out of earnings. It is usually paid once a year, sometimes more than once. If performance of the company is bad then it may skip paying dividend.

8. What is ‘Beta?’

The indicator used to measure a stock's risk relative to the market. The markets beta is always 1.0 (Based on past statistical records, a beta higher than 1.0 indicates that when the market rises, the stock will rise to a greater extent than that of the market; likewise, when the market falls; the stock will fall to a greater extent. A beta lower than 1.0 indicates that the stock will usually change to a lesser extent than that of the market. The higher the beta, the greater the investment risks.)             

                                     

Can we anticipate the line of Resistance in advance? Is there any method or Model to predict it? To get an answer for these queries you have to wait till we reach the Advanced Technical Analysis Module.

Dr.Felisleo

2.12.2010

 

Asset Building through Equity

Part  II :   Asset  Building  Through  Equity

CHAPTER 6: Why Should I Invest In Equity?

 "Balance is the key to success in all things. Do not neglect your mind, body, or spirit. Invest time and energy in all of them equally - it will be the best investment you ever make, not just for your life but for whatever is to follow."

                                                                                         - Tanya Wheway

Why?

 For all the recent gyrations in the stock market, equity continues to be a better bet than fixed income instruments like government securities or bank deposits. Even the government backed Unit 64 plan defaulted and caused heavy loss to big investors. From this we should understand that risk lies in all sorts of investments.

Let us take the investment in Mutual Funds. We mainly do this because of our unfounded belief that fund managers are financial wizards and will definitely give a good return inspite of any kind of market situations. See the following table of performance of mutual funds during the year 2008-2009.

PERFORMENCE OFMUTUALFUNDS

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                                          Rate of Return (%)   

Equity                          6Months        1 year        3 years             

ING Dynamic Asset      2.88           0.48           --

UTI Dividend Yield    -12.66        -20.05       1.59

Birla Sun Life             -14.47        -21.50      -4.88

IDFC Imperial Equity -14.04        -24.28       2.37

Note: Returns calculated for less than one year are absolute Returns and returns calculated for more than one year are compounded annualized.

The above table clearly exposes the financial wizardry of fund managers. Many of us do not want take risk on our money but are willing to donate our money to unknown fund managers for taking that risk.

Nobody in the market can foretell what is going to happen in the future. Market changes minute by minute. Do remember it is the market that makes the wizards and fools depending upon their time of entry. Hence I would like to reiterate once again it is better to take risk on your own instead of believing on somebody else’s unproven capability.

Let me explain how a long term investor who has no knowledge of the market movements might have fared if he has invested in good companies. There are many families in India who used to invest in some shares of good companies ( Century , Ponds etc.) as soon as a girl child is born which has taken care of the marriage of the child. I have given a list of stocks and their prices with respective years. Compare their prices today and the percentage of appreciation.  Many of these stocks have also multiplied many times through bonus issues.

Early and late 80’s

Company                                Price in RS.

McDowell                                     7

MRF                                             8

Tata Tea                                      9

L&t                                             30

Ponds (Now HUL)                    22

Grasim                                      30    

Revathi Eq.                               12

Hero Honda                                9

MAY  2003

JP associates                         40  

Sail                                            12

Century                                     26

Tata Steel                              150

June  2010

Githanjali Gems                    120

Siyaram                                 170

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You can check yourself the advantage of equity investment from the above list.

WHAT IS EQUITY?

Securities representing equity ownership in a corporation, providing voting rights, and entitling the holder to a share of the company's success through dividends and/or capital appreciation.

In the event of liquidation, common shareholders have rights to a company's assets only after bondholders, other debt holders, and preferred shareholders.

                                                                                                           

WHAT IS EQUITY INVESTMENT

Equity investment generally refers to the buying and holding of shares of stock on a stock market by individuals and funds in anticipation of income from dividends and capital gains as the value of the stock rises. It also sometimes refers to the acquisition of equity (ownership), participation in a private (unlisted) company or a startup (a company being created or newly created).

When the investment is in infant companies, it is referred to as venture capital investing and is generally understood to be higher risk than investment in listed going-concern situations.

WHAT  DETERMINES  SHARE PRICE  ?

Ultimately, at any given moment, equity’s price is strictly a result of supply and demand. The supply is the number of shares offered for sale at any one moment.

 The demand is the number of shares investors wish to buy at exactly that same time.

 The price of the stock moves in order to achieve and maintain equilibrium.

WHO ARE ALL THE FELLOW PLAYERS? WHAT CAUSES THE GYRATIONS IN THE MARKET? WE WILL DISCUSS IN THE FORTH COMING CHAPTER.

Dr.Felisleo

28.11.2010

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Email:   panleoinc@in.com

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CHART WATCH

CHART WATCH

SEE THE PICTURE AND TELL THE STORY

EXERCISE- 5

Charts are Graphical representation of price movement of anything over a period of time. The trend depicted by these charts is governed by the forces of demand and supply.  ‘History Repeats’ is a dictum that is operative in the markets also. Markets include all kinds, such as Stock, Commodity, Crude, Metals, and Foreign exchange etc.

I have started using names for the patterns in the charts. Watch them with attention.

* To enlarge the chart Double click by keeping the cursor above the chart. 

Market Lesson 3  :   Buy around  ‘Support  Line’

What is a ‘Support Line’?

When you drop a ball on the floor it hits the ground and bounces back. The floor here acts as support for the bouncing ball. Similarly in stock market when there is a free fall in the price (comparable to the ball) of a stock, it may stop at one level and bounce back. The imaginary line at which the price stops from falling further is the support line.

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Support line

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Support line is a level at which bulls (i.e., buyers) take control over the prices and prevent them from falling lower. Support levels indicate the price, where the most investors believe that prices will move higher.

There is nothing mysterious about support: it is classic equilibrium formed by supply and demand. But investor’s expectation change with the time, and they often do so abruptly. The development of support and resistance levels is probably the most noticeable and reccurring event on price charts. The penetration of support levels can be triggered by fundamental changes that are beyond investor's expectations and control (e.g., changes in earnings, management, competition, Scams, War, Natural calamity, etc.) New expectations lead to new price levels. Also there are support levels which originate due to emotional factors.

The supply line shows the quantity (i.e., the number of shares) that sellers are willing to supply at a given price. When prices increase, the number of sellers also increases as more traders are willing to sell at these higher prices.

In a free market, these lines are continually changing. Investor's expectations change, and so do the prices.

The foundation of most technical analysis tools is rooted in the concept of supply and demand. Price charts for financial instruments give us a superb view of these forces in action.

Note:  It is very difficult to catch the exact bottom while buying. That is why I have mentioned it as “Buy around Support Line”.

Observe the following charts where the price is coming down as a water fall. Guess at what price level it will hit the ground and start bouncing.

About the charts: (Dated 24.11.2010)

1. NIFTY Chart – Daily

2. Century Textiles Chart – Diversified 

3. Century Enka Chart – Diversified 

4. Bombay Dyeing Chart – Textile 

FAQ:

1. What is meant by “BOURSE?”

     Bourse refers to an organized market.

     The Stock Exchange.

2.  Who is a “BULL?”

      The person who believes that the market  

      will rise. A "bull" is an investor who buys

      stocks, for selling it at a higher price.

3.  Who is a “BEAR?”

      The person who believes that the market will

     decline. A "bear" is an investor who sells his

     stocks, and  buying it back at a lower price.

4.  Who is a “STAG?”

     A stag is an investor or speculator who

     subscribes to a new issue with the intention

     of selling them soon after allotment to

     realize a quick profit.

Can we anticipate the line of Support in advance? Is there any method or Model to predict it? To get an answer for these queries you have to wait till we reach the Advanced Technical Analysis Module.

Dr.Felisleo

25.11.2010