Analysis of Technical Indicators:

1. Moving Averages:

Exponential Moving Average (EMA): (figure 24)

In the above chart two smoothing curves are drawn along with the price curve. EMA 20 represents the 20 day exponential moving average (fast moving average) while EMA 100 represents the 50 day exponential moving average (slow moving average). The purpose of this chart is to identify the price trend and to identify trading signals.

Trend Identification: The moving averages are used to find the trend of the stock.

➢ The direction of moving average is used to find the trend. If the moving average is rising, the trend is considered Up. If the moving averages are falling the trend is considered to be Down.

➢ Price location. The location of the price relative to the moving average can be used to determine the basic trend. If the price is above the moving average, the trend is considered up. If the price is below the moving average, the trend is considered down.

➢ The third technique for trend identification is based on the location of the slow moving average relative to the fast moving average. If the fast moving average is above the slow moving average, the trend is considered up. If the fast moving average is below the slow moving average, the trend is considered down.

Trading Signals: Two moving averages are used to find the trading signals.

➢ A BUY signal is generated if the faster moving average crosses above the slower moving averages.

➢ A SELL signal is generated if the faster moving average crosses below the slower moving average.

Inference: In the figure 24 we can find that:

➢ The prices started an uptrend at the end of the month on noticing the candlesticks of last few days.

➢ We can also see that the price is above both EMA 20 and EMA 50.

➢ Both the moving averages are rising

➢ The fast moving average (EMA20) is above the slow moving average (EMA 50)

Hence the trend of the Tata Motors stock is considered Up or Bullish

The various trading signals identified using the moving averages crossovers are:

➢ SELL signals were identified during February and May where the EMA 20 crosses below the EMA 50.

➢ BUY signals were identified in the beginning of March and at the end of June.

➢ The SELL and BUY signals are shown with and respectively.

1. Relative Strength Index (RSI): (figure 25)

In the above chart (figure 25) the price line and the 14 day RSI line are plotted. The RSI line shown at the bottom of the chart is used to identify the overbought and over sold situations. If RSI crosses above 70 level the stock is considered to be oversold and so there are chances for trend reversal. If the RSI falls below 30 level the stock is considered to be oversold and hence undervalued. So there are chances for a trend reversal. An RSI between 50 and 70 is considered bullish while below 50 is considered to be bearish.

Inference: The various overbought and oversold conditions in the above chart are identified using and marks respectively.

In the figure 25 we can also see that the RSI level is above 50 and is also rising. This shows that there is a bullish momentum.

2. Rate Of Change (ROC) (figure 26)

The rate of change is a pure momentum oscillator which shows the rate of change in prices of the stock over a fixed period of time. In the above chart the price line is shown at the top and 10 days Rate of Change is shown at the bottom.

The ROC value oscillates above and below zero levels which shows the percentage change in the price. These values are also used to find the overbought and oversold conditions. Generally the ROC value above 10 is considered to be overbought and below 10 is considered to be oversold. An ROC value above zero or moving from below to above zero level is considered to be bullish. It is considered bearish when the ROC value goes below zero or when it moves from above zero to below zero level.

Inference: From the above chart (figure 26) we can see that the ROC value is in falling below the zero level. Hence the momentum is considered bearish.

3. Moving Average Convergence and Divergence: (figure 27)

The price curve and the MACD curve (red line) are plotted on the above chart. The MACD chart is plotted along with the MACD signal line (blue line) and MACD histogram (black shaded region). The chart is plotted to identify the strongest momentum i.e. bullish or bearish. This can be identified using signal line crossovers and centerline crossovers.

➢ Signal line crossovers: It is considered bullish if the MACD line crosses above the signal line (its nine day EMA). If the converse happens it is considered bearish

➢ Centerline Crossovers: It is considered bullish if MACD crosses above the centerline.

If the converse happens the momentum is considered bearish.

➢ MACD indicator is highly volatile and hence it is always considered along with other indicators.

Inference:

➢ The various Bullish and bearish signals are identified on the chart using and marks respectively.

➢ In the above chart (figure 27) we can see that at the end of June the MACD curve is above its signal line. So there is a bullish signal crossover.