Performance of PE Ratio as an Technical Indicator

BMA Wealth Creators Ltd
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CHAPTER- 1
INTRODUCTION
INTRODUCTION ABOUT THE INTERNSHIP
The experience in BMA Wealth Creators, Bangalore limited enriched the knowledge in BMA
Wealth Creators, Bangalore. Which is an Brokerage firm with various financial products like
Equities, Derivatives, research & advisory etc..
My overall experience in the company was average with the support from the company
employees and the response which I got from the management of BMA Wealth Creators,
Bangalore was overwhelming. During the first week ,we were introduced to the companies
financial products and a small introduction about stock market.
Around 12 weeks of project training in the company helped me in knowing the practical aspect
of a Brokerage firm. First 4weeks was about studying the organization mainly things like
calculating MTM and other vital calculation. It was a useful training in the company, where we
are specially trained to clear NISM Equity Derivatives Exam. We also received few assignments
for our personal understanding and gave few presentation improving our inter personal skills.
Other 8 weeks after collecting the entire necessary secondary data our external guide assisted us
for completing our project. BMA WC also assisted in opening Demate accounts for the
company. Wherein we worked as Relationship Managers and opened Demate account of others
without any sales lead. We did all job from getting a customer to filling and scanning documents.
We also went for banks for submitting checks and filled forms of the people who are opening
accounts.
Overall it was a combination of Finance, Marketing and Operational functions in BMA WC,
Bangalore. We did all jobs what an employees need to do. In free times we sat with dealers and
did Technical and Fundamental Analysis of stocks. We also tracked 5 stocks and news which
was our daily assignment.

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Research Design
A research design is a systematic plan to study a scientific problem. The design of a study
defines the study type which includes descriptive, co relational, semi-experimental,
experimental, review, meta-analytic and sub-type (e.g., descriptive-longitudinal case study),
research question, hypotheses, independent and dependent variables, experimental design, and, if
applicable, data collection methods and a statistical analysis plan.
Statement Problem
Many investors and traders use PE Ratio and Expected PE ratios for the investment and trading
decision. But, we have no clear idea regarding performance of PE ratio along with other
indicators and oscillators. Even though PE Ratio is a fundamental tool many Technical Analyst
use it as a Technical Indicator.
Objective
 To understand weather PE ratio is a leading or lagging indicator compared to other
indicators like RSI, stochastic and ROC
 Applicability of PE ratio in Indian scripts, weather PE ratio is applicable in Indian market
scenario?
 To identify the application of P/E ratio as indicator.
 To identify, PE ratio is an indicator or an oscillator.
 Limitations of using PE Ratio as a Technical Indicator/Tool
Scope Of The Sudy
The study helps in understanding the nature of P/E ratio as an indicator and help us in analyzing
the predictability of the indicator i.e Leading/Lagging indicator compared to other indicators like
RSI, Stochastic and ROC.

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Research Methodology
Hear our research mythology is comparative research wherein we compare P/E Ratio with other
indicators and oscillator. The sample unit is the OHLC and P/E ratio which is available in NSE
website. The sample contains 2 IT stocks i.e. Wipro and TCS and 3 Benchmark Index i.e. S&P
CNX Nifty, CNX Junior Nifty, CNX IT. The research design involves 10 years of EOD data
from NSE India. Which contain around 2500 days of observation?
The data collection design
Sources of data
1. Primary data
There is no primary data needed for my project
2. Secondary data
The data like OHLC and P/E Ratio is been collected from NSE India and EPS data is
been collected from ACE equity a Historical data provider company. Annual reports of
BMA wealth from BMA Wealth creators, Journals and magazines related to my research,
the data collected from Internet of mainly intended to collect the Brochures, fact sheets
etc.
Limitation of the study
 No cutting edge DSS software like Amibroker, Metastocks etc
Literature review
Name: Price–Earnings Ratios as Forecasters of Returns: The Stock Market Outlook in 1996
Author: Robert J. Shiller
Summary
The theory that the stock market is approximately a random walk does not look right at all:
Figure 1 is a (log-log) scatter diagram showing for each year 1901–1986 the ratio of the real

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Standard and Poor Index ten years later to the real index today (on the y axis) versus a certain
price–earnings ratio: the ratio of the real Standard and Poor Composite Index for the first year of
the ten year interval, divided by a lagged thirty year moving average of real earnings
corresponding to the Standard and Poor Index (on the x axis). Index values are for January,
conversion of nominal values to real values is done by the January Producer Price Index. The
variable shown on the x axis is publicly known at the beginning of each ten year interval. If real
stock prices were a random walk, they should be unforecastable, and there should really be no
relation here between y and x. There certainly appears to be a distinct negative relation here. The
January 1996 value for the ratio shown on the horizontal axis is 29.72, shown on the figure with
a vertical line. Looking at the diagram, it is hard to come away without a feeling that the market
is quite likely to decline substantially in value over the succeeding ten years; it appears that long
run investors should stay out of the market for the next decade.
Is this conclusion right? How can we reconcile it with the widespread public impression that the
random walk hypothesis is at least approximately true?

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CHAPTER 1
Industrial Profile
General Introduction
The economic development at any country depends upon the existence of a well-organized
financial system. It is the financial system which supplies the necessary financial inputs for the
production of goods and services which in turn promote the well-being and standard of living of
the people of a country. Thus the financial system is a broader term which brings under its fold
the financial markets and financial institutions which support the system.
The major assets traded in the financial system are money and monitory assets. The
responsibility of the financial system is to mobilize the savings in the form of money and
monetary assets and invest them to productive ventures. An efficient functioning of the financial
system facilitates the free flow of the funds to more productive activities and thus promotes
investments. Thus, the financial system provides the intermediation between savers and investors
and promotes faster economic development.
Origin Of Stock Market
India has two hundred years old tradition in Securities. In fact that first India stock
exchange established in Bombay is the oldest in Asia. Corporate Shares came into the picture by
1830‟s and assumed significance with the Companies Act of 1956. In 1887 the broker
community gave birth to the “Native share and stock brokers Association” which is now known
as the Bombay Stock Exchange.
The Indian Capital grew at a very moderate rate from 1951 to 1980. However it
registered an impressive growth in 1980‟s. The process of liberalization and the transparency in
operation has raised the interest of foreign investors in India. Till 1978 there were only 8

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recognized exchanges in India. Initially the exchange operated on an outcry system i.e. manual
system of trading. Due to increase in the trading volumes, the number of issuer increased
substantially, and the birth of NSES highly transparent automated system come into existence.
National Stock Exchange of India Limited to provide electronic depository facilities for
securities traded in the equity and the debt market. NSDL commenced its operations in the year
1996 and is the first depository in India.
An important early event in the development of the stock market in India was the
formation of the native share and stock brokers 'Association at Bombay in 1875, the precursor
of the present day Bombay Stock Exchange. This was followed by the formation of
associations/exchanges in Ahmadabad (1894), Calcutta (1908), and Madras (1937). In addition, a
large number of ephemeral exchanges emerged mainly in buoyant periods to recede into oblivion
during depressing times subsequently.
Importance
The stock market is one of the most important sources for companies to raise money.
This allows businesses to be publicly traded, or raise additional capital for expansion by selling
shares of ownership of the company in a public market. The liquidity that an exchange provides
affords investors the ability to quickly and easily sell securities. This is an attractive feature of
investing in stocks, compared to other less liquid investments such as real estate. Rising share
prices, for instance, tend to be associated with increased business investment and vice versa.
Share prices also affect the wealth of households and their consumption.
Role Of Stock Exchange
Stock exchanges have multiple roles in the economy. This may include the following
 RAISING CAPITAL FOR BUSINESS:
The Stock Exchange provides companies with the facility to raise capital for expansion
through selling shares to the investing public.

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 MOBILISING SAVINGS FOR INVESTMENT:
When people draw their savings and invest in shares, it leads to a more rational allocation of
resources because funds, which could have been consumed, or kept in idle deposits with banks,
are mobilized and redirected to promote business activity with benefits for several economic
sectors such as agriculture, commerce and industry, resulting in stronger economic growth and
higher productivity levels of firms.
 FACILITATING COMPANY GROWTH:
Companies view acquisitions as an opportunity to expand product lines, increase distribution
channels, hedge against volatility, increase its market share, or acquire other necessary
business assets. A takeover bid or a merger agreement through the stock market is one of the
simplest and most common ways for a company to grow by acquisition or fusion.
 CORPORATE GOVERNANCE:
By having a wide and varied scope of owners, companies generally tend to
improve management standards and efficiency to satisfy the demands of these shareholders, and
the more stringent rules for public corporations imposed by public stock exchanges and the
government. Consequently, it is alleged that public companies (companies that are owned by
shareholders who are members of the general public and trade shares on public exchanges) tend
to have better management records than privately held companies (those companies where shares
are not publicly traded, often owned by the company founders and/or their families and heirs, or
otherwise by a small group of investors).
 CREATING INVESTMENT OPPORTUNITIES FOR SMALL INVESTORS:
As opposed to other businesses that require huge capital outlay, investing in shares is open to
both the large and small stock investors because a person buys the number of shares they can
afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares
of the same companies as large investors.
 GOVERNMENT CAPITAL RISING FOR DEVELOPMENT PROJECTS:

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Governments at various levels may decide to borrow money to finance infrastructure projects
such as sewage and water treatment works or housing estates by selling another category
of securities known as bonds. These bonds can be raised through the Stock Exchange whereby
members of the public buy them, thus loaning money to the government. The issuance of such
bonds can obviate the need, in the short term, to directly tax citizens to finance development
though by securing such bonds with the full faith and credit of the government instead of with
collateral, the government must eventually tax citizens or otherwise raise additional funds to
make any regular coupon payments and refund the principal when the bonds mature.
 BAROMETER OF THE COMPANY:
At the stock exchange, share prices rise and fall depending, largely, on market forces. Share
prices tend to rise or remain stable when companies and the economy in general show signs of
stability and growth. An economic recession, depression, or financial crisis could eventually lead
to a stock market crash. Therefore the movement of share prices and in general of the stock
indexes can be an indicator of the general trend in the economy.

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BSE (BOMBAY STOCK EXCHANGE)
For the premier Stock Exchange that pioneered the stock broking activity in India, 128
years of experience seems to be a proud milestone. A lot has changed since 1875 when 318
persons became members of what today is called "The Stock Exchange, Mumbai" by paying a
princely amount of Re1.Since then, the country's capital markets have passed through both good
and bad periods. The journey in the 20th century has not been an easy one. Till the decade of
eighties, there was no scale to measure the ups and downs in the Indian stock market.
The Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index that
subsequently became the barometer of the Indian stock market. 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.
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.

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NSE (NATIONAL STOCK EXCHANGE)
The National Stock Exchange of India Limited has genesis in the report of the High
Powered Study Group on Establishment of New Stock Exchanges, which recommended
promotion of a National Stock Exchange by financial institutions (FIs) to provide access to
investors from all across the country on an equal footing. Based on the recommendations, NSE
was promoted by leading Financial Institutions at the behest of the Government of India and was
incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the
country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act,
1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment
in June 1994. The Capital Market (Equities) segment commenced operations in November 1994
and operations in Derivatives segment commenced in June 2000.
NIFTY:
The Nifty is relatively a new comer in the Indian market. S&P CNX Nifty is a 50 stock
index accounting for 23 sectors of the economy. It is used for purposes such as benchmarking
fund portfolios; index based derivatives and index funds. The base period selected for Nifty is
the close of prices on November 3, 1995, which marked the completion of one-year of operations
of NSE's capital market segment. The base value of index was set at 1000.
S&P CNX Nifty is owned and managed by India Index Services and Products
Ltd. (IISL), which is a joint venture between NSE and CRISIL. IISL is a specialized
company focused upon the index as a core product. IISL have a consulting and
licensing agreement with Standard & Poor's (S&P), who are world leaders in index
services.
CHAPTER 2

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COMPANY PROFILE
Background of the company
A financial services provider, BMA Wealth Creators specializes in extending customized
financial solutions to individual and corporates. The Company works towards understanding the
financial ambitions of its clients and adjusts to its risk profile accordingly. Its expertise combined
with thorough understanding of the financial markets results in appropriate investment solutions
for all.
The BMA Group has created its forte by promoting successful ventures in the
fields of coal mining, refractory, steel and Ferro alloy. Its continuous strive to
achieve excellence and growth keeps it abreast of the latest in technology and
best business practices, thereby making it customer oriented while forging alliances,
high quality standards and proactive business cultures.
BMA Wealth Creators, realize the dreams, needs, aspirations and concerns of
our clients as closely as they do. This is reflected in every move they make with and for
them because their relationship with their Clients is of superior importance to them.

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The company‟s Competitive Strength lies in its people who put in record an unfaltering
track of growth and profit.
BMA PROMOTORS
The Company is managed by a team of highly qualified and experienced professionals from the
finance industry across the country. They are:
ANUBHAV BHATTER, Chairman & Managing Director
As the Chairman & Managing Director, Mr Anubhav Bhatter is the guiding force of the
Company. A graduate in Commerce from St Xaviers College, Kolkata and a Chartered Financial
Planner, Mr Anubhav Bhatter founded one of the leading financial services company in India,
BMA Wealth Creators Limited. With over nine years of financial experience, he has set new
standards and established niche operations to bring BMA Wealth Creators Limited to a position
that it has reached today.
Prior to founding BMA Wealth Creators Limited, Mr Bhatter worked with SKP Securities as
Head, Products.
SAIKAT GANGULY, Chief Executive Officer
With over fifteen years of financial market experience, Saikat Ganguly‟s knowledge of the
industry is comprehensive. He has held several top managerial positions in various organizations
including Reliance Money before he joined BMA Wealth Creators Limited in the year 2009 as
its Chief Executive Officer.
Ever since, he has led BMA Wealth Creators Limited in handling several niche Sales,
Distribution and Product Management initiatives. He has been instrumental in setting the pan
India foot print of the organization by setting up Branches and distribution network in every
nook and corner of the country. He even plays a key role in promoting investor education with
initiatives such the CNBC Awaaz Money Yatra. His extensive knowledge, along with his

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leadership skills has helped BMAWC position itself as one of the top financial services houses in
the country.
AVINASH AGARWALLA, Director
A commerce graduate from St Xaviers College, Kolkata and an MBA from Xavier Institute of
Management, Bhubaneshwar, Mr Avinash Agarwalla is the voice of knowledge on the Board of
Directors of the Company. With over eleven years of extensive market experience in Financial as
well as the Product Manufacturing industry, Mr Avinash Agarwal has given shape to the growth
of BMA Wealth Creators Limited. With an extensive knowledge of the nuances involved in the
financial sector and a strong foot hold over the market, the entire Group looks up to his
contribution.
SHIV KUMAR DAMANI,Director
Experience is the greatest education. And we know it when we meet
Mr Damani. With a financial career spanning over twenty two years, Mr Damani is
Director, BMA Wealth Creators Limited. He has been associated with the Company since
its inception and ever since, has nurtured the growth and operation of the Company just as a
parent would do for its child.
A Bachelor in Commerce from the University of Calcutta, Mr Damani has studied the
financial market from close quarters to manage the risks involved while working towards
the benefit of the Company and the people it is associated with, thus progressively stepping
up the operational quality of the organization Prior to joining BMA Wealth Creators
Limited, he worked with SKP Securities Limited.

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Vision & Mission
Vision
 India Post's products and services will be the customer's first choice.
 To provide integrated financial service building investor wealth and confidence
Mission
 To sustain its position as the largest postal network in the world touching the lives of every
citizen in the country.
 To provide mail parcel, money transfer, banking, insurance and retail services with speed and
reliability.
 To provide services to the customers on value-for-money basis.
 To ensure that the employees are proud to be its main strength and serve its customers with a
human touch.
 To continue to deliver social security services and to enable last mile connectivity as a
Government of India platform.
 To be a premier financial supermarket providing integrated investment services.

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Awards and Recognitions
Reliance Life Insurance Awards - RISING STAR
Tasting success at the Reliance Life Insurance Awards held in Italy, BMA Wealth Creators
has bagged an Award in the Rising Star Category, Third Party Distribution. The Award was
handed over to Anubhav Bhatter, CEO & MD, BMA Wealth Creators and Saikat Ganguly,
COO, BMA Wealth Creators by Sam Ghosh, Group President and CEO, Reliance Capital,
Malay Ghosh, CEO, Reliance Life Insurance and Jatin Sabhani, Vice President and Head,
Third Party Distribution, Reliance Life Insurance.

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MARKETS IN WHICH BMA DEALS:
EQUITY & DERIVATIVES
Equity and derivatives go hand in hand as they help maximize return and minimize risk at the
same time! BMA Wealth Creators Ltd clients are assisted in protecting the downside risk to their
portfolio using appropriate combination of options. Our advisory is skilled to help you in
maximizing your gains from your existing corpus using numerous strategies based on the
direction and intensity of the views. BMAWC Ltd ensures that you get the one of the finest
trading experiences through:
 An experienced and qualified team of Equity professionals offering unbiased advice on
equity investment decisions.
 All members having immense experience and each of them being professionally certified
by the National Stock Exchange.
 A high level of personalized and confidential service.
 Constant monitoring of client portfolio so that the returns are maximized and the risks are
minimized
 Secure, integrated broking system
 Powerful Research & Analytics
COMMODITIES
Commodities are now an asset class! For those who want to diversify their portfolios beyond
shares, bonds and real estate, commodities are an excellent option. Commodities are one of the
easiest investment avenues to understand as they are based on the fundamentals of demand and
supply. Historically, prices in commodities futures have been less volatile compared with equity
and bonds, thus providing an efficient portfolio diversification option.

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DEPOSITORY
BMAWC Ltd is a depository participant with Central Depository Services (India) Limited
(CDSL) and uses the latest in technology to deliver DP Services in a hassle free, secure and
transparent environment.
Depository Services provided by Ventura Securities Ltd include:
 Account Opening
 Dematerialization
 Rematerialisation
 Account Transfer
 Nominatio
INVESTMENT ADVISORY
BMAWC Ltd has a dedicated team of professionals handling the investment advisory services of
the firm. These experts use their knowledge of investments, tax laws, and insurance to
recommend financial options to clients in accordance with their short-term and long-term goals.
Some of the issues that the specialists address are general investments, retirement planning, tax
planning and child education & welfare planning. Our certified Investment Advisory Managers
strive to understand each individual client‟s needs, risk profiles and investment goals to provide
the best advice. Apart from advising, they help clients build and track their investments. They
also regularly monitor report and recommend changes based on the performance of the portfolio.
We offer advice on and help invest in the following products:
 Mutual Funds
 Insurance - Life & Non - Life
 Bonds
 Deposits
 IPO‟s
 Small Savings Instruments

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COMPITATORS
Kotak Securities Limited
Originally established in 1994, Kotak Securities is a subsidiary of Kotak Mahindra Bank,
which services more than 14 lakh customer accounts. The firm has a wide network of more than
1,255 branches, franchisees representative offices, and satellite offices across 386 cities in India
and offices in New York, London, Dubai, Mauritius and Singapore.
We process more than 400000 trades a day which is much higher than some of the renowned
international brokers.
The company is a corporate member of both The Bombay Stock Exchange (BSE) and The
National Stock Exchange of India (NSE). Our operations include stock broking services for
trading in stock markets through branches & internet and distribution of various financial
products including investments in IPOs, Mutual Funds and Currency Derivatives. Currently,
Kotak Securities is one of the largest broking houses in India with substantial geographical reach
to Asia Pacific, Europe, Middle East and America.
KARVY Stock Broking Limited
KARVY Stock Broking Limited, one of the cornerstones of the KARVY edifice, flows
freely towards attaining diverse goals of the customer through varied services. It creates a
plethora of opportunities for the customer by opening up investment vistas backed by research-
based advisory services. Here, growth knows no limits and success recognizes no boundaries.
Helping the customer create waves in his portfolio and empowering the investor completely is
the ultimate goal. KARVY Stock Broking Limited is a member of: 1) National Stock Exchange
(NSE) , 2) Bombay Stock Exchange (BSE), 3) MCX Stock Exchange(MCX-SX).

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INDIABULLS
Indiabulls is an Indian company headquartered in Gurgaon, with presence in the real estate,
infrastructure, financial services, securities, retail, multiplex and power sectors.
IL&FS Investment Managers
IL&FS Investment Managers, a subsidiary of Infrastructure Leasing & Financial Services
(IL&FS), is one of the oldest and largest private equity fund managers in India, with over $1.9 bn
under management.
Established in 1989, IIML has been an early and in many instances, the first investor across
various sectors such as Telecom, City Gas Distribution, Shipyards, Retail, and Media. Funds
managed by IIML now span General Purpose Private Equity, Real Estate and Infrastructure.
Investors to IIML managed funds include most of the major Indian banks & institutions, and
marquee global institutional Investors including major US pension funds, endowments and
foundations.IIML is listed on the National Stock Exchange and the Bombay Stock Exchange.
The origins of IIML date back to 1989 when it was founded as Credit Capital Venture Fund
(India) Limited (CCVF), an affiliate of Lazard Brothers. CCVF was the first private sector
venture capital company in India, and managed a number of small sector focused funds apart
from investing its own proprietary capital.
Motilal Oswal Securities Ltd.
Motilal Oswal Securities Ltd. (MOSL) was founded in 1987 as a small sub-broking unit. Today,
MOSL is a well diversified financial services firm offering a range of financial products and
services such as Wealth Management, Broking & Distribution, Commodity Broking, Portfolio
Management Services, Institutional Equities, Private Equity, Investment Banking Services and
Principal Strategies. And become one of the competitor for BMAWC Ltd.

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Reliance Securities
Reliance Securities, the broking arm of Reliance Capital is the one of the India‟s leading retail
broking houses in India, providing customers with access to equities, equity options and
commodities futures, wealth management, wealth management services, mutual funds, IPOs and
investment banking.
Reliance Money
The third party distribution business of Reliance Capital, branded as „Reliance Money‟ is a
comprehensive financial services and solutions provider, providing customers with access to life
and general Insurance products, money transfer, currency exchange and loans
Structure:
A company‟s structure affects its strategic planning and its ability to change. A
company‟s structure may have a customer or geographical focus. It contains the salient features
of the organizational chart and interconnections within the organization.
Here the organization structure is straight line structure where the company employee goes
and report to his head or team leader where he go and communicates with his superior. Here the
communication is from both the side i.e.., from upward to downward & downward to upward.
By this the management is able to handle the employees with effectively and efficiently. Thus
the company has formed its structure so that it is beneficial to the employees as well as the
company and also has a good communication process.
ORGANISATION STRUCTURE OF JRG SECURITIES

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Strategy:
Strategy refers to those actions that a company plans in response to or in anticipation of
changes in its external environment, its customer and its competitor. It is plan of action or course
of action leading to the allocation of an organization‟s finite resources to reach identified goal.
BOARD OF DIRECTORS
CEO
COO and
Head
complianc
e
Group
head HR
MD&CFO
Head
commodity
or Forex
Head ITHead
Operation
Product
and head
equity
Head
financial
planning
Head
sales
Risk
management
Compliance
Corporate
HR
Regional
HR
Training
Head office
operation
& ERP
Franchisees
channel
Branch
channel
Legal and
secretarial
Zonal head
Franchises
or premises
State head
Dealers
Regional
managers

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Our business plan is to become leading investment advisor and intermediary for financial
services in India. The key driver is to increase our customer base in all our products give them a
platform of choice to transact and support them with quality research. The elements of our
strategy include:
 “One stop shop” from advice to transactions.
 Multi channel delivery model.
 Expansion of retail network.
 Continuous investment in technology platform.
System: Open system
The procedures both formal and informal, by which an organization operates and gathers
information constitutes the system of the company. This model is concerned with the systems
that allocate the control money and materials as well as gather information.
Here the company follows the system of “Team leadership”, the management gives the
authority for the team leader and carries on the work under their guidance and several team
leaders are linked to one manager or the supervisor person. Other these the other systems of the
company are- Managing/sharing customer information, Unified reporting of digital market
effectiveness, Campaign planning approach-integration.
Skill: Interpersonal skill
The skill is closely related to staff are the distinctive abilities and talents that a company
possess. Skills may range from ability of a staff to speak different languages to understanding of
the statistics to compute literacy etc.
The company has the good facilitators, and also the company personnel are capable to
ask the right question to draw solutions out of other, they ask stimulating questions in a
supportive manner than behaving like a police interrogator. They use their planning skills to
prioritize in combination with the ability to understand how value is created. This means
understanding the financial aspects of running an organization and allocating all resources at
their disposal wisely. They are identifying and cultivating professionals to provide capable

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management, and in the process they are ensuring that the leadership vision is supported through
execution to achieve business results.
Style: Organizational culture
The Culture or Style is the aggregate behaviors, thoughts, beliefs and symbols that are
conveyed to the people throughout the organization over time. Since it is very hard to change a
company‟s ingrained culture, it is important to bear in mind when developing the new strategy.
They have developed a team of Customer Relationship Managers across India to handle
key customer accounts. These people are experienced in financial services and have undergone
in-house training. This allows them to offer unbiased advice on not only equities but also on
other investment products like mutual funds ensure that the customer has a single point of
contact with the company.
Staff: Knowledge staff
Staff means the human resource systems which include appraisal, training, wages and
the intangibles such as employee motivation, morale and attitude. With a motivation workforce
companies are able to adopt well and compete.
Their Human Resource Policy on the philosophy of “Owner Mindset”. They believe
that the key to their continued growth lied in unleashing the entrepreneurial energy of their
employees. They encourage all employees to behave more as owners of their departments rather
than employees. Their people are highly driven and work towards increasing JRG Securities
brand and share across product lines.
Shared values:

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Values are important part of company‟s organization culture. In fact its tagline depicts
how much emphasis it lays on core values. The core values are,
 Honesty
 Integrity
 Respect
 Fairness
 Purposefulness
 Trust
 Responsibility
 Citizenship
 Caring.

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SWOT ANALYSIS
A SWOT analysis focuses on the internal and external environments, 3examining strengths and
weaknesses in the internal environment and opportunities and threats in the external
environment.
STRENGTHS:
Strengths:
• Experience of more than decades of trust and credibility in the Indian stock market.
• 2800+ business outlets across India.
• Deep understanding of Indian mid market corporate clients.
• Dedicated research team for technical and fundamental analysis.

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•
WEAKNESS
• Highly risk oriented business.
• Slight entry level of investors.
• Lacks in advertising.
Unlike some of its competitors like ICICI and Kotak, does not provide a complete catalogue of
financial services (e.g. banking facility
OPPORTUNITIES
• BMA is registered with Luxembourg stock exchange and so can target other stock
exchanges
• Strong momentum in franchise in the last two years.
• BMA has tied up with other third party companies to sell their products.
• Market expansion i.e. opening branches at untapped areas, mostly in north India.
THREATS
• Unexpected changes in the capital market such as rules and regulations etc.
• Increasing competition in the industry.
• Fast changing in technology.

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Chapter 3
Technical analysts use indicators to look into a different perspective from which stock prices
can be analyzed. Technical indicators provide unique outlook on the strength and direction of the
underlying price action for a given timeframe.
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
Types of indicators
Indicators can broadly be divided into two types “LEADING” and “LAGGING”.
Leading indicators
Leading indicators are designed to lead price movements. Benefi ts 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 fi xed look-back period, which is
the number of periods used to calculate the indicator. Some of the wellmore popular leading
indicators include Commodity Channel Index (CCI), Momentum, Relative Strength Index
(RSI), Stochastic Oscillator and Williams %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

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in relatively long trends. They don‟t warn you of upcoming changes in prices, they simply tell
you what prices are doing (i.e., rising or falling) so that you can invest accordingly. These trend
following indicators makes you buy and sell late and, in exchange for missing the early
opportunities, they greatly reduce your risk by keeping you on the right side of the market.
Moving averages and the MACD are examples of trend following, or “lagging,” indicators.
81
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 it‟s going to stop very shortly. You may not
know the reason for it coming to a stop…it could 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 reference line or between
prescribed upper and lower limits. When an oscillator reaches a new high, it shows that an
uptrend is gaining speed and is likely 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.

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RSI
Developed J. Welles Wilder, the Relative Strength Index (RSI) is a momentum oscillator that
measures the speed and change of price movements. RSI oscillates between zero and 100.
Traditionally, and according to Wilder, RSI is considered overbought when above 70 and
oversold when below 30. Signals can also be generated by looking for divergences, failure
swings and centerline crossovers. RSI can also be used to identify the general trend.
RSI is an extremely popular momentum indicator that has been featured in a number of articles,
interviews and books over the years. In particular, Constance Brown's book, Technical Analysis
for the Trading Professional, features the concept of bull market and bear market ranges for RSI.
Andrew Cardwell, Brown's RSI mentor, introduced positive and negative reversals for RSI. In
addition, Cardwell turned the notion of divergence, literally and figuratively, on its head.
Calculation Formula
To simplify the calculation explanation, RSI has been broken down into its basic
components: RS, Average Gain and Average Loss. This RSI calculation is based on 14 periods,
which is the default suggested by Wilder in his book. Losses are expressed as positive values, not
negative values.
The very first calculations for average gain and average loss are simple 14 period averages.
 First Average Gain = Sum of Gains over the past 14 periods / 14.

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 First Average Loss = Sum of Losses over the past 14 periods / 14
The second, and subsequent, calculations are based on the prior averages and the current gain
loss:
 Average Gain = [(previous Average Gain) x 13 + current Gain] / 14.
 Average Loss = [(previous Average Loss) x 13 + current Loss] / 14.
Taking the prior value plus the current value is a smoothing technique similar to that used in
exponential moving average calculation. This also means that RSI values become more accurate
as the calculation period extends. SharpCharts uses at least 250 data points prior to the starting
date of any chart (assuming that much data exists) when calculating its RSI values. To exactly
replicate our RSI numbers, a formula will need at least 250 data points.
Wilder's formula normalizes RS and turns it into an oscillator that fluctuates between zero and
100. In fact, a plot of RS looks exactly the same as a plot of RSI. The normalization step makes
it easier to identify extremes because RSI is range bound. RSI is 0 when the Average Gain equals
zero. Assuming a 14-period RSI, a zero RSI value means prices moved lower all 14 periods.
There were no gains to measure. RSI is 100 when the Average Loss equals zero. This means
prices moved higher all 14 periods. There were no losses to measure.

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Note: The smoothing process affects RSI values. RS values are smoothed after the first
calculation. Average Loss equals the sum of the losses divided by 14 for the first calculation.
Subsequent calculations multiply the prior value by 13, add the most recent value and then divide
the total by 14. This creates a smoothing affect. The same applies to Average Gain. Because of
this smoothing, RSI values may differ based on the total calculation period. 250 periods will
allow for more smoothing than 30 periods and this will slightly affect RSI values.
Stockcharts.com goes back 250-days when possible. If Average Loss equals zero, a “divide by

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zero” situation occurs for RS and RSI is set to 100 by definition. Similarly, RSI equals 0 when
Average Gain equals zero.
Parameters
The default look-back period for RSI is 14, but this can be lowered to increase sensitivity or
raised to decrease sensitivity. 10-day RSI is more likely to reach overbought or oversold levels
than 20-day RSI. The look-back parameters also depend on a security's volatility. 14-day RSI for
internet retailer Amazon (AMZN) is more likely to become overbought or oversold than 14-day
RSI for Duke Energy (DUK), a utility.
RSI is considered overbought when above 70 and oversold when below 30. These traditional
levels can also be adjusted to better fit the security or analytical requirements. Raising
overbought to 80 or lowering oversold to 20 will reduce the number of overbought/oversold
readings. Short-term traders sometimes use 2-period RSI to look for overbought readings above
80 and oversold readings below 20.
Overbought-Oversold
Wilder considered RSI overbought above 70 and oversold below 30. Chart 3 shows McDonalds
with 14-day RSI. This chart features daily bars in gray with a 1-day SMA in pink to highlight
closing prices because RSI is based on closing prices. Working from left to right, the stock
became oversold in late July and found support around 44 (1). Notice that the
bottom evolved after the oversold reading. The stock did not bottom as soon as the oversold
reading appeared. Bottoming can be a process. From oversold levels, RSI moved above 70 in
mid September to become overbought. Despite this overbought reading, the stock did not
decline. Instead, the stock stalled for a couple weeks and then continued higher. Three more
overbought readings occurred before the stock finally peaked in December (2). Momentum
oscillators can become overbought (oversold) and remain so in a strong up (down) trend. The
first three overbought readings foreshadowed consolidations. The fourth coincided with a
significant peak. RSI then moved from overbought to oversold in January. The final bottom did
not coincide with the initial oversold reading as the stock ultimately bottomed a few weeks later
around 46 (3).

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Like many momentum oscillators, overbought and oversold readings for RSI work best when
prices move sideways within a range. Chart 4 shows MEMC Electronics (WFR) trading between
13.5 and 21 from April to September 2009. The stock peaked soon after RSI reached 70 and
bottomed soon after the stock reached 30.
Divergences
According to Wilder, divergences signal a potential reversal point because directional
momentum does not confirm price. A bullish divergence occurs when the underlying security

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makes a lower low and RSI forms a higher low. RSI does not confirm the lower low and this
shows strengthening momentum. A bearish divergence forms when the security records a higher
high and RSI forms a lower high. RSI does not confirm the new high and this shows weakening
momentum. Chart 5 shows Ebay (EBAY) with a bearish divergence in August-October. The
stock moved to new highs in September-October, but RSI formed lower highs for the bearish
divergence. The subsequent breakdown in mid October confirmed weakening momentum.
A bullish divergence formed in January-March. The bullish divergence formed with Ebay
moving to new lows in March and RSI holding above its prior low. RSI reflected less downside
momentum during the February-March decline. The mid March breakout confirmed improving
momentum. Divergences tend to be more robust when they form after an overbought or oversold
reading.
Before getting too excited about divergences as great trading signals, it must be noted that
divergences are misleading in a strong trend. A strong uptrend can show numerous bearish
divergences before a top actually materializes. Conversely, bullish divergences can appear in a
strong downtrend - and yet the downtrend continues. Chart 6 shows the S&P 500 ETF (SPY)
with three bearish divergences and a continuing uptrend. These bearish divergences may have
warned of a short-term pullback, but there was clearly no major trend reversal.

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Failure Swings
Wilder also considered failure swings as strong indications of an impending reversal. Failure
swings are independent of price action. In other words, failure swings focus solely on RSI for
signals and ignore the concept of divergences. A bullish failure swing forms when RSI moves
below 30 (oversold), bounces above 30, pulls back, holds above 30 and then breaks its prior
high. It is basically a move to oversold levels and then a higher low above oversold levels. Chart
7 shows Research in Motion (RIMM) with 10-day RSI forming a bullish failure swing.

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A bearish failure swing forms when RSI moves above 70, pulls back, bounces, fails to exceed 70
and then breaks its prior low. It is basically a move to overbought levels and then a lower high
below overbought levels. Chart 8 shows Texas Instruments (TXN) with a bearish failure swing
in May-June 2008.
Trend ID
In Technical Analysis for the Trading Professional, Constance Brown suggests that oscillators do
not travel between 0 and 100. This also happens to be the name of the first chapter. Brown
identifies a bull market range and a bear market for RSI. RSI tends to fluctuate between 40 and
90 in a bull market (uptrend) with the 40-50 zones acting as support. These ranges may vary
depending on RSI parameters, strength of trend and volatility of the underlying security. Chart 9
shows 14-week RSI for SPY during the bull market from 2003 until 2007. RSI surged above 70
in late 2003 and then moved into its bull market range (40-90). There was one overshoot below
40 in July 2004, but RSI held the 40-50 zone at least five times from January 2005 until October

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2007 (green arrows). In fact, notice that pullbacks to this zone provided low risk entry points to
participate in the uptrend.
n the flip side, RSI tends to fluctuate between 10 and 60 in a bear market (downtrend) with the
50-60 zone acting as resistance. Chart 10 shows 14-day RSI for the US Dollar Index ($USD)
during its 2009 downtrend. RSI moved to 30 in March to signal the start of a bear range. The 40-
50 zone subsequently marked resistance until a breakout in December.

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Positive-Negative Reversals
Andrew Cardwell developed positive and negative reversals for RSI, which are the opposite of
bearish and bullish divergences. Cardwell's books are out of print, but he does offer seminars
detailing these methods. Constance Brown credits Andrew Cardwell for her RSI enlightenment.
Before discussing the reversal technique, it should be noted that Cardwell's interpretation of
divergences differs from Wilder. Cardwell considered bearish divergences as bull market
phenomenon. In other words, bearish divergences are more likely to form in uptrends. Similarly,
bullish divergences are considered bear market phenomenon indicative of a downtrend.
A positive reversal forms when RSI forges a lower low and the security forms a higher low. This
lower low is not at oversold levels, but usually somewhere between 30 and 50. Chart 11 shows
MMM with a positive reversal forming in June 2009. MMM broke resistance a few weeks later
and RSI moved above 70. Despite weaker momentum with a lower low in RSI, MMM held
above its prior low and showed underlying strength. In essence, price action overruled
momentum.

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A negative reversal is the opposite of a positive reversal. RSI forms a higher high, but the
security forms a lower high. Again, the higher high is usually just below overbought levels in the
50-70 area. Chart 12 shows Starbucks (SBUX) forming a lower high as RSI forms a higher high.
Even though RSI forged a new high and momentum was strong, the price action failed to
confirm as lower high formed. This negative reversal foreshadowed the big support break in late
June and sharp decline.

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RSI Oversold in Uptrend: This scan reveals stocks that are in an uptrend with oversold RSI.
First, stocks must be above their 200-day moving average to be in an overall uptrend. Second,
RSI must cross below 30 to become oversold.
RSI Overbought in Downtrend: This scan reveals stocks that are in a downtrend with overbought
RSI turning down. First, stocks must be below their 200-day moving average to be in an overall
downtrend. Second, RSI must cross above 70 to become overbought.
Stochastic Oscillator
Developed by George C. Lane in the late 1950s, the Stochastic Oscillator is a momentum
indicator that shows the location of the close relative to the high-low range over a set number of
periods. According to an interview with Lane, the Stochastic Oscillator “doesn't follow price, it
doesn't follow volume or anything like that. It follows the speed or the momentum of price. As a
rule, the momentum changes direction before price.” As such, bullish and bearish divergences in
the Stochastic Oscillator can be used to foreshadow reversals. This was the first, and most

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important, signal that Lane identified. Lane also used this oscillator to identify bull and bear set-
ups to anticipate a future reversal. Because the Stochastic Oscillator is range bound, is also
useful for identifying overbought and oversold levels.
Calculation Formula
%K = (Current Close - Lowest Low)/(Highest High - Lowest Low) * 100
%D = 3-day SMA of %K
Lowest Low = lowest low for the look-back period
Highest High = highest high for the look-back period
%K is multiplied by 100 to move the decimal point two places
The default setting for the Stochastic Oscillator is 14 periods, which can be days, weeks, months
or an intraday timeframe. A 14-period %K would use the most recent close, the highest high over
the last 14 periods and the lowest low over the last 14 periods. %D is a 3-day simple moving
average of %K. This line is plotted alongside %K to act as a signal or trigger line.

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Interpretation
The Stochastic Oscillator measures the level of the close relative to the high-low range over a
given period of time. Assume that the highest high equals 110, the lowest low equals 100 and the
close equals 108. The high-low range is 10, which is the denominator in the %K formula. The
close less the lowest low equals 8, which is the numerator. 8 divided by 10 equals .80 or 80%.
Multiply this number by 100 to find %K %K would equal 30 if the close was at 103 (.30 x 100).
The Stochastic Oscillator is above 50 when the close is in the upper half of the range and below
50 when the close is in the lower half. Low readings (below 20) indicate that price is near its low
for the given time period. High readings (above 80) indicate that price is near its high for the
given time period. The IBM example above shows three 14-day ranges (yellow areas) with the
closing price at the end of the period (red dotted) line. The Stochastic Oscillator equals 91 when
the close was at the top of the range. The Stochastic Oscillator equals 15 when the close was near
the bottom of the range. The close equals 57 when the close was in the middle of the range.

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Fast, Slow or Full
There are three versions of the Stochastic Oscillator available on SharpCharts. The Fast
Stochastic Oscillator is based on George Lane's original formulas for %K and %D. %K in the
fast version that appears rather choppy. %D is the 3-day SMA of %K. In fact, Lane used %D to
generate buy or sell signals based on bullish and bearish divergences. Lane asserts that a %D
divergence is the “only signal which will cause you to buy or sell.” Because %D in the Fast
Stochastic Oscillator is used for signals, the Slow Stochastic Oscillator was introduced to reflect
this emphasis. The Slow Stochastic Oscillator smooths %K with a 3-day SMA, which is exactly
what %D is in the Fast Stochastic Oscillator. Notice that %K in the Slow Stochastic Oscillator
equals %D in the Fast Stochastic Oscillator (chart 2).
Fast Stochastic Oscillator:
 Fast %K = %K basic calculation
 Fast %D = 3-period SMA of Fast %K
Slow Stochastic Oscillator:

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 Slow %K = Fast %K smoothed with 3-period SMA
 Slow %D = 3-period SMA of Slow %K
The Full Stochastic Oscillator is a fully customizable version of the Slow Stochastic Oscillator.
Users can set the look-back period, the number of periods to slow %K and the number of periods
for the %D moving average. The default parameters were used in these examples: Fast
Stochastic Oscillator (14,3), Slow Stochastic Oscillator (14,3) and Full Stochastic Oscillator
(14,3,3).
Full Stochastic Oscillator:
 Full %K = Fast %K smoothed with X-period SMA
 Full %D = X-period SMA of Full %K
Overbought Oversold
As a bound oscillator, the Stochastic Oscillator makes it easy to identify overbought and
oversold levels. The oscillator ranges from zero to one hundred. No matter how fast a security
advances or declines, the Stochastic Oscillator will always fluctuate within this range.
Traditional settings use 80 as the overbought threshold and 20 as the oversold threshold. These
levels can be adjusted to suit analytical needs and security characteristics. Readings above 80 for
the 20-day Stochastic Oscillator would indicate that the underlying security was trading near the
top of its 20-day high-low range. Readings below 20 occur when a security is trading at the low
end of its high-low range.
Before looking at some chart examples, it is important to note that overbought readings are not
necessarily bearish. Securities can become overbought and remain overbought during a strong
uptrend. Closing levels that are consistently near the top of the range indicate sustained buying
pressure. In a similar vein, oversold readings are not necessarily bullish. Securities can also
become oversold and remain oversold during a strong downtrend. Closing levels consistently
near the bottom of the range indicate sustained selling pressure. It is, therefore, important to
identify the bigger trend and trade in the direction of this trend. Look for occasional oversold
readings in an uptrend and ignore frequent overbought readings. Similarly, look for occasional
overbought readings in a strong downtrend and ignore frequent oversold readings.

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Chart 3 shows Yahoo! (YHOO) with the Full Stochastic Oscillator (20,5,5). A longer look-back
period (20 days versus 14) and longer moving averages for smoothing (5 versus 3) produce a less
sensitive oscillator with fewer signals. Yahoo was trading between 14 and 18 from July 2009
until April 2010. Such trading ranges are well suited for the Stochastic Oscillator. Dips below 20
warn of oversold conditions that could foreshadow a bounce. Moves above 80 warn of
overbought conditions that could foreshadow a decline. Notice how the oscillator can move
above 80 and remain above 80 (orange highlights). Similarly, the oscillator moved below 20 and
sometimes remained below 20. The indicator is both overbought AND strong when above 80. A
subsequent move below 80 is needed to signal some sort of reversal or failure at resistance (red
dotted lines). Conversely, the oscillator is both oversold and weak when below 20. A move
above 20 is needed to show an actual upturn and successful support test (green dotted lines).
Chart 4 shows Crown Castle (CCI) with a breakout in July to start an uptrend. The Full
Stochastic Oscillator (20,5,5) was used to identify oversold readings. Overbought readings were
ignored because the bigger trend was up. Trading in the direction of the bigger trend improves

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the odds. The Full Stochastic Oscillator moved below 20 in early September and early
November. Subsequent moves back above 20 signaled an upturn in prices (green dotted line) and
continuation of the bigger uptrend.
Chart 5 shows Autozone (AZO) with a support break in May 2009 that started a downtrend.
With a downtrend in force, the Full Stochastic Oscillator (10,3,3) was used to identify
overbought readings to foreshadow a potential reversal. Oversold readings were ignored because
of the bigger downtrend. The shorter look-back period (10 versus 14) increases the sensitivity of
the oscillator for more overbought readings. For reference, the Full Stochastic Oscillator (20,5,5)
is also shown. Notice that this less sensitive version did not become overbought in August,
September and October. It is sometimes necessary to increase sensitivity to generate signals.

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Bull Bear Divergences
Divergences form when a new high or low in price is not confirmed by the Stochastic Oscillator.
A bullish divergence forms when price records a lower low, but the Stochastic Oscillator forms a
higher low. This shows less downside momentum that could foreshadow a bullish reversal. A
bearish divergence forms when price records a higher high, but the Stochastic Oscillator forms a
lower high. This shows less upside momentum that could foreshadow a bearish reversal. Once a
divergence takes hold, chartists should look for a confirmation to signal an actual reversal. A
bearish divergence can be confirmed with a support break on the price chart or a Stochastic
Oscillator break below 50, which is the centerline. A bullish divergence can be confirmed with a
resistance break on the price chart or a Stochastic Oscillator break above 50.
50 is an important level to watch. The Stochastic Oscillator moves between zero and one
hundred, which makes 50 the centerline. Think of it as the 50 yard line in football. The offense
has a higher chance of scoring when it crosses the 50 yard line. The defense has an edge as long
as it prevents the offense from crossing the 50 yard line. A Stochastic Oscillator cross above 50

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signals that prices are trading in the upper half of their high-low range for the given look-back
period. This suggests that the cup is half full. Conversely, a cross below 50 means prices are
trading in the bottom half of the given look-back period. This suggests that the cup is half empty.
Chart 6 shows International Gaming Tech (IGT) with a bullish divergence in February-March
2010. Notice how the stock moved to a new low, but the Stochastic Oscillator formed a higher
low. There are three steps to confirming this higher low. The first is a signal line cross and/or
move back above 20. A signal line cross occurs when %K (black) crosses %D (red). This
provides the earliest entry possible. The second is a move above 50, which puts prices in the
upper half of the Stochastic range. The third is a resistance breakout on the price chart. Notice
how the Stochastic Oscillator moved above 50 in late March and remained above 50 until late
May.
Chart 7 shows Kohls (KSS) with a bearish divergence in April 2010. The stock moved to higher
highs in early and late April, but the Stochastic Oscillator peaked in late March and formed
lower highs. The signal line crosses and moves below 80 did not provide good early signals in
this case because KSS kept moving higher. The Stochastic Oscillator moved below 50 for the
second signal and the stock broke support for the third signal. As KSS shows, early signals are
not always clean and simple. Signal line crosses, moves below 80 and moves above 20 are
frequent and prone to whipsaw. Even after KSS broke support and the Stochastic Oscillator

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moved below 50, the stock bounced back above 57 and the Stochastic Oscillator bounced back
above 50 before the stock continued sharply lower.
Bull Bear Set-ups
George Lane identified another form of divergence to predict bottoms or tops. A bull set-up is
basically the inverse of a bullish divergence. The underlying security forms a lower high, but the
Stochastic Oscillator forms a higher high. Even though the stock could not exceed its prior high,
the higher high in the Stochastic Oscillator shows strengthening upside momentum. The next
decline is then expected to result in a tradable bottom. Chart 8 shows Network Appliance
(NTAP) with a bull set-up in June 2009. The stock formed a lower high as the Stochastic
Oscillator forged a higher high. This higher high shows strength in upside momentum.
Remember that this is a set-up, not a signal. The set-up foreshadows a tradable low in the near
future. NTAP declined below its June low and the Stochastic Oscillator moved below 20 to
become oversold. Traders could have acted when the Stochastic Oscillator moved above its

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signal line, above 20 or above 50. Alternatively, NTAP subsequently broke resistance with a
strong move.
A bear set-up occurs when the security forms a higher low, but the Stochastic Oscillator forms a
lower low. Even though the stock held above its prior low, the lower low in the Stochastic
Oscillator shows increasing downside momentum. The next advance is expected to result in an
important peak. Chart 9 shows Motorola (MOT) with a bear set-up in November 2009. The stock
formed a higher low in late-November and early December, but the Stochastic Oscillator formed
a lower low with a move below 20. This showed strong downside momentum. The subsequent
bounce did not last long as the stock quickly peaked. Notice that the Stochastic Oscillator did not
make it back above 80 and turned down below its signal line in mid December.

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Rate of Change (ROC)
Introduction
The Rate-of-Change (ROC) indicator, which is also referred to as simply Momentum, is a
pure momentum oscillator that measures the percent change in price from one period to the next.
The ROC calculation compares the current price with the price “n” periods ago. The plot forms
an oscillator that fluctuates above and below the zero line as the Rate-of-Change moves from
positive to negative. As a momentum oscillator, ROC signals include centerline crossovers,
divergences and overbought-oversold readings. Divergences fail to foreshadow reversals more
often than not so this article will forgo a discussion on divergences. Even though centerline
crossovers are prone to whipsaw, especially short-term, these crossovers can be used to identify
the overall trend. Identifying overbought or oversold extremes comes natural to the Rate-of-
Change oscillator.
Calculation Formula
ROC = [(Close - Close n periods ago) / (Close n periods ago)] * 100

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The table above shows the 12-day Rate-of-Change calculations for the Dow Industrials in May
2010. The yellow cells show the Rate-of-Change from April 28th to May 14th. It is actually 13
trading days, but the close on the 28th acts as the starting point on the 29th. The blue cells show
the 12-day Rate-of-Change from May 7th until May 25th.
Interpretation
As noted above, the Rate-of-Change indicator is momentum in its purest form. It measures the
percentage increase or decrease in price over a given period of time. Think of its as the rise
(price change) over the run (time). In general, prices are rising as long as the Rate-of-Change
remains positive. Conversely, prices are falling when the Rate-of-Change is negative. ROC
expands into positive territory as an advance accelerates. ROC dives deeper into negative
territory as a decline accelerates. There is no upward boundary on the Rate-of-Change. The sky
is the limit for an advance. There is, however, a downside limit. Securities can only decline
100%, which would be to zero. Even with these lopsided boundaries, Rate-of-Change produces
identifiable extremes that signal overbought and oversold conditions.

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Trend Identification
Even though momentum oscillators are best suited for trading ranges or zigzag trends, they can
also be used to define the overall direction of the underlying trend. There are approximately 250
trading days in a year. This can be broken down into 125 days per half year, 63 days per quarter
and 21 days per month. A trend reversal starts with the shortest timeframe and gradually spreads
to the other timeframes. In general, the long-term trend is up when both the 250-day and 125-day
Rate-of-Change are positive. This means that prices are higher now than they were 12 and 6
months ago. Long positions taken 6 or 12 months ago would be profitable and buyers would be
happy.
Chart 2 shows IBM with the 250-day, 125-day, 63-day and 21-day Rate-of-Change. There have
been three big trends in the last three years. The first was up as the 250-day Rate-of-Change was
largely positive until September 2008 (1). The second was down as the indicator turned negative

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from October 2008 until September 2009 (2). The third is up as the indicator turned positive in
late September 2009 (3). Even though the big uptrend remains in force, IBM flattened out on the
price chart and this affected the 125-day and 63-day Rate-of-Change. The 63-day Rate-of-
Change (quarterly) has been flirting with negative territory since February (4). The 125-day
Rate-of-Change (six month) dipped into negative territory for the first time since April 2009 (5).
This shows some deterioration in IBM that serves as an alert to watch the stock carefully. A
break below the six month trading range would be a bearish development (6).
Overbought/Oversold Extremes
There are basically three price movements: up, down and sideways. Momentum oscillators are
ideally suited for sideways price action with regular fluctuations. This makes it easier to identify
extremes and forecast turning points. Security prices can also fluctuate when trending. For
example, an uptrend consists of a series of higher highs and higher lows as prices zigzag higher.
Pullbacks often occur at regular intervals based on the percentage move, time elapsed or both. A
downtrend consists of lower lows and lower highs as prices zigzag lower. Counter trend
advances retrace a portion of the prior decline and usually peak below the prior high. Peaks can
occur at regular intervals based on the percentage move, time elapsed or both. The Rate-of-
Change can be used to identify periods when the percentage change nears a level that
foreshadowed a turning point in the past.

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Chart 3 shows Aetna (AET) with an uptrend from April 2009 until April 2010. Notice how the
stock zigzagged up with a series of higher highs and higher lows. Because the overall trend was
up, the Rate-of-Change indicator was used to identify short-term oversold levels as a chance to
partake in the bigger uptrend. Short-term overbought signals were ignored because the bigger
trend was up. Based on the May-June bounces, -10% was set as the oversold boundary.
Movements below this level indicated that prices were at a short-term extreme. Overbought and
oversold settings depend on the volatility of the underlying security. A more volatile stock may
use -15% for oversold, while a less volatile stock may use -5%. Oversold readings serve as an
alert to be ready for a turning point. Prices are oversold, but have yet to actually turn. Remember,
a security can become oversold and remain oversold as the decline continues. A 20-day moving
average was overlaid to identify an actual upturn. After ROC became oversold in early October,
AET moved above its 20-day SMA in late October to confirm an upturn (1). The second
oversold reading occurred in early February and AET moved above its 20-day SMA in late
February (2).

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Chart 4 shows Microsoft (MSFT) in a downtrend from November 2007 until March 2009. This
example uses a 20-day Rate-of-Change to identify oversold levels within a bigger downtrend.
The number of time periods depends on the individual security and the desired trading time
frame. The late December high occurred with an overbought reading above +10%. This means
Microsoft was up over 10% in a 20-day period, which is about a month. That's a pretty good
bounce within a bigger downtrend. The next overbought reading did not occur until April when
the Rate-of-Change again exceeded +10%. MSFT broke trend line support in May to signal a
continuation of the downtrend. The next overbought reading occurred in early August 2008. It
took a while, but the stock eventually broke support at 24 in mid-September and again in early
October.

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Chart 5 shows Abercrombie & Fitch (ANF) within a trading range from October 2006 to
February 2008. The 20-day Rate-of-Change indicator sets overbought at +10% and oversold at -
10%. The overbought and oversold levels identify extremes quite well, but timing the actual turn
is more difficult because of the volatility. The next chart reduces this volatility by using a
exponential moving average in place of the price plot.

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Chart 6 shows ANF as a 10-day EMA (black) and the actual price plot is invisible. A 30-day
EMA has been overlaid as a signal line. Furthermore, the 20-day Rate-of-Change is shown with
a 5-day SMA to smooth out the fluctuations. There are fewer overbought and oversold readings
using the 5-day SMA. Focusing only on the buy signals, the green dotted line shows when ROC
exceeds -10% and the green arrow shows when the 10-day EMA crosses above the 30-day SMA.
The oversold readings are usually early, but the moving average crossovers are usually late. Such
is life with technical analysis. The point here is to reduce whipsaws by smoothing the data. A 10-
day EMA was used because it is faster than a 10-day SMA. A 30-day SMA was used because it
is slower than a 30-day EMA. Speeding up the shorter moving average and slowing down the
longer moving average makes for slightly quicker signals.

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The P/E Ratio
Analysts have argued for years about the merits of price (P/E) ratios. When P/Es are high, as
they were in the late 1920s and 1990s, raging bulls would proclaim that the ratios are irrelevant.
When P/Es are low, as they were in the 1930s and 1980s, marauding bears would argue that the
worst is still ahead. Each time, both were wrong. Here we test a newly designed indicator to
determine if P/Es can be effectively used to generate buy and sell signals. To get a complete
picture of its effectiveness, we'll look at whether this indicator would have helped the trader beat
the returns rendered by a buy-and-hold strategy over the period from 1920 through to 2003.
Trading Tools - Building the P/E SMA Indicator
Simple moving averages (SMAs) are one of the most basic tools for building a trading system
but they have remained popular among technicians for one simple reason: they work. A moving
average (MA) reduces the noise by smoothing the data, allowing the trader to see the bigger
picture more clearly.
Another useful charting metric for analyzing data is a linear regression line. It is very useful in
showing a trend and providing insight into potential future price movement. A number of
popular charting programs include a function for the linear regression line.
Using annual historic S&P P/E ratio data by Robert Shiller, Yale Professor and author of the
best-selling book "Irrational Exuberance" (2000), we constructed charts and a simple moving
average crossover system using a shorter-term MA trigger, or fast line, and the long-term MA
base, or slow line. The signals generated by changes in S&P Index P/Es, which are charted in
figure 1, were used to buy and sell the market as represented by the Dow Jones Industrial
Average, which is charted in figure 2.
The best combination of moving averages is somewhat of a juggling act. Longer-term MA
periods reduce the number of signals and add delays, which often result in lower returns. Shorter
MA periods often increase some individual trade returns at the expense of adding more losing

BIET-MBA Page 60
trades, thanks to whipsaws.
Figure 1, as already mentioned, is a chart showing annual S&P 500 Index (and earlier
precursors) price/earnings ratios from 1920 through 2003. The chart displays also the two-year
(blue line) and five-year (magenta line) simple moving averages. Buy signals occur when the
two-year SMA crosses above the five-year, and a sell signal when the two-year crosses below the
five-year. The median P/E over the period was 15, but note that the linear regression channel
midline (dashed diagonal line) shows that the trend moved from a PE of 12 at the left hand side
of the chart to 21 on the right side.
In figure 2, showing the monthly chart of the Dow Jones Industrial Average (DJI) from 1920
through 2003, the green arrows indicate buy signals generated by the two-year S&P P/E SMA
crossing above the five-year SMA, and the red arrows show sell signals when the reverse occurs
in figure 1. A total of six buy and six sell signals were generated for a total gain of 9439.25 DJIA
points.

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For the sake of our test, a two-year moving average signal line was found to remove much of the
noise without adding excessive delay. The baseline consisting of a five-year moving average was
determined to be a good fit. A one-year signal line instead of a two-year was tested and found to
provide the same number of trades but with slightly lower returns.
How Did the P/E SMA Indicator Do?
In a total of 12 trades (six buys and six sells), the system returned 9,440 points (see figure 2). A
buy-and-hold over the same period would have returned 10,382, so our indicator lead the trader
to capture nearly 91% of the gains the Dow made during the 83-year period.
But the real benefit of using the P/E SMA indicator is that it told the investor when to leave the
market, thereby protecting investments from losses. Using the P/E indicator, our trader would
have been in the market a total of 48 of the 83 years, or 58% of the time, which means he or she
would have had money invested elsewhere 42% of the time (25 years) where returns were
better.
A buy-and-hold investment in the market for the whole 83-year period earned 10,382 by the end
of 2003, which works out to 125 points/year. The trader using our P/E indicator, gaining 9,440
points in 48 investing years, would have made 197 points per year. That is a 58% better return

BIET-MBA Page 62
than the buy-and-hold investor!
Given these results using annual data, we can ask whether the use of monthly data would have
improved overall results. The best-fitting set of moving averages for our monthly indicator was
found to be five- and 21-month SMAs. This system (not shown in a chart here) generated a total
of 22 buy and 21 sell signals. The last buy signal was given in Nov 2003 and the system was
still long when our test was concluded at the end of Jan 2004.
Trades using the monthly system would have earned 90% of the total Dow gains in 57% of the
time (47 years). So, even though this test generated more than three times the number of trades,
results were quite similar. The difference was that although trades were entered more quickly,
often resulting in bigger gains, the increased number of signals resulted in more exposure
to volatility and a greater percentage of losing trades.
Using the P/E SMA Indicator to Short
The next question we can tackle is whether the indicator would have performed if both long
and short trades were taken. Entering a short trade of equal size each time a long position was
sold would have given losses of 510 points in five short trades for an average loss of 102 points
per trade. Based on the chart in figure 1, this makes sense: the linear regression channel shows
that the market was in an overall uptrend from 1920, and as all good traders know, it is a bad
idea to trade against the trend.
The P/E SMA indicator benefited the trader not so much by offering a straight trading system to
generate both long and short trades, but by guiding the trader out of the market during periods of
low or negative returns. As a simple long trade timing tool, it worked extremely well.

BIET-MBA Page 63
Chapter- 4
The chart below show the Nifty and its RSI Stochastic and ROC
0
1000
2000
3000
4000
5000
6000
7000
8000
Close
Close
10
15
20
25
30
P/E
P/E
0
20
40
60
80
100
%K
%D Slow
S %D signal line
0
50
100
Series1
Series2
Series3
-25-20-15-10-50510152025
ROC
ROC

BIET-MBA Page 64
Interpretation:
P/e Ratio has shown divergence and failure swings. Shift in channels and channel breakout can been seen
here. The P/E ratio gives early breakouts compared to the index price. The RSI, Stochastic and ROC also
give early breakout but are frequent in nature.

BIET-MBA Page 65
The chart below show the CNX IT and its RSI Stochastic and ROC
0
2000
4000
6000
8000
10000
12000
Close
Close
5
10
15
20
25
30
35
40
45
50
55
60
P/E
15
25
35
45
55
65
75
85
RSI
70
30
0
50
100
%K
%D Slow
S %D signal line

BIET-MBA Page 66
Interpretation:
The P/E is a leading indicator oscillator with predictive qualities. In the sample above we are able to see
Divergence and failure swings. The P/E Breakout are the major trend reversal conformation. As compared
to RSI, stochastic and ROC it do not give frequent buy and sell signal.
-30-25-20-15-10-505101520
ROC
ROC

BIET-MBA Page 67
The chart below show TCS and its RSI Stochastic and ROC
0
500
1000
1500
2000
2500
1
92
183
274
365
456
547
638
729
820
911
1002
1093
1184
1275
1366
1457
1548
1639
1730
1821
1912
2003
2094
2185
2276
2367
Modified Close
Modified Close
0
100
200
300
400
500
600
700
P/E Ratio
P/E Ratio
-30
-10
10
30
ROC
ROC

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Interpretation:
The P/E ratio is having not shown any divergence. This show, if the p/e ratio is high it is not necessary
that the stock price is high. The RSI, stochastic and ROC gave better signals than P/E Ratio
Note:
Here the chart above include modified close where in the closing price is divided with the ratio of bonus
share issued and the ratio of stock split
0
20
40
60
80
100
Series1
Series2
Series3

BIET-MBA Page 69
The chart below show WIPRO and its RSI Stochastic and ROC
0.00
100.00
200.00
300.00
400.00
500.00
600.00
700.00
MODIFIED CLOSE
0
50
100
70
O
VE
RB
O
U
G…
-200
0
200
ROC
ROC
0
50
100
%K
%D
Slow
0
10
20
30
40
50
P/E Ratio

BIET-MBA Page 70
Interpretation:
The shift in channel shift work and we are not seeing any divergence but show few failure swings in the
chart above. The P/E ratio‟s support and resistance also works as a major reversal signals.
Note:
Here the chart above include modified close where in the closing price is divided with the ratio of bonus
share issued and the ratio of stock split.

BIET-MBA Page 71
Chapter 5
Summaries of Findings, Suggestions and Conclusion
Findings
 P/E ratio have predictive indicator oscillator
 P/E ratio is a leading indicator
 P/E ratio do not give frequent buy/sell signals
 P/E ratio give channel and trend-line breakouts.
 P/E ratio gives early conformation breakout in trend-line.
 The return of the stock and the return of P/E is identical most of the time
Suggestions
 There is no overbought and oversold zone for P/E ratio as in RSI and stochastic
 P/E ratio and closing price looks alike but they are not same.
 Buy when P/E is low and sell when P/E ratio is high.
 P/E show divergence and failure swings which is essential in investment decisions.
 P/E Ratio needs to be used by the investors as there are few entry and exit levels.
Conclusions
P/E ratio is used for a long time as a fundamental tool and it is very recent that it has been used
as a technical indicator.
In the comparison on indicator oscillator we found that the P/E ratio is not giving rapid buy and
sell signal like RSI, ROC and stochastic. But the P/E Ratio give some good entry and exit level
from a particular stocks/ Index.
Thus it can be used by the investor who requires less entry and exit strategy from the indicators.
This is an added advantage for the investors as they don‟t require more buy and sell signals.
It is always told that the price is the reflection of the value of the company, and P/E ratio gives
the fundamental value of the company. As we are using P/E ratio as a technical indicator it
satisfy both technical and fundamental and help analyst and traders to come up with good
decision.

Performance of PE Ratio as an Technical Indicator

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