Individual Momentum Indicators

The KST can be constructed for any time frame, from intraday to primary .

The KST is calculated from the smoothed ROC of four time spans , each of which is weighted according to the length of time.

Long-Term ,Short-term and intermediate KST’s can be combined on one chart to reflect the Market Cycle Model.

The KST lends itself to numerous momentum-interpretive techniques and can successfully be applied to relative strength analysis.

The +DI and _DI  means postive and negative short-term direction.

When the raw or smoothed Dis cross, they trigger buy and sell momentum signals.

The ADX measures the directional movment of a trend.

A rising ADX indicates an increase in directional movment and vice versa.

Qwhen the ADX reverses direction from a high reading, the prevailing trend is likely to change.

The parabolic is a stop-loss system.

The parabolic was orginallydesigned as a stop and reversal method.It is better used as an exit mechanism due to the large risk oftern associated with the initation of a position based on an initial parabolic stop.

Momentum

Momentum is a generic term embracing many different types of oscillators.

Momnentum measures the rate at which prices rise or fall and gives usful indication of latnet strength or weakness in a prce trend. This is because prices usually rise at their fastest pace well ahead of their peak .

Since markets generally spend m,ore time in a rising than a falling phase, the lead characteristic of mementum indicators is normally greater during rallies than during reactions.

Oscillators reflect market sentiment and have different charactersistsics in primary bull and bear markets.

There are two basic methods of interpreting momentum: momentum characteristics and momentun trend reversal

Momentum singlas should always be used in conjunction with a trend-reversal  signal by the actual price.

Trendlines-Part

Trendlines are perhaps the esiest technical tool to understand, but considerable experimentatin and practise are requied before the art of imterpreting them can be successfully mastered.

Trendline violations signal either a temporary interruption or a reversal in the prevailing trend. It is necessary to refer to other pieces of technical evidence to determine which is being signalted .

The significance of trendlines is a  function of their length, the number of times they have been touched or approached, and the steepness of the angle of ascent or descent.

A good trendline reflects the underlying trend and represents an imprortant support and resistance zone. Extended trendlines are an important concept and should not be overlloked.Exhaustionbreaks often possess good predicitive power. 

Characteristics of Simple Moving Averages(MA)

An MA is a smoothed version of a trend and the average itself is an area of support and resistance.In a rising market , price reactions are often reversed as they find support in the area of the MA, similarly , a rally in a declinating market often meets resistance at an MA and turns down. The more times an MA has been touched,that is , when it  acts as a support or resistance area.the greater the signficance when it is v iolated.

A carefully  chosen MA sghould reflect the underlying trend, its violation therefore warns that a change in trend may already have taken place. If the MA is flat or has already changed direction, its violation is fairly conclusive proof that the previous trend has reversed.

If the violating occurs while the MA is still procdding sharply in the direction of the prevailing trend, this should be treated as a preliminary warning that a trend reversal has taken place. Confirmation should await a flattening in the angle of ascent or descent, a change in direction in the MA itself, or alternative technical sources. The crossover of a moving average with a sharp angle of ascent or descent is akin to the vilation of a trendline with a sharp angle.

signal. For instance, the vi olation of a 18-month MA is a substantially more important than the crossover of a 30-day MA.

Reversal in the direction if an MA are ususlly more reliable than an MA  crossover. In instances in which a change in directions occurs close to a Generally spaking, thelonger the time span covered by an MA, the greater the significance ofa crossover market turning point, a very powerful and reliable signal is given.

In a nut-shell, think of an average as a type of moving trendline that obtains its significance from its length(time span) , the numbur of times it has been touched or approached, and its angle of ascent or descent.

RBI & SEBI to Strengthen the Indian Capital Market

The RBI, like the stock market regulator SEBI, is getting strict with the wrongdoers. This time it is the turn of holding companies. As per a leading business daily, the RBI has introduced a regulation that will limit the amount that can be borrowed by core investment companies that operate as holding companies. We see this impacting several large business houses. This is given that this regulation will restrict borrowings by several large companies and force them to revamp their ownership structures. RBI has also said that holding companies must ensure that their outside liabilities do not exceed 2.5 times their adjusted net worth. This restricts such companies from borrowing outside the group. 

Reason Behind The Sky-Jump of Tata Motors Stocks

The world's cheapest car will soon be available with you having to form a queue. We are talking about Tata's Nano. Currently the waiting time to get a car from the date of booking ranges anywhere between one to five months. The reason - constraints in production. Orders for the Nano have been pouring in and the company has been trying to meet them. But as of now there are still 1.5 lakh bookings waiting to receive the car. The company has started to step up production at the Gujarat factory and is aiming to do away with the entire booking period. Soon a customer will be able to go to a Tata showroom and drive out in the Nano on the very same day. This would be rolled out from Maharashtra and will soon follow in other states. 

SEBI can hold auditors accountable

More than a year and a half after the Satyam scandal hit headlines, SEBI finally has the authority to question auditors of listed companies and proceed against them. Previously, the regulation of auditors was only through the Institute of Chartered Accountants of India. But the Bombay High Court has now upheld SEBI's powers to issue show-cause notices to auditors like PWC, KMPG, Deloitte etc. If suspected, they will need to appear in court and defend their actions. If they are unable to do so, remedial action can be taken against them.

Auditors have a direct, fiduciary relationship with shareholders. They need to make sure that the books of accounts they audit are clean. Giving SEBI the jurisdiction to question these auditing companies will help protect the interests of investors in these companies' shares. And prevent future scams and shams like Satyam's. 

Bonuses are back on Wall Street

The financial sector, responsible for the entire global meltdown has somehow recovered faster than the broader US economy. Wall Street bonuses are likely to be back again this year, despite huge regulatory concerns. Taxpayers' funds were used to bail out this sector in 2008. Yet huge bonuses were doled out to executives, causing public uproar. 

In spite of all of this, some sections of Wall Street will see bonuses rise by up to 15% in 2010. Others could however see a 15% drop. Businesses most likely to see big bonuses include brokerages, equity based asset management. But, fixed-income units at investment and commercial banks and equities are likely to see a bonus decline. Let's hope the regulators come out with rules soon that give shareholders a say in executive compensation. 

Food inflation back to double digits

Perhaps the single most pressing economic problem that the Indian government faces today is that of rising prices. Especially the rise in food articles. It is especially important because it affects the middle class and the poor a great deal. There were some signs of relief for a few weeks. Alas, that was not to last. As the chart of the day show, food inflation is back in the double digits. The figures for individual food items are even more worrying. The price of pulses is up 20.7% YoY, rice 6.9% YoY, wheat 7.9% YoY, cereals 7% YoY and milk 19% YoY for the week ending 31st July, 2010. Clearly the headaches of the government are far from over. 

Tata group's succession efforts sets the right example

Of late there has been a lot of comparison between the top business leaders in India with those of the West, especially the US. With good reason. Firstly, India businessmen lag behind their US counterparts when it comes to charity. Secondly, and more importantly for investors, they tend to restrict the upper echelons of management to only their family members. We have very few Indian examples like the Rothschilds, Rockefellers and Vanderbilts, who gave up management. 

But that seems to be changing. And the example is being set by the best known Indian business house of them all - the Tatas. Ratan Tata, who is due to retire by the next fiscal year, has indicated that he is open to looking at a successor beyond his family. This is an important development for Indian investors because it shows the maturing of India Inc. Large Indian companies have long been marred by succession issues and infighting over ownership of the family jewels. The uncertainty and acrimony only hurts the interests of shareholders who end up as hapless bystanders in such important matters. Hence, we hope more and more family run businesses take a cue from Mr. Tata and become rational about management competence. The interests of the company and its shareholders must take precedence over family ties. That would provide an additional assurance for the small investor to buy into such companies. 

CUP AND HANDLE PATTERN

The cup and handle pattern is a bullish continuation formation. This pattern is one of the newer chart formations and can be easily spotted on a price chart. The formation was first popularized by William O'Neil in his 1988 book, How to Make Money in Stocks. In order for the cup and handle setup to have the highest odds of succeeding, it should come after a clear uptrend is in place. The chart patternconsists of two key components: (1) cup and (2) handle.

Cup

After a new high is set with an increase in volume, the asset will then begin an extended pullback. This pullback will occur on light volume and create a rounding bottom. Relative to the time it took to make the first high, the rounding bottom will take three to four times induration to complete. Throughout this bottoming process, you will notice that the volume will diminish. In order for the odds of the cup and handle to be in your favor, the cup should not retrace more than 50% of the prior up move. There are times that the formation will work with retracements of 61.8% or greater, but the odds are no longer in your favor. Once this intermediary low is in, the asset will begin to rally back up to the last swing high, only to fail at the retest level.

Handle

The handle begins to form after the failed retest of the swing high. The asset will then retrace roughly 38.2% to 50% of the cup. The smaller the retracement, the greater odds of success. Once the handle completes this minor correction, it will then breakout above the two recent swing highs, with an increase in volume. The target of the cup and handle formation is calculated by adding the depth of the cup to the breakout level.

CUP AND HANDLE CHART EXAMPLE

The below example is from Sirius Satellite Radio in late '04. Notice how the cup and handle called for the massive breakout, too bad the public had to wait until Howard Stern announced he was coming over to satellite before they were able recognize the strength in the stock.