Disclaimer: Please do not take this as my assurance. This is my first attempt at technical analysis. I would like to describe here the technical analysis based on the market indicators for Ultratech Cement. I have learnt this as part of my course and the analysis part of my term paper on Company analysis of Ultratech. Please give in your comments and keep an eye on the stock. If the stock prices behave the same way as my description please give a pat on the back ;-)
You can follow the same techniques I have mentioned here and apply it to other stocks that you might be interested in. You can use in.finance.yahoo.com or finance.google.com to get these charts for the stock of your interest. Here I have selected Ultratech because , in coming days after elections there are hopes that infrastructure projects will show huge growth. As a result, the same on the cement industry. Below described are some of the important tests before buying or selling a stock.
1. MOVING AVERAGE ANALYSIS:
5weeks moving average calculation:
We have taken the closing stock prices from
couple of months from capitaline database and calculated the 5 week moving
average of the Ultratech prices.
In the above chart of the plot of 5 week MA with
closing prices, we can see short-term buy and sell points. To get a clear
understanding of several buy and sell points over the past week, we shall
consider the industry standard of comparing 50-day and 200- day moving averages
of the Ultratech Stock prices. All charts shown in this section are obtained
from in.finance.yahoo.com.
When a 50 day MA crosses
200 day MA from below on good volume, this would be a bullish indicator. In
contrast when the 50 day MA crosses 200 day MA from above, it confirms a change
to a negative trend and is a sell signal. There are 3 crossover points between
in the above chart. According to technical rule the first arrow should have
been sell indicator. The 2nd arrow is a buy indicator and 3rd
arrow is again a sell indicator. The first crossover did not give a correct
indicator. One reason might be due to high influx of volume. The 2nd
and 3rd crossover points provide a correct indication of the trend
reversal and buy and sell points respectively.
There was a Buy point in
October 2013, when the 50-day MA crossed the current stock prices, we can see
the trend increased in the next few weeks.
Another observation in
the above chart, if we consider past few weeks, moving average lines are above
the current prices. So this is a clear indicator that the trend of prices is
down. But there has been upsurge in last few sessions, and the 50 day MA is
cutting across the current prices.
Verdict: Sell
Reason: If not already
exited at the crossover point of 50-day and 200-day average, the trends are
down and it is better to sell.
2. RELATIVE
STRENGTH INDEX:
RSI = 100 – [100/(1 + RS)]
Average of 14 weeks’
up closing prices
Where RS = ----------------------------------------------
Average of 14 weeks’
down closing prices
RS= 25,280.05 / 25,317.55
RS= 0.99851881
RSI = 100 – [100/(1+ 0.99851881)]
RSI
= 49.962943
The RSI has crossed the 30 lines from below to
above and is rising (49.96), a buying opportunity is indicated.
VERDICT:
BUY
Reason: In recent days the RSI seems to be
rising above 30, this is a buying opportunity technically, but considering this
RSI hasn’t been able to reach the figure of 70 over the past few months, the
BUY is not a clear buy indicator.
3.Moving
Average Convergence Divergence (MACD) Indicator:
According to the MACD
chart in the below figure, the MACD line is above Signal line, which is
indication of a strong Buy. Similarly there is no divergence between the MACD
line and the current stock prices, which means there will be no break in the current trend. The
stock price will continue to rise in coming days. So it is a technically strong
buy. MACD value is 0.373 and signal line is -9.29. So MACD is above signal.
VERDICT: BUY
4.TRENDLINE:
The below chart is a
trend line indicator of the Ultratech Cements over the past 1.5 years. We can
see that there are several cyclical movements happening in the share prices
over the period.
Right from October 2012
till April 2013 is a clear downward trend, whoever had identified the downward
trend early would have avoided lot of potential losses. Similarly there is
couple of upward trends in the past 1 year, especially from October 2013 till
December 2013 is a very good indication of BUY signal. We can observe in both
the above downward and the upward trends mentioned, the movement of trend is
accompanied by 5 waves according to the Elliot theory of waves. Both in buying
as welling selling phases we can see short waves where some people would have
tried to book profits or avoid losses respectively.
The last trend that we
observe here in the chart is a huge downward trend which started in January
2014 and continued till February 2014. Off late we observe a short spurt of
Ultratech towards upward trend in the last couple of sessions, due to which the
stock prices rose by 6%. This quick reversal in the trend could be due to some
external news that Ultratech is in plans to acquire Jaypee’s Cement production
assets in Himachal Pradesh, which might help Ultratech increase their domestic
capacity and make a strong foothold in North India.
VERDICT:
BUY
Reason: Recent external news causing some upsurge so suggesting a
BUY.
5.Comparison
with the BSE index:
If we see the comparison
of prices of Ultratech and BSE over the past 1 year, Ultratech has been
constantly growing above market. Due to its strong technicals in MACD, RSI ,
Moving average and the trendline, we suggest a BUY for the Ultratech shares.
OVERALL
VERDICT: BUY
