My attempt at Technical Analysis for Ultratech Cement stocks

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 2^nd arrow is a buy indicator and 3^rd 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 2^nd and 3^rd 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