from trade edge.com

Technical Analysis of Indian stock market BSE Sensex Index The BSE SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, SENSEX is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies. The base year of SENSEX is 1978-79 and the base value is 100. The index is widely reported in both domestic and international markets through print as well as electronic media. Technical Analysis of Indian stock market BSE Sensex Index The Index was initially calculated based on the "Full Market Capitalization" methodology but was shifted to the free-float methodology with effect from September 1, 2003. The "Free-float Market Capitalization" methodology of index construction is regarded as an industry best practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology. Due to is wide acceptance amongst the Indian investors; SENSEX is regarded to be the pulse of the Indian stock market. As the oldest index in the country, it provides the time series data over a fairly long period of time (From 1979 onwards). Small wonder, the SENSEX has over the years become one of the most prominent brands in the country.

Technical Analysis of Indian stock market BSE Sensex Index 1 Day Technical Analysis Chart of Indian stock market BSE Sensex Index 5 Day Technical Analysis Chart of Indian stock market BSE Sensex Index 1 Year Technical Analysis Chart of Indian stock market BSE Sensex Index

FAQ's Q.1 What is SENSEX? The SENSEX, short form of the BSE-Sensitive Index, is a "Market Capitalization-Weighted" index of 30 stocks representing a sample of large, well-established and financially sound companies. It is the oldest index in India and has acquired a unique place in the collective consciousness of investors. The index is widely used to measure the performance of the Indian stock markets. SENSEX is considered to be the pulse of the Indian stock markets as it represents the underlying universe of listed stocks at The Stock Exchange, Mumbai. Further, as the oldest index of the Indian Stock market, it provides time series data over a fairly long period of time (since 1978-79). Q.2 What are the objectives of SENSEX? The SENSEX is the benchmark index of the Indian Capital Markets with wide acceptance among individual investors, institutional investors, foreign investors and fund managers. The objectives of the index are: To measure market movements Given its long history and its wide acceptance, no other index matches the SENSEX in reflecting market movements and sentiments. SENSEX is widely used to describe the mood in the Indian Stock markets. Benchmark for funds performance The inclusion of blue chip companies and the wide and balanced industry representation in the SENSEX makes it the ideal benchmark for fund managers to compare the performance of their funds. For index based derivative products Institutional investors, money managers and small investors all refer to the SENSEX for their specific purposes The SENSEX is in effect the proxy for the Indian stock markets. The country's first derivative product i.e. Index-Futures was launched on SENSEX. Q.3 What are the criteria for selection and review of scrips for the SENSEX? A. Quantitative Criteria: 1. Market Capitalization: The scrip should figure in the top 100 companies listed by market capitalization. Also market capitalization of each scrip should be more than 0.5 % of the total market capitalization of the Index i.e. the minimum weight should be 0.5 %. Since the SENSEX is a market capitalization weighted index, this is one of the primary criteria for scrip selection. (Market Capitalization would be averaged for last six months) 2. Liquidity: (i) Trading Frequency: The scrip should have been traded on each and every trading day for the last one year. Exceptions can be made for extreme reasons like scrip suspension etc. (ii) Number of Trades: Number of Trades: The scrip should be among the top 150 companies listed by average number of trades per day for the last one year. (iii) Value of Shares Traded: Value of Shares Traded: The scrip should be among the top 150 companies listed by average value of shares traded per day for the last one year. 3. Continuity: Whenever the composition of the index is changed, the continuity of historical series of index values is re-established by correlating the value of the revised index to the old index (index before revision). The back calculation over the last one-year period is carried out and correlation of the revised index to the old index should not be less than 0.98. This ensures that the historical continuity of the index is maintained. 4. Industry Representation: Scrip selection would take into account a balanced representation of the listed companies in the universe of BSE. The index companies should be leaders in their industry group. 5. Listed History: The scrip should have a listing history of at least one year on BSE. B. Qualitative Criteria: Track Record: In the opinion of the Index Committee, the company should have an acceptable track record. Q.4 What is the beta of SENSEX scrips? Beta measures the sensitivity of a scrip movement relative to movement in the benchmark index i.e. SENSEX. A Beta of one means that for every change of 1% in index, the scrip moves by 1%. Statistically Beta is defined as: Covariance (SENSEX, Stock )/ Variance(SENSEX) Note: Covariance and variance are calculated from the Daily Returns data of the SENSEX and SENSEX scrips. Q.5 How is SENSEX calculated? SENSEX is calculated using a "Market Capitalization-Weighted" methodology. As per this methodology, the level of index at any point of time reflects the total market value of 30 component stocks relative to a base period. (The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company). An index of a set of a combined variables (such as price and number of shares) is commonly referred as a 'Composite Index' by statisticians. A single indexed number is used to represent the results of this calculation in order to make the value easier to work with and track over time. It is much easier to graph a chart based on indexed values than one based on actual values. The base period of SENSEX is 1978-79. The actual total market value of the stocks in the Index during the base period has been set equal to an indexed value of 100. This is often indicated by the notation 1978-79=100. The formula used to calculate the Index is fairly straightforward. However, the calculation of the adjustments to the Index (commonly called Index maintenance) is more complex. The calculation of SENSEX involves dividing the total market capitalization of 30 companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original base period value of the SENSEX. It keeps the Index comparable over time and is the adjustment point for all Index maintenance adjustments. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate SENSEX every 15 seconds and disseminated in real time. Q.6 How is the closing Index calculated? The closing SENSEX is computed taking the weighted average of all the trades on SENSEX constituents in the last 15 minutes of trading session. If a SENSEX constituent has not traded in the last 15 minutes, the last traded price is taken for computation of the Index closure. If a SENSEX constituent has not traded at all in a day, then its last day's closing price is taken for computation of Index closure. The use of Index Closure Algorithm prevents any intentional manipulation of the closing index value. Q.7 How is the routine maintenance of SENSEX carried out?  One of the important aspects of maintaining continuity with the past is to update the base year average. The base year value adjustment ensures that additional issue of capital and other corporate announcements like bonus etc. do not destroy the value of the index. The beauty of maintenance lies in the fact that adjustments for corporate actions in the Index should not per se affect the index values. The Index Cell of the Exchange does the day-to-day maintenance of the index within the broad index policy framework set by the Index Committee. The Index Cell takes special care to ensure that SENSEX and all the other BSE indices maintain their benchmark properties by striking a delicate balance between high turnover in Index scrips and its representative character. The Index Committee of the Exchange has experts from different field of finance related to the capital markets. They include Academicians, Fund-managers from leading Mutual Funds, Finance - Journalists, Market Participants, Independent Governing Board members, and Exchange administration. Q.8 How are adjustments for Bonus, Rights and newly issued Capital carried out in SENSEX?  The arithmetic calculation involved in calculating SENSEX is simple, but problem arises when one of the component stocks pays a bonus or issues rights shares. If no adjustments were made, a discontinuity would arise between the current value of the index and its previous value. The Index Cell of the Exchange periodically adjusts the base value to take care of such corporate announcements. Adjustments for Rights Issues: When a company, included in the compilation of the index, issues right shares, the market capitalisation of that company is increased by the number of additional shares issued based on the theoretical (ex-right) price. An offsetting or proportionate adjustment is then made to the Base Market Capitalisation (see ' Base Market Capitalisation Adjustment' below). Adjustments for Bonus Issue: When a company, included in the compilation of the index, issues bonus shares, the market capitalisation of that company does not undergo any change. Therefore, there is no change in the Base Market Capitalisation, only the 'number of shares' in the formula is updated. Other Issues: Base Market Capitalisation Adjustment is required when new shares are issued by way of conversion of debentures, mergers, spin-offs etc. or when equity is reduced by way of buy-back of shares, corporate restructuring etc. Base Market Capitalisation Adjustment: The formula for adjusting the Base Market Capitalisation is as follows: New Base Market Capitalisation = Old Base Market Capitalisation X (New Market Capitalisation/Old Market Capitalisation) To illustrate, suppose a company issues right shares which increases the market capitalisation of the shares of that company by say, Rs.100 crores. The existing Base Market Capitalisation (Old Base Market Capitalisation), say, is Rs.2450 crores and the aggregate market capitalisation of all the shares included in the index before the right issue is made is, say Rs.4781 crores. The "New Base Market Capitalisation " will then be: Rs.2501.24 crores = 2450 X (4781+100)/4781 This figure of 2501.24 will be used as the Base Market Capitalisation for calculating the index number from then onwards till the next base change becomes necessary. Q.9 With what frequency is SENSEX calculation done? During market hours, prices of the index scrips, at which trades are executed, are automatically used by the trading computer to calculate the SENSEX every 15 seconds and continuously updated on all trading workstations connected to the BSE trading computer in real time.

How mutual funds can be used in financial planning

he importance of Financial Planning couldn't have been summed up better than this. To simply put, financial planning is a tool through which you can chalk out definite plans in order to achieve your financial goals thus ensuring you peace of mind at various stages of your life cycle.

All of us have financial goals – be it buying a house, buying a car, getting children married, their education and then our retirement. But, unless we do not assess where we stand in terms of our income, expenses, assets, liabilities, age and risk appetite, all the financial goals would just remain "dreams" and would never turn into a reality.

Today there are several investment avenues; but for you to optimally undertake financial planning (to achieve financial freedom), what is required is combination of various financial products in the respective asset classes – be it equity, debt or gold. However, your asset allocation also needs to be optimally structured for work for you (in the financial plan); or else it would not help you attaining financial freedom.

Strategic Asset Allocation
Barring "most conservative portfolios" which do not hold equities at all, every portfolio should be optimally structure and diversified to hold all asset classes:

• Cash - for security and liquidity, so that one can take advantage of opportunities as they arise



• Bonds - to help preserve capital and provide a steady income



• Stocks - for growing wealth and to help you beat inflation and counter the impact of taxes



• Real estate - because of their low correlation with stocks and bonds



• Gold - for its ability to be a hedge against the inflation bug and other economic and political uncertainties

Once your asset allocation is optimally structured, the next important action point should be having the right investment avenues / products under each asset class, in order to achieve the financial goals (within the time frame) with comfort.

Among the various investment avenues available today, mutual funds (amongst other investment avenues) are a wealth creating avenue, aiding you achieve your financial goals. Moreover they power your portfolio with diversification benefit. And mind you diversification immensely helps during the turbulence of the capital markets as the jerks (of turbulence) are felt far lesser. The other benefits which you enjoy while investing in mutual funds are:

• Professional management – Your money is managed by a professional fund manager, hence ascertaining the prospect of the companies is not your headache and portfolio churning (if required) too is taken care by him.



• Economies of scale –Even though if a mutual fund does engage in high portfolio churning in the race to deliver luring returns, the voluminous trade carried out by it helps to enjoy the economies of large scale and have lower impact on their profitability. But on the other hand if you were to do this by yourself, you may get negatively impacted on the profitability front due to small volume of trades carried out.



• Lower entry level – With the minimum investment amount in mutual funds being as low as ` 5,000, the encouragement to start small and at the same time take exposure to the fund's portfolio of 20-30 stocks (due to diversification) is also present. Now this is unlike stocks because there with 5,000 you can barely buy few quality stocks – and this especially true when valuations are expensive.



• Innovative plans/services for investors – Today for regular investing in mutual funds (which is much needed to achieve financial goals), AMC (Asset Management Companies) offer innovative plans such as SIP (Systematic Investment Plan) / STP (Systematic Transfer Plan). Also for facilitating withdrawals too (taking care of your cash flow requirements), SWPs (Systematic Withdrawal Plans) are in place, thus enabling you to manage your portfolio from a financial planning perspective too.



• Liquidity – Unlike direct stock investing where you may encounter a situation where a stock turns illiquid (due to various reasons); in mutual funds you would not face such a situation if the scheme selected by you follows strong investments systems and process. This because the stock selection process helps in eliminating such illiquid stocks. Moreover as an investment avenue, mutual funds per se, especially the open-ended mutual funds offer you the much required liquidity as you can simply buy / sell units at the day's NAV (Net Asset Value) by approaching the fund house directly, or by approaching your mutual fund distributor or even by transacting online.

Hence having assessed the inherent advantages of mutual funds, you can strategise your portfolio with the help of equity funds, debt funds, hybrid funds and gold funds whereby the under-mentioned financial objectives can be catered to.

• Growth
• Income
• Inflation protection
• Peace of mind and preservation of capital
• Tax saving

But your financial planner should ideally balance the importance of each of these, while structuring a portfolio. Remember there is no one rule for all in Financial Planning.

While drawing a financial plan you need to cooperate with your financial planner and try to ask yourself the following questions and attempt answering them too in a very honest manner.

• Towards what objective/goal am I investing my money?
  Knowing the objective of investing enables you to select the right options. For example, if you have a long term objective of wealth creation, then going with an equity oriented fund (following a growth style of investing) would be prudent. However if your objective is to maintain short-term fund requirements, you may invest liquid funds or ultra-short term funds.



• What is the time horizon? 
  Time horizon refers to, when do you want to enjoy the fruits of your investments. Ascertaining this is critical because both, the risk and the reward of investments can vary according to the time horizon. Generally, a longer horizon allows for more aggression in investment. Lesser the time, the more one needs to avoid risk.



• What is my risk appetite? 
  There is a risk-reward continuum running from cash to bonds to stocks. Returns are commensurate with the risk someone is willing to tolerate. High risks may also eat into your capital. And if there is no income to make up for that lost capital, replacing it would be difficult; which means a more conservative approach needs to be followed. Other considerations could be the present financial situation, estate planning and level of taxation. 
  Another important factor is age. As a general rule, the younger one is, the more aggressive someone can afford to be with their investment portfolio. This is because you have more time to recover from any possible setbacks in the value of the portfolio.

Portfolio rebalancing


After building a portfolio having answered the aforementioned questions you cannot afford to sit tight. What is required is portfolio rebalancing. Rebalancing refers to the action of bringing a portfolio of investments that has deviated away from target asset allocation. The goal of rebalancing is to move the current asset allocation back in line to the originally planned asset allocation. Rebalancing is primarily warranted under conditions where the returns have significantly deviated than expected or to stay in line with market conditions. For example, an equity heavy portfolio needs to be restructured in contraction phases where company profits are hit harder and interest rates move up. It could be done by moving a portion of equity holdings to debt instruments. Mutual funds probably allow the easiest window to rebalancing due to their diversity of offerings.

A case would be may help you understand rebalancing better.

Mr X has planned for his son's marriage in 2020, for which the estimated cost in 2020 would be  1.7 crores. In 2010 he is advised to invest  70,000 in equity and  30,000 in Debt assuming an average return of 12% for equity and 5% for debt. The expected value of investments after the end of 1 year would be 78,400 for equity and 31,500 for debt. 

However, at the end of 1 year period, the equity markets performed worse than expected at 8% and the debt markets performed better than expected at 14%. Hence, the portfolio value, instead of the planned  109,900 ended up as 109,800. Consequently, the ratio of equity to debt changed from the original 70:30 to 69:31. To rebalance the portfolio, Mr X has to liquidate his debt holdings by  1,260 and invest in equity. However, Mr. X's portfolio value would fall short of  100 when compared with his expected portfolio value.

chart analysis

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patterns

to learn basics of share follow this

http://www.indiahowto.com/what-is-sensex-nifty.html

to know about OIL MARKET

http://peakoil.com/



http://www.energybulletin.net/

analysing graph and market

http://www.informedtrades.com/trades.php?page=freetradingcourses

Quantitative analysis of stocks

Quantitative analysis in general is simply a way of measuring things. In quantitative analysis of stock, the behavior of a stock is analyzed using complex mathematical and statistical modeling equations. For analysts who specialize in quantitative analysis of a stock, the business or the management mean nothing to them. There is no regard for underlying business at all. All they look for are the numbers.

While the fundamental analysis f stock look at various factors like business, growth, competition, management effectiveness etc, the quantitative analysis discount all these factors since all of these are subjective terms. People will have different definition of conclusion about the management of a particular business and it all depends on how they see it or rather how management presents itself to them.

For quantitative analysis, the number crunching is done through advanced computers now days. These people who do this are also called as quants. These quants will do analysis based on complex formula and will decide on sell versus buy option purely based on these equations and numbers. Some of the major considerations while doing quantitative analysis of stock are:

Company size – First thing which the investors look at is the size of the company. This is usually done in term of capitalization or ‘cap’ in short. Broadly, the companies are divided into various caps depending upon their market. These are micro cap, small cap, mid cap and large cap. Smaller the cap, riskier is the company since it can go bankrupt very easily. But smaller companies have the chances to grow radically as well. Broadly, the guidelines of distinguishing these caps are:

Large cap — $10 billion or more.

Mid cap — $2 billion to $10 billion.

Small cap — $250 million to $2 billion.

Micro cap — $250 million or less.

Criteria based or screen based investing – Some analysts use a filter or criteria to select the company which they want to trade on. These criteria are based on quantitative factors. Again this is done using computers since the selection is done pretty fast.

Momentum of the company can also be used as a deciding factor. Some companies are just doing well for a few quarters in a row which make people believe that company is in good shape. These companies usually outperform other companies in short run and everyone would like to buy stock of this company.

Another interesting topic in quantitative analysis is something called as CANSLIM. CANSLIM is a system pioneered by William J. O’Neil that is a hybrid of quantitative analysis and technical analysis. CANSLIM has an interesting acronym. C and A stand for current and annual earnings, N stands for new (new product or new market), S stands for small cap and large volumes, I for institutional ownership and M for market momentum. All these factors are used to decide buy or sell of a company.