MUHURAT SESSION

Shares I would like to buy for MUHURAT SESSION

For Long Term Investment Only

Caution:  Look for the technical’s before buying

Price as on 25.10.2011 – NSE

Aban Offshore 400.00

Bannariamman Sugars 582.00

Bombay Dyeing and Manufacturing Company 419.00

Century Textiles and Industries 315.80

Century Enka 147.80

City Union Bank 43.50

 

Dabur India 95.50

Dena Bank 73.05

 

Electrotherm (India) 185.30

 

Garden Silk Mills 74.50

Gitanjali Gems  372.05

Gujarat State Petronet 97.70

Hindalco Industries 125.35

Hindustan Oil Exploration Company 108.95

IVRCL 35.90

Jain Irrigation Systems 115.10

Jaiprakash Associates 72.30

Jaiprakash Power Ventures 38.05

Jaypee Infratech 60.50

JSW Steel 601.00

Kalyani Investment Company 506.15

Kalyani Steels 47.35

LG Balakrishnan and Brothers 305.60

LGB Forge 2.90

Nahar Spinning Mills  61.25

Pantaloon Retail 178.90

Punj Lloyd 54.55

Revathi CP Equipment 350.05

Sintex Industries 109.20

Siyaram Silk Mills 275.85

Su-raj Diamonds and Jewellery 45.50

Tata Steel 452.05

United Phosphorous 146.30

Vardhman Textiles 205.15

NOTE

There is no clear technical signal observed for the upward direction of the market yet. Many gaps are seen in the daily bar chart of the past months. Hence any buying should be done in small lots over a period of time. Give importance to fundamental strength of each stock as well as the percentage of retracement from the previous high.

Dr.Felisleo

25.10.2011

PART III: CHART PATTERNS

TRADING TECHNIQUES- 1

Successful investing is anticipating the anticipations of others. 

                                                                                        John Maynard Keynes

1. MOVING  AVERAGES

Introduction:

Moving Average is an indicator frequently used in technical analysis showing the average value of a security's price over a set period. Moving averages are generally used to measure momentum and define areas of possible support and resistance. Moving averages are used to emphasize the direction of a trend and to smooth out price and volume fluctuations, or "noise", that can confuse interpretation.

Significance:

A moving average is commonly used with time series data to smooth out short-term fluctuations and highlight longer-term trends or cycles.

 Typically, upward momentum of a stock is confirmed when a short-term average (e.g.20-day) crosses above a longer-term average (e.g. 200-day). Downward momentum is confirmed when a short-term average crosses below a long-term average.

Classification:

There are many kinds of moving averages used for different types of analysis. But in stock market two types are used often. They are Simple Moving Average and Exponential Moving Average.

1. Simple Moving Average (SMA)

A simple or arithmetic moving average is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods.

Short-term averages respond quickly to changes in the price, while long-term averages are slow to react.

Usually traders watch for short-term averages to cross above longer-term averages to signal the beginning of an uptrend.

 Short-term averages (20 days SMA) also act as levels of support when the price experiences a pullback after an uptrend.

Support levels become stronger and more significant as the number of days used in the calculations increases.

In technical analysis there are various popular values for n, like 10 days, 20 days, 50 days, or  200 days. The period selected depends on the kind of movement one is concentrating on, such as short, intermediate, or long term. In any case moving average levels are interpreted as support in a rising market, or resistance in a falling market.

In all cases a moving average lags behind the latest data point, simply from the nature of its smoothing. SMA can lag to an undesirable extent, and can be disproportionately influenced by old data points dropping out of the average. This is addressed by giving extra weight to more recent data points, as in the weighted and exponential moving averages.

2. Exponential Moving Average (EMA)

An exponential moving average (EMA), also known as an exponentially weighted moving average (EWMA), is a type of infinite impulse response filter, that applies weighting factors which decrease exponentially. The weighting for each older data point decreases exponentially, never reaching zero.

 Exponential moving averages (EMAs) work the same way as a simple moving average, except they place greater weight on the more recent closing prices. The mathematics of an exponential moving average is complex, but fortunately for trackers, most charting packages calculate them automatically and instantaneously.

Moving Averages in Trading

A. Enter or Exit on a moving average crossover

B. Enter or exit when a strong trend pulls back to a   

     Moving  Average  line.

Assess the overall trend.

In order to assess the strength of a trend in a market, plot the 20 and 200 day SMA’s. In an uptrend, the shorter term averages should be above the longer term ones, and the current price should be above the 20 day SMA. A trader’s bias in this case should be to the upside, looking for opportunities to buy when the price moves lower rather than taking a short position.

Confirmation of price action.

As always, traders should look at candlestick patterns and other indicators (which shall be discussed in our forthcoming sessions) to see what is really going on in the market at that time. The chart above points out the Bullish engulfing pattern that occurs just as the pair bounces off the 20 day EMA. Hitting the 20 day EMA, in conjunction with the candlestick pattern, suggests a bullish trend. Traders should enter once the Bullish Engulfing candle is cleared.

Crossovers – to look for buy and sell timings:

When a shorter moving average crosses a longer one (i.e. if the 20 day EMA crossed below the 200 day EMA), this may be seen as an indication that the pair will move in the direction of the Shorter MA ( it is likely to  move down – Sell indication). Accordingly, should the short EMA crosses back above the longer EMA (i.e. the 20 day EMA crossed above the 200 day EMA), this may be viewed as a possible change in the trend (it is likely to move up – Buy indication).

Time Lag

Historically, moving average crossovers tend to ‘lag’ the current market action. The reason being is that the moving averages give us an ‘average’ price over a given period of time. Therefore the moving averages tend to reflect the market’s action, only after at least some time has passed. As the short moving average crosses over and above the longer moving average, this can be interpreted as a change in trend to the upside. The opposite also holds true, as the short moving average crosses down and below the long moving average, a new downtrend may emerge in the near future. Moving average crossovers tend to generate more reliable results in a trending market that tends to accomplish either new highs or new lows.

 In a range bound market environment, the moving averages may cross one another many times, and may tend to give us false trading signals. It is important for this reason, that we first identify the market as either trending or range bound.

Moving Average Example

The chart below show an example of how moving averages, when confirmed by price action, can signal trading opportunities.

TATA STEEL CHART

CONCLUSION

Moving averages smooth the price data to form a trend following indicator. They do not predict price direction, but rather define the current direction with a lag. Moving averages lag because they are based on past prices. Despite this lag, moving averages help smooth price action and filter out the noise. They also form the building blocks for many other technical indicators and overlays, such as Bollinger Bands, MACD and the McClellan Oscillator.

Dr.Felisleo

25.10.2011

DEEPAVALI GREETINGS

TO ALL READERS

BEST WISHES FOR A HAPPY DEEPAVALI.

MAY THE GODDESS LAKSHMI BLESS YOU ALL

WITH A PROSPEROUS YEAR AHEAD 

AND

SHOWER LOTS OF PROFITS 

IN THE MARKET 

DUE TO PAUCITY OF TIME THERE IS A GAP IN THE PUBLICATION OF THIS BLOG.

 HOPE TO RESTORE THE PUBLICATION SOON WITH NEW ADDITIONS

THE AUTHOR

Part II : Asset Building Through Equity

Part  II :   Asset  Building  Through  Equity

CHAPTER 11: MARKET  MOVERS    

THE  FORCE  FROM  BEHIND

Our deeds determine us,

As much as we determine our deeds.

                                 – George Eliot

Introduction:     

As we have discussed earlier there are many persons operating in the market who will qualify the category of Market Movers. But all of them can be classified into three major categories.

1. Classification based on Attitude

2. Classification based on Behavior

3. Classification based on Approach

1. Classification based on Attitude   

Two kinds of Investors

                                       A. Herd Instinct

                                       B. Contrarian thinking

A. Herd Instinct      

Herd behavior describes how individuals in a group can act together without any reason or planned direction. The term pertains to the behavior of animals in herds. Human conduct during activities such as stock market bubbles and crashes resembles this herd instinct.

Large stock market trends often begin and end with periods of frenzied buying (bubbles) or selling (crashes). Many observers call these episodes as clear examples of herding behavior that is irrational and driven by emotions — greed in the bubbles, fear in the crashes. Individual investors join the crowd of others in a rush to get in or out of the market.

Following the herd, however, is not a correct approach for good investment performance. And yet so many do it. That's why they are called herds.

B. Contrarian Thinking 

“No one is thinking if everyone is thinking alike.”

                                             Porter B. Williamson

“Do not follow the herd”

The greatest contrarian thinkers in the evolutionary history of earth are the Amphibians – but for whom we, the humans, might not have existed today. Instead of remaining in an aquatic environment like majority of their counterparts in the Paleozoic Era, they are the one who explored the land in the pre- historic past and became precursors of major land vertebrate groups.

            A contrarian thinker is ‘one who takes a contrary view or action, who makes decisions that contradict prevailing wisdom’.

When others are rushing to buy, they are selling. At moments of panic and rushed selling, our contrarian friend is busily buying, and often at greatly reduced bargain prices. While contrarian tendencies are obvious in the financial and investment communities, they are more difficult to discern in the everyday world of entrepreneurship and independent business.  Still, the contrarians are out there, and more often than not, their companies are thriving.

It requires a lot of mental strength to be a contrarian. In stock market it will definitely help you to make wise investment decisions in the long run.

2. Classification based on Behavior

BULL

If a person is optimistic and believes that stocks will go up, then that person is called a "bull" and is said to have a "bullish outlook". Bulls are optimistic about the upward movement of stock prices and are primarily buyers. A bull market is when everything in the economy is good, people are finding jobs, gross domestic product (GDP) is growing, and stocks are rising.

BEAR

If a person is pessimistic, believing that stocks are going to drop, then the person is called a "bear" and said to have a "bearish outlook". Bears believe that the stock prices are going to fall and are primarily sellers. A bear market is when the economy is bad, recession is looming and stock prices are falling.

Note:

There are also PIG’s in the market. Pigs are high-risk investors looking for the one big score in a short period of time. Pigs buy on hot tips and invest in companies without putting in the required effort to learn about these investments. They get impatient, greedy, and emotional about their investments, and they are drawn to high-risk securities Professional traders love the pigs, as it is often from their losses that the bulls and bears reap their profits.

Make sure you don't get into the market before you are ready. Be conservative and never invest in anything you do not understand. Before you invest in the market without the right knowledge, think about this old stock market saying:

"Bulls make money, bears make money, but pigs just get slaughtered!"

3. Classification based on Approach

Based on their approach on investments, the market participants can be classified into three categories. They are A. Fundamentalists B. Technical analyst and C. Technimentalist.

A. Fundamentalists

A fundamentalist is the one who makes his investment decisions based on fundamental analysis.

Fundamental analysis is a technique that attempts to determine a security’s value by focusing on underlying factors that affect a company's actual business and its future prospects.

You can perform fundamental analysis on industries or the economy as a whole.

On a broader scope, the term simply refers to the analysis of the economic well-being of a financial entity as opposed to only its price movements.

Fundamental analysis serves to answer the following questions

v  Is the company’s revenue growing?

v  Is it actually making a profit?

v  Is it in a strong-enough position to beat out its  

                                                Competitors in the future? 

v  Is it able to repay its debts?

v  Is management trying to "cook the books”?

B. Technical analyst

Technical analysts believe in market forces rather than the intrinsic value of the company.

Technical analysis assumes that market psychology influences trading in a way that enables predicting when a stock will rise or fall.  For that reason, many technical analysts are also market timers, who  believe that technical analysis can be applied just as easily to the market as a whole as to an individual stock.

Technical analysts believe that they can accurately predict the future price of a stock by looking at its historical prices and other trading variables.

A method of evaluating securities by relying on the assumption that market data, such as price or  volume charts and open interest  can help predict future (usually short-term) market trends. Unlike fundamental analysis, the intrinsic value of the security is not considered.

One of the main tenets of technical analysis is that stocks move in trends. Another is that a trend will continue until an equal or greater opposing force acts on the stock. An unexpected change in earnings, the loss of a large contract or any number of countless reasons could be a force significant enough to change investor sentiment. Betting on a trend reversal is far riskier than betting that it will continue.

C. Technimentalist

These persons belong to a Hybrid category – a combination of both Fundamentalists and Technical analysts.

The technimentalist, understands that there are fundamentals but that the market's reactions depend on the emotions of fear and greed. The technimentalist also realizes that the individual will never have access to all the facts to react before the market reacts. Nor can he or she predict future market sentiment or the price swings that it causes. For this reason, the technimentalist understands that stock price is the best indicator of all. Covering the bases, fundamental analysis tells this hybrid investor what to buy or sell, and technical analysis tells when to buy or sell.

The Discipline of Technimental Analysis

No one would argue against doing your homework on a company before investing. But technimentalists believe an examination of the trend is more important than getting tied up on past performance numbers.

1. Are corporate revenues declining, stable or increasing?

2. How effectively is the company competing?

3. Is it gaining market share or losing it?

4. Is the company experiencing growth and is that growth from top-line expansion (selling more product on increasing margins) or bottom-line cuts (laying off workers, cutting expenses or selling assets)?

5. Examining the activity of corporate insiders

If insiders such as directors and executives or institutions are selling their stock like there is no tomorrow, it is for a reason:

They may believe that the stock is overpriced or they may be responding to other deep-rooted problems.

Why should you buy stock in the company if those closely associated with it are selling large blocks of it?

On the other hand, if insiders suddenly start to buy or are increasing holdings, it could indicate that corporate fortunes are improving or a promising new technology or product is having a positive effect on the bottom line.

Conclusion:

While investors with any experience would never buy a stock without researching the fundamentals of the company, many will completely ignore the technicals. But relying solely on fundamentals to buy or sell ignores two major market forces: the emotions of fear and greed.

By studying the fundamentals - such as the direction of revenues, margins, insider sales and other key factors-you can determine what stocks to buy or sell. But by following the technicals such as direction and trend of the stock chart to monitor sentiment and by waiting for all to agree, you can determine exactly when to make your move.

Fundamentalists are longer-term investors while technicians are generally short to medium-term traders. In the eyes of each, the other could not be more wrong.

                            

Dr.Felisleo

13.2.2011