Portfolio Construction Using Technical and Fundamental Analysis Essay

CHAPTER genius INTRODUCTION1.1 Background of the Organization brilliant beauteousness Brokers Pvt. Ltd. & Smart trade groovy Brokers Pvt. Ltd. was liberal up on 1st May 2006 as Smart Equity Brokers Pvt. Ltd., by a young Chartered Accountant, Mr. Arun Khera, acheed by Mr. Ravi Raj Jain, both(prenominal)(prenominal) having a rich experience & exposure to capital, derivative & commodity grocery. The social club acquired the membership of Bombay Stock trade BSE in 2006 National Stock Exchange NSE in 2006 National unafraidness & Derivative Exchange NCDEX in 2003 Multi Commodity Exchange MCX in 2006 Derivatives Segment NSE, Clearing Member in 2006 Smart is a full advantage brokerage ho engagement providing comprehensive consultatory services to its clients under mavin roof, enabling you to valetage all in all your mo earnary needs. We take expertise in advisory services in both cash and derivatives sides of the capital commercializes.Smart as well as provides c ommodity business with its group subsidiaries, and is a member of the MCX and NCDEX. The services argon al ba follow throughd under wide-cut confidentiality and integrity with the sole purpose of maximizing returns to our customer base is a mix of institutional, extravagantly net m acetary appreciate, and retail putors. This diversified base of customers, in concert with our wide gamut of services, provides us with the necessary stability and strength to weather the excitableness some(prenominal) better than that of the competitors and also maintain graduate(prenominal) standards of customer service take aims through and throughout. Smart pee-pee throughs the certify needs of this investor base through execution skills drive by an experienced sales group and research- behinded advice gene sendd by a team of experienced psychoanalysts. Smart advisory services cuckold from investing, trading, research, m unitytary readying and portfolio management, which atomic function 18 r each(prenominal)ered, to a large number of heights net worth individuals and corporate. Mission- To provide research-driven, unbiased investiture advise with the objective of achieving sustainable superior investiture returns for our clients. To provide flawless execution support to meet diverse client needs on a platform of professionalism and integrity.Our value To be fair, empathetic and responsive in serving our customers.To respect and beef up our fellow employees and the power of teamwork. To strive relentlessly to improve what we do and how we do it. To everlastingly earn and be worthful of our customers trust.21.2 Introduction of the StudyThis purport is being through to construct portfolio of clients with the sustain of investment trustamental and beneficial foul comp deathium. withal analyse their portfolio by valuating those companies where they have already invested using specific military rank model. Then find out whether it is even up up while to invest in those companies using technological summary. overly shrewd the returns they atomic number 18 getting and offer for high(prenominal) return. primeval abbreviation gives us the idea what to demoralise or what to lead astray, spot skillful abstract tells us the timing when to buy or when to transfer. In this regorge I am mainly focusing on how to provide a holistic great deal to the clients, specifically HNIs (High Net-worth Individuals), on investing in fairness securities industry i.e. descent market. The main motive of this research is to check whether primitive epitome and skilful analysis together is reclaimable to provide better suggestion for investments.1.3 acquisition Objectives of the projectTheprojectunder outcomenduringthe completionofinternshipwasPortfolioConstructionusing underlyingandTechnical outline.Thelearningobjectivesoftheinternshipargonasfollows- UnderstandingthevariousactivitiesinaBrokingFirm Togetacquaintedwiththeallwork ingsofon rouetrading To inducepracticalknowledgein selltradingToanalyzethe m iodinetarymarket& divide bear uponmentsinordertostudyofprospectsofinvestingina fact take-taking. Tounderstandtheworkinginthederivativesmarket.1.4 Need of the find outPortfolio Construction is all about investing in a regulate of funds that work together to create an investment solution for investors. expression a portfolio involves understanding the demeanor various types of investments work, and combining them to address your in the flesh(predicate) investment objectives and factors such as attitude to risk the investment and the expect life of the investment. When building an investment portfolio there argon 2 rattling grievous dateations. The number 1 is humanitarian al localisation principle, which is concerned with how an investment is spread crossways different asset types and percentages. The mo is fund appointion, which is concerned with the choiceof fund managers and funds to re b ewilder from each one of the chosen asset classes and benas. both(prenominal) of these considepro drawns ar important, although academic studies have consistently shown that in the medium to foresightfulsighted term, asset allocation usually has a lots large impact on the variability of a portfolios return. To help in choosing a3suitable asset allocation we have created a Risk Profiler that helps get word your attitude to risk and therefore better identify a crew of investments to build a portfolio. With such a vast number of investment funds to choose from, spanning the full regulate of asset classes and world markets it is slowly to become conf utilize when choosing which investments to make. It is even to a greater extent difficult to choose the near combination of investment to potentially meet your investment goals. The tool, which we mapping so as to build the portfolio, is technical and fundamental analysis.1.5 Scope of Project expi dimensionn and limitation The study give help the organization to know the present condition of the portfolio construction and expectations of the clients towards portfolio The pull up stakesingness of the clients and to implement portfolio system which is pitchive for the clients Limitations of the Study This project is being done with the help of historical data manage annual reports of the ac bon ton. So, the availability of data is the limitation of this project. Also this project needs a lot of period to analyzing data. As the project is based on pull follow out-ranking data, possibility of unauthorized randomness put forward non be avoided. The report is basically is do surrounded by the horizon of ternary months and the situation of market is truly high-power so the conclusion or the return might not shine the true word picture.4CHAPTER TWO METHODOLOGY2.1 Research DesignThe modeologies utilise for portfolio construction be technical and fundamental analysis. While constructing th e portfolio it was kept in mind that it was basically built for investing purpose.2.2 Data Collection method and instrumentsAll the data, graph and graphs are collected from instantary sources. The instruments apply are iChart Java application to construct maps and graphs.2.3 Analysis Techniques and Procedure perfect analysis is the foundation of solid investing. It helps you ascertain the underlying health of a community by examining the business core numbers its income statements, its net profit releases, its balance sheet, and opposite powers of economic health. From these fundamentals investors evaluate if a declension is under- or overvalued. Fundamental analysis begins with an individual rake, notwithstanding it also ext culminations to that companys larger context. It explores questions like these Is the company competitive wi trim back its industry? Is that industry ontogeny or shrinking, compared to other sectors? grapples of companies with coppernecked funda mentals bequeath tend to go up over while, while fundamentally weak companies will s natural covering their line of credit impairments fall. This makes fundamental analysis oddly valuable to spacious-term investors. Fundamental analysis is one school of investing research. It contrasts with other popular approach, technical analysis, which focuses not on business fundamentals and on fund- charge run as reflected in graphs. Technical analysts look for recognizable embodiments in value charts that will help them prognosticate the live rakes coming(prenominal)(a) cost endeavor. Fundamental analysis helps you determine if a company is a good or poor investment choice. Imagine youre a take a chance capitalist or a bank, who must decide if that company is worthy of a loan or providedness investment.How cigarette you evaluatewhether this particular company deserves your investable capital? Fundamental analysts consider the chase in reservation their decision to i nvest (or not) Is the company making a profit consistently? (While this is naturally the close to important question for investors, its important to consider the answer in a bigger context. A single bankable quarter for a crude company might be a fluke. In the same regard, a drop in profitability for an established blue-chip company might just be a temporal setback.) Is that profit growing or declining over time? Is the company declareing its own relative to the competition? Is it a bearer in its sector? Is that sector growing or declining in importance to the overall scrimping? Can the company pay its bills adequately? If you were to dismantle the companys ope symmetryns to side corpo true twenty-four hour periodlight, what would be the intrinsic value of its assets versus the value of its debts?Fundamental Analysis Tools Earnings per Share EPS Price to Earnings Ratio P/E Projected Earning harvest-feast PEG Price to Sales P/S Price to make P/B Dividend Pa yout Ratio Dividend Yield Book apprize Return on Equity Earnings per Share EPS The plough constituent of a companys profit allocated to each great(p) share of common stock. Earnings per share serves as an index of a companys profitability. Calculated as5When calculating, it is to a greater extent than accurate to use a weighted fairish number of shares outstanding over the insurance coverage term, because the number of shares outstanding potbelly change over time. tho, data sources somemultiplication simplify the calculation by using the number of shares outstanding at the end of the period. Diluted EPS expands on basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number. Price to Earnings Ratio P/E Price/Earnings or P/E dimension is the ratio of a companys share bell to its cyberspace per share. It tells whether the share cost of a company is passably valued, undervalued or overvalued. Formula P/E Ratio = Current Share Price Earnings per ShareCurrent share hurt is obtained from secondary markets like BSE, NSE, etc. while EPS is coded as (net income minus preferred dividends)/weighted medium number of shares outstanding. Leading and Trailing P/E Ratio If the EPS is the pick up for the genuine period the P/E ratio is called trailing P/E ratio. For better analysis the EPS should be the one expected to prevail in the succeeding(prenominal) reporting period, regulate adjacent course. P/E ratio deliberate based on expected P/E ratio is called atomic number 82 P/E and is a more(prenominal) meaningful estimate of the companys reassert P/E ratio. Analysis If the keep up P/E careful using dividend discount analysis is high than the circulating(prenominal) P/E ratio the share is undervalued and should be purchased. If the justified P/E is overturn than P/E ratio the share is overvalued and should be sold.Projected Earning Growth PEG6A stocks price to earnings ratio divided by the firmness of purpose rate of its earnings for a specified time period. The price/earnings to ontogeny (PEG) ratio is utilise to determine a stocks value while taking the companys earnings growth into account, and is considered to provide a more complete picture than the P/E ratio. While a high P/E ratio lily- ashenthorn make a stock look like a good buy, factoring in the companys growth rate to get the stocks PEG ratio move tell a different story. The turn away the PEG ratio, the more the stock may be undervalued given its earnings performance. The calculation is as follows (P/E ratio)/Annual EPS Growth Price to Sales P/S Investors are ever seeking ways to compare the value of stocks. The price-to-sales ratio(Price/Sales or P/S) provides a simple approach take the companys market capitalisation (the number of shares multiplied by the share price) and divide it by the companys total sales over the past 12 months. The lower the ratio, the more attractive the investment. As li ght-headed as it sounds, price-to-sales provides a useful amount for sizing up stocks. exclusively investors need to be aware(p) of the ratios potential pitfalls and possibleunreliability.Dividend Payout Ratio Dividend payout ratio is the ratio of dividend per share divided by earnings per share. It is a measure of how much earnings a company is paying out to its shareholders as compared to how much it is retaining for reinvestment. Formula Dividend Payout Ratio = Dividend per Share Earnings per ShareDividend payout ratio bottomland also be calculated as total dividends divided by net income. Analysis A shareholder has devil sources of return, namely periodical income in the form of dividends and capital appreciation. Dividend payout ratio tells what character of total earnings the company is paying back to shareholders. A healthy dividend payout ratio leads to investor faith in the company. Plowback ratio (also called retention rate) is equals 1 payout ratio and it equals the earnings retained divided by total earnings for the period.7Book Value 1. The value at which an asset is simple machineried on a balance sheet. To calculate, take the cost of an asset minus the accumulated depreciation. 2. The net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities. 3. The sign outlay for an investment. This number may be net or rank of expenses such as trading costs, sales taxes, service charges and so on. Also known as net book value (NBV). Return on Equity Return on lawfulness or return on capital is the ratio of net income of a business during a year to its stockholders equity during that year. It is a measure of profitability of stockholders investments. It shows net income as percentage of shareholder equity. Formula The formula to calculate return on equity is ROE = Annual Net Income Average Stockholders EquityNet income is the laterwardswards tax income whereas average shareholders equ ity is calculated by dividing the sum of shareholders equity at the beginning and at the end of the year by 2. The net income figure is obtained from income statement and the shareholders equity is found on balance sheet. You will need year ending balance sheets of deuce consecutive financial years to find average shareholders equity. Analysis Return on equity is an important measure of the profitability of a company. Higher values are generally regardable meaning that the company is efficient in generating income on new investment. Investors should compare the ROE of different companies and also check the bowel movement in ROE over time. However, relying solely on ROE for investment decisions is not safe. It can be artificially influenced by the management, for example, when debt financing is used to reduce share capital there will be an change magnitude in ROE even if income snags constant.Technical Analysis can be defined as an art and science of forecasting future prices ba sed on an examination of the past price movements. Technical analysis is not astrology for predicting prices. Technical analysis is based on analyzing flow rate get hold of- bring home the bacon of commodities, stocks, indices, futures or any tradable instrument. Technical analysis involve putting stock education like prices, multitudes and open touch on a chart and applying various aims and indicators to it in order to assess the future price movements. The time frame in which technical analysis is applied may range from intraday (1-minute, 5-minutes, 10-minutes, 15-minutes, 30-minutes or hourly), daily, weekly or monthly price data to umpteen years. there are essentially dickens methods of analyzing investment opportunities in the protection market viz fundamental analysis and technical analysis. You can use fundamental in establishment like financial and non-financial aspects of the company or technical in shaping which ignores fundamentals and focuses on actual price m ovements. The buns of Technical Analysis What makes Technical Analysis an effective tool to analyze price sort is explained by following theories given by Charles Dow Price discounts e actuallything Price movements are not totally random What is more important than why taper CHARTS What is a chart? Charts are the working tools of technicalanalysts. They use charts to speckle the price movements of a stock over specific time frames. Its a graphical method of demonstrate where stock prices have been in the past.8A chart gives us a complete picture of a stocks price history over a period of an hour, day, week, month or legion(predicate) years. It has an x-axis (horizontal) and a y-axis (vertical). Typically, the x-axis represents time the y-axis represents price. By plotting a stocks price over a period of time, we end up with a pictorial representation of any stocks trading history. A chart can also furnish the history of the volume of trading in a stock. That is, a chart can illustrate the number of shares that change hands over a certain time period. Candlesticks Formation Candlestick charts provide visual perceptiveness to current market psychology. A atomic number 48 holder displays the open, high, low, and closing prices in a format uniform to a modern-day bar-chart, but in a manner that extenuates the analogyship between the curtain raising and closing prices. Candlesticks dont involve any calculations. separately certificate of depositstick represents one period (e.g., day) of data. The figure given at a lower place displays the elements of a compact disk.9, A candle holder chart can be created using the data of high, low, open and closing prices for each time period that you want to display. The hollow or filled portion of the candlestick is called the organic structure (also referred to as the real proboscis). The great thin lines supra and below the personify represent the high/low range and are called shadows (also referred to as wicks and tails). The high is marked by the pinch of the despatch shadow and the low by the permeate of the lower shadow. If the stock rigorouss higher than its openingprice, a hollow candlestick is drawn with the bottom of the be representing the opening price and the cover charge of the corpse representing the closing price. If the stock blocks lower than its opening price, a filled candlestick is drawn with the top of the physical structure representing the opening price and the bottom of the soundbox representing the closing price.Each candlestick provides an easy-to-decipher picture of price action mechanism. Immediately a trader can see and compare the relationship between the open and scrawny as well as the high and low. The relationship between the open and close is considered vital information and forms the essence of candlesticks. Hollow candlesticks, where the close is greater than the open, point buying force per unit area. Filled candlesticks, where the close is less than the open, evoke diversify pressure. Thus, compared to tralatitious bar charts, umpteen traders consider candlestick charts more visually harmonic and easier to interpret.10Why candlestick charts? NIFTY ( day-to-day) Candlestick Chart What does candlestick charting byer that typical Western high-low bar charts do not? rather of vertical line having horizontal ticks to identify open and close, candlesticks represent insipid bodies to depict open to close range and shadows to mark days high and low. For several years, the Nipponese traders have been using candlestick charts to confidential information market activity. Eastern analysts have identified a number of patterns to determine the continuation and atavism of social movement. These patterns are the basis for Japanese candlestick chart analysis. This places candlesticks rightly as a part of technical analysis. Japanese candlesticks offer a quick picture into the psychology of shrimpy term tra ding, perusing the effect, not the cause.Applying candlesticks means that for get around-term, an investor can make confident decisions about buying, merchandising, or holding an investment. Candlestick analysis One cannot ignore that investors psychologically driven forces offear greed and hope greatly influence the stock prices. The overall market psychology can be tracked through candlestick analysis. More than just a method of pattern recognition, candlestick analysis shows the interaction between buyers and sellers. A fair candlestick indicates opening price of the school term being below the closing price and a lightlessness candlestick shows opening price of the academic session being supra the closing price. The shadow at top and bottom indicates the high and low for the session.11Japanese candlesticks offer a quick picture into the psychology of short term trading, studying the effect, not the cause. Therefore if you combine candlestick analysis with other technical a nalysis tools, candlestick pattern analysis can be a very useful way to select submission and exit points. One candle patterns In the terminology of Japanese candlesticks, one candle patterns are known as Umbrella lines. There are two types of umbrella lines the hanging man and the form. They have long lower shadows and microscopic real bodies that are at top of the trading range for the session. They are the simplest lines because they do not necessarily have to be spotted in combination with other candles to have some validity. counterfeit and Hanging Man buffeting Hanging Man Candlesticks Hammer Hammer is a one-candle pattern that occurs in a down hack when bulls make a head pencil leadt to whole tone into the rally. It is so named because it quids out the bottom.The lower shadow of hammer is nominal of twice the length of body. Although, the colour of the body is not of much moment but a egg white candle shows slightly more optimistic implications than the abusiv e body. A constructive day i.e. a white candle is required the conterminous day to confirm this symptomise. Criteria The lower shadow should be at least two propagation the length of the body. There should be no upper shadow or a very diminished upper shadow. The real body is at the upper end of the trading range. The food coloring of the body is not important although a white body should have slightly more optimistic implications. The followingday needs to confirm the Hammer signal with a strong bullish day. note enhancements 1. The perennial the lower shadow, the higher the potential of a retrogression occurring. 2. deep volume on the Hammer day increases the chances that a blow off day has occurred. 3. A whirl down from the old days close sets up for a stronger thong move provided the day after the Hammer signal opens higher. word form psychology12The market has been in a down bm, so there is an air of bearishness. The price opens and seize ons to trade lower. However the sell-off is abated and market returns to high for the day as the bulls have stepped in. They start manner of speaking the price back up towards the top of the trading range. This creates a weakened body with a large lower shadow. This represents that the bears could not maintain control. The long lower shadow now has the bears questioning whether the surrender is mollify intact. substantiation would be a higher open with insofar a hush up higher close on the next trading day. Hanging man The hanging man appears during an up snub, and its real body can be each obscure or white. While it signifies a potential top shock, it requires ratification during the next trading session. The hanging man usually has little or no upper shadow. Soybean Oil-December, 1990, Daily (Hanging Man and Hammer)13Dow Jones Industrials-1990, Daily (Hanging Man and Hammer) Shooting star and modify hammer Other candles similar to the hanging man and hammer are the shooting star, and the inverted hammer. Both have niggling real bodies and can be either moody or white but they both have long upper shadows, and have very little or no lower shadows. upside-down Hammer verbal description Inverted hammer is one candle pattern with a shadow at least two times greater than the body. The pure body identifies this pattern. They are found at the bottom of the declinewhich is evidence that bulls are stepping in but still selling is outlet on. The color of the subaltern body is not important but the white body has more bullish indicants than a melanize body. A positive day is required the following day to confirm this signal.Signal enhancements 1. The longer the upper shadow, the higher the potential of a turnaround time occurring. 2. A severance down from the former days close sets up for a stronger reversal move.143. Large volume on the day of the inverted hammer signal increases the chances that a blow off day has occurred 4. The day after the inverted hammer signa l opens higher. Pattern psychology by and by a down thin out has been in effect, the atmosphere is bearish. The price opens and starts to trade higher. The Bulls have stepped in, but they cannot maintain the strength. The living sellers knock the price back down to the lower end of the trading range. The Bears are still in control. But the next day, the Bulls step in and take the price back up without study resistance from the Bears. If the price maintains strong after the Inverted Hammer day, the signal is confirmed. Stars A small real body that spreadheads away from the large real body preceding it is known as star. Its still a star as long as the small real body does not overlap the preceding real body. The color of the star is not important. Stars can occur at tops or bottoms. Shooting star Description The Shooting Star is a single line pattern that indicates an end to the uptrend.It is easily identified by the presence of a small body with a shadow at least two times greate r than the body. It is found at the top of an uptrend. The Japanese named this pattern because it looks like a shooting star falling from the sky with the tail trailing it.Criteria 1. The upper shadow should be at least two times the length of the body. 2. Prices gap open after an uptrend.153. A small real body is create near the lower part of the price range. The color of the body is not important although a black body should have slightly more bearish implications. 4. The lower shadow is well-nigh non-existent. 5. The following day needs to confirm the Shooting Star signal with a black candle or better yet, a gap down with a lower close. Signal enhancements 1. The longer the upper shadow, the higher the potential of a reversal occurring. 2. A gap up from the forward days close sets up for a stronger reversal move provided. 3. The day after the Shooting Star signal opens lower. 4. Large volume on the Shooting Star day increases the chances that a blow-off day has occurred althou gh it is not a necessity. Pattern psychology During an uptrend, the market gaps open and rallies to a new high. The price opens and trades higher. The bulls are in control. But to begin with the close of the day, the bears step in and take the price back down to the lower end of the trading range, creating a small body for the day.25 This could indicate that the bulls still have control if analyzing a Western bar chart.16However, the long upper shadow represents that sellers had started stepping in at these take aims. Even though the bulls may have been able to keep the price positive by the end of the day, the evidence of the selling was apparent. A lower open or a black candle the next day reinforces the fact that selling is vent on.Two candles pattern Bullish engulfing A bullish engulfing pattern consists of a large white real body that engulfs a small black real body during a downtrend. It signifies that the buyers are overwhelming the sellers EngulfingBullish engulfing Descr iption The Engulfing pattern is a major reversal pattern comprised of two opposite word colored bodies. This Bullish Pattern is formed after a downtrend. It is formed when a large17white candlestick that altogether eclipses the forward day candlestick follows a small black candlestick. It opens lower that the earlier days close and closes higher than the previous days open. Criteria 1. The candlestick body of the previous day is completely overshadowed by the next days candlestick. 2. Prices have been declining definitely, even if it has been in short term. 3. The color of the first candle is similar to that of the previous one and the body of the second candle is opposite in color to that first candle. The nevertheless ejection being an engulfed body which is a doji.Signal enhancements 1. A small body being covered by the larger one. The previous day shows the trend was running out of steam. The large body shows that the new tutelage has started with good force. 2. Large vol ume onthe engulfing day increases the chances that a blow off day has occurred. 3. The engulfing body engulfs absorbs the body and the shadows of the previous day the reversal has a greater probability of working. 4. The probability of a strong reversal increases as the open gaps between the previous and the current day increases. Pattern psychology After a decline has taken place, the price opens at a lower take aim than its previous day closing price. Before the close of the day, the buyers have taken over and have led to an increase in the price preceding(prenominal) the opening price of the previous day. The emotional psychology of the trend has now been altered. When investors are learning the stock market they should utilize information that has worked with high probability in the past.Bullish Engulfing signal if used after proper training and at proper locations, can lead to highly profitable trades and consistent results. This pattern concedes an investor to improve their probabilities of been in a correct trade. The common sense elements conveyed in candlestick signals makes for a displace and concise trading technique for beginning investors as well as experienced traders. Bearish engulfing A bearish engulfing pattern, on the other hand, occurs when the sellers are overwhelming the buyers. This pattern consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or engulfs the small white one.Bearish Engulfing1819 stabbing The bullish counterpart to the dark cloud cover is the piercing pattern. The first thing to look for is to spot the piercing pattern in anexisting downtrend, which consists of a long black candlestick followed by a gap lower open during the next session, but which closes at least center(prenominal) into the prior black candlesticks real body. Description The bang-up Pattern is composed of a two-candle formation in a down trending market. With daily candles, the piercin g pattern will lots end a minor downtrend (a downtrend that lasts between six and fifteen trading days). The day forwards the piercing candle appears, the daily candle should have a fairly large dark real body, signifying a strong down day.Criteria 1. The downtrend has been unmixed for a good period. 2. The body of the first candle is black the body of the second candle is white. 3. A long black candle occurs at the end of the trend. 4. The white candle closes more than halfway up the black candle. 5. The second day opens lower than the trading of the prior day. Signal enhancements 1. The reversal will be more pronounced, if the gap down the previous day close is more. 2. The longer the black candle and the white candle, the more bruising the reversal. 3. The higher the white candle closes into the black candle, the stronger the reversal. 4. Large volume during these two trading days is a significant balk.Pattern psychology20The atmosphere becomes bearish once a strong downtren d has been in effect. The price goes down. Bears may move the price even further but sooner the day ends the bulls enters and bring a dramatic change in price in the opposite direction. They finish near the high of the day. The move has around negated the price decline of the previous day. This now has the bears concerned. More buying the next day will confirm the move. Being able to utilize information that has been used successfully in the past is a much more viable investment strategy than taking shots in the dark.Keep in mind, when you are given privileged information about stock market tips, where youare in the food chain. Are you one of those privileged a few(prenominal) that get top-notch pertinent information on a timely manner, or are you one of the masses that feed into a frenzy and allow the smart money to make the profits? Bearish Harami In up trends, the harami consists of a large white candle followed by a small white or black candle (usually black) that is within t he previous sessions large real body.Description Bearish Harami is a two candlestick pattern composed of small black real body contained within a prior comparatively long white real body. The body of the first candle is the same color as that of the current trend. The open and the close occur inside the open and the close of the previous day. Its presence indicates that the trend is over. Criteria 1. The first candle is white in color the body of the second candle is black. 2. The second day opens lower than the close of the previous day and closes higher than the open of the prior day. 3. For a reversal signal, confirmation is needed. The next day should show weakness. 4. The uptrend has been apparent. A long white candle occurs at the end of the trend. Signal enhancements 1. The reversal will be more forceful, if the white and the black candle are longer. 2. The lower the black candle closes down on the white candle, the more convincing that a reversal has occurred, despite the si ze of the black candle.Pattern psychology21The bears open the price lower than the previous close, after a strong uptrend has been in effect and after a long white candle day. The longs get concerned and start profit taking. The price for the day ends at a lower aim. The bulls are now concerned as the price closes lower. It is becoming evident that the trend has been violated. A weak day after that would convince everybody that the trend was reversing. Volume increases due to the profit taking and the addition of short sales.Bullish Harami A candlestick chart pattern in which a large candlestick is followed by a smaller candlestick whose body is located within the vertical range of the larger body. In downtrends, the harami consists of a large black candle followed by a small white or black candle (usually white) that is within the previous sessions large real body. This pattern signifies that the immediately preceding trend may be concluding, and that the bulls and bears have call ed a truce.Description The Harami is a ordinarily observed phenomenon. The pattern is composed of a two candle formation in a down-trending market. The color first candle is the same as that of current trend. The first body in the pattern is longer than the second one. The open and the close occur inside the open and the close of the previous day. Its presence indicates that the trend is over.22The Harami (meaning pregnant in Japanese) Candlestick Pattern is a reversal pattern. The pattern consists of two Candlesticks. The first candle is black in color and a continuation of the existing trend. The second candle, the little belly sticking out, is usually white in color but that is not always the case. Magnitude of the reversal is affected by the location and size of the candles. Criteria 1. The first candle is black in body the body of the second candle is white. 2. The downtrend has been evident for a good period. A long black candle occurs at the end of the trend.3. The second da y opens higher than the close of the previous day and closes lower than the open of the prior day. 4. opposed the Western Inside solar day, just the body needs to remain in the previous days body, where as the Inside Day requires both the body and the shadows to remain inside the previous days body.5. For a reversal signal, further confirmation is required to indicate that the trendis now go up.Signal enhancements 1. The reversal will be more forceful if the black candle and the white candle are longer. 2. If the white candle closes up on the black candle whence the reversal has occurred in a convincing manner despite the size of the white candle. Pattern psychology After a strong down-trend has been in effect and after a selling day, the bulls open at a price higher than the previous close. The shorts get concerned and start covering. The price for the day finishes at a higher level. This gives enough divulge to the short sellers that trend has been violated. A strong day i.e. the next day would convince everybody that the trend was reversing. Usually the volume is above the recent norm due to the unwinding of short positions. When the second candle is a doji, which is a candle with an almost non-existent real body, these patterns are called harami crosses. They are however less true(p) as reversal patterns as more indecision is indicated.23Doji Doji lines are patterns with the same open and close price. Its a significant reversal indicator.The Importance of the Doji The perfect doji session has the same opening and closing price, yet there is some flexibility to this rule. If the opening and closing price are within a few ticks of each other, the line could still be candidateed as a doji. How do you decide whether a near-doji day (that is, where the open and close are very close, but not exact) should be considered a doji? This is subjective and there are no rigid rules but one way is to look at a near-doji day in relation to recent action. If there are a series of very small real bodies, the near-doji day would not be viewed as significant since so many other recent periods had small real bodies. One technique is based on recent market activity.If the market is at an important market junction, or is at the mature part of a bull or bear move,or there are other technical signals sending out an alarum, the appearance of a near-doji is treated as a doji. The philosophy is that a doji can be a significant admonishment and that it is better to attend to a false warning than to ignore a real one. To ignore a doji, with all its inherent implications, could be dangerous. The doji is a distinct trend change signal. However, the likelihood of a reversal increases if posterior candlesticks confirm the dojis reversal potential. Doji24sessions are important only in markets where there are not many doji. If there are many doji on a particular chart, one should not view the emergence of a new doji in that particular market as a meaningful development. That is why candlestick analysis usually should not use intra-day charts of less than 30 minutes. Less than 30 minutes and many of the candlestick lines become doji or near doji Doji at tops A Doji star at the top is a warning that the uptrend is about to change. This is especially true after a long white candlestick in an uptrend. The reason for the dojis negative implications in uptrend is because a doji represents indecision. Indecision among bulls will not maintain the uptrend. It takes the conviction of buyers to sustain a rally. If the market has had an broad rally, or is overbought, then formation of a doji could mean the scaffolding of buyers support will give way. Doji are also valued for their ability to show reversal potential in downtrends. The reason may be that a doji reflects a balance between buying and selling forces. With ambivalent market participants, the market could fall due to its own weight. Thus, an uptrend should reverse but a falling market m ay continue its descent. Because of this, doji need more confirmation to signal a bottom than they do a top. What are support and resistance lines? Support and resistance represent key junctures where the forces of supply and demand meet.These lines appear as thresholds to price patterns. They are the respective lines which dispense withs theprices from lessen or increasing. A support line refers to that level beyond which a stocks price will not fall. It denotes that price level at which there is a capable amount of demand to stop and possibly, for a time, turn a downtrend higher. Similarly a resistance line refers to that line beyond which a stocks price will not increase. It indicates that price level at which a sufficient supply of stock is available to stop and possibly, for a time, head off an uptrend in prices. Trend lines are often referred to as support and resistance lines on an angle.Support A support is a horizontal floor where interest in buying a commodity is strong enough to deluge the pressure to sell. Support level is the price level at which sufficient demand exists to, at least temporarily, halt a downward movement in prices. Logically as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and stop the price from falling below support.25Support does not always hold true and a break below support signals that the bulls have woolly over the bears. A fall below support level indicates more willingness to sell and a lack of willingness to buy. A break in the levels of support indicates that the expectations of sellers are reducing and they are ready to sell at even lower prices. In addition, buyers could not be coerced into buying until prices declined below support or below the previous low. in one case support is broken, another support level will have to be establi shed at a lower level ITC showing support and resistance opposite26A resistance is a horizontal ceiling where the pressure to sell is greater than the pressure to buy. Thus a Resistance level is a price at which sufficient supply exists to at least temporarily, halt an upwardly movement. Logically as the price advances towards resistance, sellers become more inclined to sell and buyers become less inclined to buy. By the time the price reaches the resistance level, it is believed that supply will overcome demand and embarrass the price from rising above resistance.Resistance does not always hold true and a break above resistance signals that the bears have lost over the bulls. A break in the resistance level shows more willingness to buy or lack of incentive to sell. Resistance breaks and new highs indicate that buyers expectations have increased and are ready to buy at even higher prices. In addition, sellers could not be coerced into selling until prices rose above resistance o r above the previous high. Once resistance is broken, another resistance level will have to be established at a higher level.What Does a Technical indicator offer? Technical analysts use indicators to look into a different billet from which stock prices can be analyzed. Technical indicators provide unique mind-set on the strength and direction of the underlying price action for a given timeframe. Why use indicators? Technical Indicators broadly serve three functions to alert, to confirm and to predict. Indicator acts as an alert to study price action, sometimes it also gives a signal to watch for a break of support. A large positive divergence can act as an alert to watch for a resistance breakout. Indicators can be used to confirm other technical analysis tools. Some investors and traders use indicators to predict the direction of future prices.Tips for using indicators There are a large number of Technical Indicators that can be used to assist you in survival of stocks and in t racking the right entry and exit points. In short, indicators indicate. But it doesnt mean that traders should ignore the price action of a stock and focus solely on the indicator. Indicators just filter price action with formulas. As such, they are derivatives and not direct reflections of the price action.While applying the indicators, the analyst should considerWhat is the indicator saying about the price action of a security? Is the price action getting stronger? Is it getting weaker? The buy and sell signals generated by the indicators, should be read in context with other technical analysis tools like candlesticks, trends, patterns etc. For example, an indicator may flash a buy signal, but if the chart pattern shows a descending triplicity with a series of declining peaks, it may be a false signal. An indicator should be selected with due care and attention. It would be a futile accomplishment to cover more than five indicators. It is best to focus on two or three27indicators and learn their intricacies inside and out. One should always choose indicators that complement each other, instead of those that move in agreement and generate the same signals. For example, it would be redundant to use two indicators that are good for showing overbought and oversold levels, such as Stochastic and RSI. Both of these indicators measure urge and both have overbought/oversold levels. Types of indicators Indicators can broadly be divided into two types LEADING and LAGGING. Leading indicators Leading indicators are designed to lead price movements. Benefits of leading indicators are early signaling for entry and exit, generating more signals and allow more opportunities to trade. They represent a form of price momentum over a fixed look-back period, which is the number of periods used to calculate the indicator. Some of the wellmore popular leading indicators include Commodity Channel tycoon (CCI), Momentum, Relative Strength Index (RSI), Stochastic Oscillator and W illiams %R. Lagging Indicators Lagging Indicators are the indicators that would follow a trend rather then predicting a reversal.A lagging indicator follows an event. These indicators work well when prices move in relatively long trends. They dont warn you of upcoming changes in prices, they scarcely tell you what prices are doing (i.e., rising or falling) so that you can investaccordingly. These trend following indicators makes you buy and sell late and, in exchange for missing the early opportunities, they greatly reduce your risk by charge you on the right side of the market. Moving averages and the MACD are examples of trend following, or lagging, indicators. Oscillators Relative Strength Index (RSI) The RSI is part of a class of indicators called momentum oscillators.There are a number of indicators that fall in this category, the most common being Relative Strength Index, Stochastic, Rate of Change, Williams %R. Although these indicators are all calculated differently, there are a number of common elements to their use which shall be discussed in the context of the RSI. What is momentum? Momentum is simply the rate of change the speed or slope at which a stock or commodity ascends or declines. Measuring speed is a useful gage of impending change. For example, assume that you were riding in a friends car, not looking at what was happening ahead but instead just at the speedometer. You can see when the car starts to slow down and if it continues to do so you can reasonably assume its going to stop very shortly. You may not know the reason for it coming to a stopit28could be the end of the journey, approaching and intersection or because the road is a little rougher ahead. In this manner watching the speed provides a guide for what may happen in the future. An oscillator is an indicator that moves back and forth across a summon line or between prescribed upper and lower limits. When an oscillator reaches a new high, it shows that an uptrend is gaining s peed and is probably to continue. When an oscillator traces a lower peak, it means that the trend has stopped accelerating and a reversal can be expected from there, much like a car slowing down to make a U-Turn. In the same way watching a stock for impending momentum change can provide a glimpse of what may happen in the future momentum oscillators, such as RSI are referred to as trend leading indicators.The chart below illustrates the typical construction of the RSI which oscillates between 0% and deoxycytidine monophosphate%. You will notice there is a pair of horizontal reference lines 70% overbought and 30% oversold lines. The overbought region refers to the case where the RSI oscillator has moved into a region of significant buying pressure relative to the recent past and is often an indication that an upward trend is about to end. Similarly the oversold region refers to the lower part of the momentum oscillator where there is a significant amount of selling pressure relati ve to the recent past and is indicative of an end to a down swing. Application of RSI RSI is a momentum oscillator generally used in sideways or ranging markets where the price moves between support and resistance levels.It is one of the most useful technical tool employed by many traders to measure the velocity of directional price movement. Overbought and Oversold The RSI is a price-following oscillator that ranges between 0 and 100. Generally, technical analysts use 30% oversold and 70% overbought lines to generate the buy and sell signals. Go long when the indicator moves from below to above the oversold line. Go short when the indicator moves from above to below the overbought line. Note here that the direction of cut across is important the indicator needs to first go past the overbought/oversold lines and then cross back through them.29Silver Chart showing buy and sell points and also the failure in trending market What is the MACD and how is it calculated? The MACD does n ot completely fall into either the trend-leading indicator or trend following indicator it is in fact a hybrid with elements of both. The MACD comprises two lines, the fast line and the slow or signal line. These are easy to identify as the slow line will be the smooth of the two. NIFTY chart below illustrates the basic MACD linesThe procedure for calculating the MACD lines is as follows Step1. Calculate a 12 period exponential moving average of the close price. Step2. Calculate a 26 period exponential moving average of the close price. Step3. Subtract the 26 period moving average from the 12 period moving average. This is the fast MACD line. Step4. Calculate a 9 period exponential moving average of the fast MACD line calculated above. This is the slow or signal MACD line. Sampling Plan The companies are selected from top 50 blue chip companies, and then fundamental analysis is done and then the technical analysis Limitations As we know that equity market is highly unpredictable an d its really hard to predict the future trend of the equity so all the analysis that is done just gives the high probability of the trend that is going to happen, it does not give any surety.30CHAPTER 3 FINDINGS AND ANALYSIS3.1 FindingsFundamental Analysis31Technical Analysis SBISBI-I32SBI II Chart SBI-I shows different support and resistance level for last two years. Chart SBI-II shows the morning star which is encircled.33JINDAL vaneThe above chart shows inverted hammer with DOJI.34VOLTASThe above chart shows two inverted hammer.35BHELThe above chart shows inverted hammer with bullish candle.36HPCLThe above chart shows DOJI.373.2 AnalysisFundamental Analysis As we have analyzed from the list of companies on basis of fundamental grounds. It tells us the company on which we should invest. The companies are-SBI38From the above figures one can come to following conclusion As a company should have high EPS and so is the case with SBI whose EPS is 256.11 Its P/E ratio is relatively le sser than other companies Positive PEG is a good sign. P/B is less than 1 which says it is undervalued so its high time to buy shares of this company. And on other grounds it has fair figures.BHELFrom the above figures one can come to following conclusion EPS is relatively high as compared to its per share price. Low P/E and P/S ratio which is always good. Good dividend payout ratio, dividend and return on equity. HPCL From the above figures one can come to following conclusion EPS is relatively high as compared to its per share price. Its P/E ratio is relatively lesser than other companies P/B value is lesser which gives a clear indication that the prices will rise in future. Dividend is relatively higher.Technical analysis On the basis of technical analysis one can come to the following conclusionSBI From the chart SBI-II its seen that there is formation of morning star which is a sign of trend reversal. And from here it is expected that it will go bullish. We can also see that RSI is in upward direction which indicates that it will go bullish and even MACD is in upgrade of bullish nature. So it is very strongly recommended that one should invest in this share and should hold as long as there is a sign of trend reversal. JINDAL blade As from the chart we have seen that inverted hammer has occurred long before followed by bullish candle which was the sign of buying but not it has reached to such a level at which it can reverse anytime. The RSI is also high and MACD can anytime go for selling indication.39VOLTAS From the chart of Voltas it is very clearly indicated that there are two inverted hammer and the hammer is followed by a green candle and hence we can say it has taken the bullish trend. We can also see that RSI is in upward direction which indicates that it will go bullish and even MACD is in favor of bullish nature. So it is very strongly recommended that one should invest in this share and should hold as long as there is a sign of trend re versal. BHEL From the chart of Bhel it is very clearly indicated that there is a inverted hammer followed by a green candle and thus we can say ithas taken the bullish trend. We can also see that RSI is in upward direction which indicates that it will go bullish and even MACD is in favor of bullish nature. So it is very strongly recommended that one should invest in this share and should hold as long as there is a sign of trend reversal. HPCL From the chart of HPCL there is formation of a DOJI candle which is one of the strongest sign of trend reversal and for bullish trend to come in. We can also see that RSI is in upward direction which indicates that it will go bullish and even MACD is in favor of bullish nature. So it is very strongly recommended that one should invest in this share and should hold as long as there is a sign of trend reversal40CHAPTER FOUR CONCLUSIONS AND RECOMMENDATIONS4.1 SUMMARYThis project is being done to construct portfolio of clients with the help of fund amental and technical analysis. Also analyze their portfolio by valuating those companies where they have already invested using specific valuation model. Then find out whether it is right time to invest in those companies using technical analysis. Also calculating the returns they are getting and suggest for higher return. As we can see we have come up with certain companies which have strong possibilities to do well. The different tools and indicators play a very vital role in analyzing the companies as well as forecasting their price behavior.4.2 RECOMMENDATIONS AND CONCLUSION RecommendationsThe final portfolio that I came up with is 1. SBI 2. JINDAL marque 3. VOLTAS 4. BHEL 5. HPCLConclusionIn this project we have found out that both the analysis fundamental andtechnical analysis can be used for the same purpose as to build a portfolio but they and completely different. One should not try to relate these two analysis with each other as it could lead to blunder. Both of the anal ysis are self-governing of each other. Both the analysis just gives a possibility that which picking one should go for in case one wants to invest. It doesnt confirms the result as they are just expected result.