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INDEX CHARTS ANALYSIS
Let’s learn how to do Markets and Chart analysis for long term investments. The nifty 50 index which has the top 50 companies of India and Bank Nifty index, which represents the banking sector. Those two are the most popular indices in India.
We are not analyzing from the perspective of a short term investment and therefore we will go on a higher time frame. Right now it is on a one Hour time frame but we’ll go on a higher time frame. So this is a monthly time frame so each candle here represents one month and we have data starting right from 2013 here. So this is how the Nifty has performed over the years and the averages that we have taken – the indicators that we have taken over here is a moving average which is a 10 period moving average, which is a faster moving average and a 20 period moving average. So when we look at it from the monthly perspective, a 10 ema is showing the average for the last 10 months and the 20 ema is showing the average for the last 20 months.
BEST TIME FOR LONG-TERM INVESTMENTS
Now we are actually looking the the best time to invest. The best time to invest is when the crossover is happening. When the 10 moving average is actually crossing over the 20 moving average on a monthly time frame, which means the market is being prepared to turn extremely bullish. Also you can see here where the 10 moving average has crossed down the 20 moving average. That’s a dangerous signal. So this has happened in March 2020 which was the covid crash, when the market crashed by 40 percent.
BEST TIME TO EXIT LONG TERM INVESTMENTS
So you see that it also helps in knowing when the market is actually crashing and you want to get out of stocks. Right there, at that point of time, long term investments; we are not talking about short-term investments here, we’re talking about long-term investments and the crossover that happens over here is a bullish crossover when the 10 is crossing the 20 from below and going upwards. You can see in the months above it has traveled a lot of distance. The market was here somewhere around 11800 and it went up to 18000 and now it is at 16700.
So it has traveled around 5000 points from that date. That’s a huge; that’s a huge return in such a short period of time. Those things don’t happen often but you know it this is a good indicator for us to think about long-term returns. Let’s see what the present status is. The present status is that the Nifty is taking support here at the 10 moving average. It’s kind of taking support, so it went up, it came down here and is taking support here at this base. The latest month, that is March, it’s trying to recover a bit at this point. So the best time to invest would be actually somewhere here when it comes to its 20 moving average.
This point of time can be a good point but it is not the best. You can be very confident when it comes to the 20 moving average and really put in money with a lot of blue chip stocks and expect it to go much more. But we see the moving average here kind of taking a turn and being flat and this candle is taking support at the 10 moving average.
HEAVYWEIGHT STOCKS – CHART ANALYSIS FOR LONG TERM INVESTMENTS
So what we’ll do is that we’ll also see the heavyweight stocks in the Nifty. They are HDFC Bank and Reliance. These are the two heavyweight stocks which form a huge portion of the Nifty and so these stocks kind of influence the Nifty a lot. So where is Reliance standing? You can see again the crossover is almost similar at this point of time and then it goes up and it is again taking that support here at the 10 ema.
So you can see an almost similar chart and that is because the heavy weights are actually moving the index. Let’s see HDFC Bank also. HDFC Bank has a slightly different move happening here. Lately, it has been under a lot of pressure and you will see that when we see the Bank Nifty chart.
Lately, it has been under a lot of pressure so this time is where it seems that the 10 moving average will cross down. That’s a dangerous signal, if it crosses down on a monthly basis it is a dangerous signal. But we’ll have to wait and watch to see what happens whether it just takes support over here and goes up again or whether it will actually cross and go down. So the banking sector, particularly HDFC Bank is under pressure at this point of time, let’s go back to the indices and see the other indices.
BANK NIFTY CHART ANALYSIS
Let’s see the Bank Nifty at this point of time. You see the Bank Nifty and again we are looking at it on a monthly time frame. You can see a similar thing happening. The Bank Nifty is actually weaker than the Nifty here. It has actually gone below the 10 moving average and that is because the pressure that we saw on HDFC Bank which is actually taking it below the 10 moving average. So let’s say, suppose it comes down to the 20 moving average, then it would be a good time to accumulate the stocks which are the heavy weights of the Bank Nifty index.
Let’s say we already saw HDFC Bank. Let’s see what ICICI Bank is doing; the second heavyweight stock on the Bank Nifty index. You can see a similar thing happening. It is going down the 10 moving average; so for those people who are confident about the banking sector, it may be a good time to accumulate here. But I would want to wait until it comes to the 20 moving average to be absolutely confident about this stock.
NIFTY IT INDEX CHART ANALYSIS
Let’s move around and see some more indices. The IT index – let’s see where the IT index is going. It does not seem to be under pressure. It was under pressure for two months when it went straight down and here there are two big red candles at the top but it again took support at the 10 moving average and it is moving up right now. It’s moving up right now and we’ll be able to see that in the stocks. Let’s see the stocks. The two biggest stocks on the IT index are Infosys and TCS and you see Infosys moving up. It was coming down in the last two months, taking support here and moving up and you will see a similar thing happening on TCS. Also a much stronger stock, in fact, but then in the last couple of months faced a lot of pressure and now trying to recover at this point of time.
Some of the good banking sector stocks, if you want to stay with the heavyweights are HDFC Bank and ICICI Bank and of course SBI and Kotak Bank.
These are the four major banking sector stocks that are part of the Bank Nifty index and if you are looking at the long term it is better to stay with the heavyweights because they have a greater chance of compounding your return over the long term. What we are discussing today is the long term so we’re not getting into the smaller banks because we are not talking about short-term trades. So if you want this to be in your portfolio for a longer period of time then we want to look at some of the heavyweights.
Yes long term is not two to three years. 2-3 years in terms of investments is short term. I would say long term is something like 10 years. 10 years or more, that for me is a long term investment. We are not talking about short-term trades you know like getting in and getting out and booking a small profit. We want to look at companies which are compounding wealth over the long term and that is the only thing that is going to help you in your portfolio to build wealth over the long term. So we are not thinking about 2-3 years rather we are thinking about ten years. So when you are thinking about ten years, then you have we have to look at the stocks with that kind of perspective? So that is also one of the reason why we are looking at the monthly charts and we are not looking at hourly or daily or even weekly charts.
So I want to look back over the years how has the stock performed and if it has been a very strong stock in the last 5-10 years or so. There is a very high probability that it will continue to compound wealth in the next decade. If that is so then I would want to have that stock in my portfolio because it’s a good use of your money to be in that stock.
Because we are talking about the banking stocks, let’s also look at Kotak Bank. Look at the charts over the last several years. This is a five-year chart right here starting from 2016. We have data beyond that also but you know look at starting from 2015-16 and going on till date you see that once the 10 moving average has crossed the 20 moving average and there has been no looking down even in the time of covid. It did not actually cross down. That’s a very strong signal right over there; it did not actually cross down but touched the 20 ema and moved up again so that tells you something about the stock.
NIFTY PHARMA INDEX – CHART ANALYSIS
I’m not investing in crypto; I don’t understand crypto so I won’t talk about it. I’m not the person to talk about it but I have an understanding of the equity market, so I will stick to that. So we saw the IT index and we saw the Bank Nifty. Let’s look at what pharma is doing. The pharma index has come down in the last couple of months, right down to the 20 moving average. That was a good time to accumulate some stocks in pharma.
You see that it has taken support at the 20 moving average and it is now trying to go up. It is facing some resistance here at the 10 moving average but once it crosses the high of this candle – 13688 – it crosses the high over there, it’s bound to move a little further along the way.
Let’s look at some of the index heavyweights in the pharma sector – Dr Reddy – it’s a dangerous point; we have to wait and watch whether this crosses down over here if you are looking at fresh positions, you want to wait and watch and see whether it is actually crossing down or it will just touch and go back. So let’s also look at Cipla here. This seems to be much stronger and it is consistently moving out at the 10 ema in fact it took a bounce over here right so for those who had accumulated, it went down the 10 ema also for those who would have accumulated at this position it has taken a bounce over here so those two are the most heavyweights on the pharma index.
There are other stocks also. I will not give you stock specific advice. I will not like to do that because as I said in the disclaimer earlier I’m not a SEBI registered analyst and whatever we are doing here is only for educational purpose so we are just looking at charts. I don’t want to give trading recommendations or investing recommendations. What we are looking at is just how to analyze the market so can you can build your own understanding to put your money in a stock. Let’s say, for the next 10 years, what would you want to do? Which stocks would you select? So just to build your understanding on that, we will try to build our knowledge on that.
NIFTY AUTO INDEX – CHART ANALYSIS
Look at the Auto Index. The Auto Index has come down to the 20 moving average on a monthly time frame. Is it a good time to look at these stocks?
Let’s look at some of the heavyweights – Bajaj Auto, Maruti – it is below the 20 moving average. Look at this; it is below the moving average. How has it performed over the last, let’s say, seven years or so? It is gradually going up – not a heavy compounder but gradually going up. It did a cross down over here went up over here and stayed in this position for quite a number of years. But after the Covid crash and after the recovery, it staged a smart recovery and came back over here. So this is probably one of the good stocks that you would like to have; not a major portion of your portfolio but still a good stock to have because over the years you see a decent return on your stock.
Can you see this? What I’m saying is the 10 moving average is not crossing down. It is consistently staying above the 20 moving average and that is the sign of a strong stock. At the end we’ll try to look at those charts. So this is one. Let’s look at Maruti. What is happening with Maruti?
Again, below the 20 ema but I don’t find this, let’s say what is the time over here from 2017 onwards or 2018 onwards, it has kind of stayed in this range. It doesn’t seem to be very helpful right you see this it is staying in this range for the last 4-5 years. So what that means over the last 4-5 years it is not actually compounding but previously it was good. It was going on very well 2013-14 onwards going right up to 2017 but after that there has been a stagnation in this stock. So even though it has come down here to 20 ema on the monthly charts I would not be very comfortable with this stock because of the stagnation over the last 4-5 years. What it means is that it has not compounded money over the last 4-5 years but if it crosses this high over here then we would be willing to look at it again.
NIFTY METAL INDEX – CHART ANALYSIS
The metal index has performed very well over the last few months and it has staged a very great move. So some of the stocks on the metal index are Hindalco. It is a heavyweight. Let’s look at what Hindalco has done over the past months. Look at this – what is happening. You would not imagine a slow stock like Hindalco moving so fast but that’s what has happened here on the monthly crossover. It has moved fast and it is still moving higher, in fact it is that is at an all-time high right now. So that’s how you look at it over the long term. Another heavyweight on the metal index is Tata Steel. Again in the last several years it has been stagnating. Several years 2006 onwards, it is stagnating at this level but suddenly here when the metal index is moving, it is also moving.
Let’s say I want to look at the metal index over the years. It is not quite a thrilling performance. It is going up, going down but here from here on it has moved up really fast. So these are the kind of opportunities that you could spot even in sectors that are boring like the metal sector which actually doesn’t move much but suddenly after the Covid crash and the recovery it has staged a very smart recovery. So you could spot opportunities like this even though they are not actually things that you would want to hold for 10 years or so but you could have a possibility that you can spot the opportunities when they happen.
NIFTY FMCG INDEX – CHART ANALYSIS
Look at the FMCG index. So Marico, Hindustan Unilever are the stocks which are heavyweights on the FMCG index. The FMCG index has not crossed down the 20 ema even in the covid crash when the market was down 40 percent. It has not crossed down and it is still steadily moving upward and it is very close to its 20 ema right now. So we want to look at the FMCG stocks.
What are the FMCG stocks doing? Hindustan Unilever – look at this – it’s going down. You would want to wait and watch on this and see for signs of recovery and when you see signs of recovery it could be a good addition to your portfolio. Let’s also look at Dabur. Wow! Look at that chart.
The Dabur chart has never seen a cross down right from 2013 onwards. It has never seen a cross down and now it is standing right here it is taking support, in fact, on the 20 ema at 540 levels and you know this could be a great compounder for the future in the FMCG segment.
So we looked at the index we looked at the indices and we looked at these stock specific charts based on the indices. Right that’s what we are doing I hope you understand the strategy that we are using over here. Let’s also see Marico. Okay, it did cross down here for a while but then going up, so it has not been as steady as Dabur but is a slow and steady kind of a stock. So you want to look at each of those stocks like we are doing here. So I am telling you the method of looking at the stocks. If you want to look at the stocks then you look at the charts and look at the indices and if you feel comfortable if you feel that in the last so many years it has compounded your wealth then you would be comfortable to take it for the next 10 years. So look at every chart in that manner. Look at every chart, whatever the company is you know BSE or Adani or
Reliance or any other company. Look at the charts.
We actually saw the chart of Reliance but I will just look at it again. Look at what reliance has done over the years. It has remained stagnant here for this long period of time starting from 2000 let’s say 2009-10 onwards to you know 2017-18 to this level. So for 7-8 long years it has remained stagnant. Would you be comfortable or would you wait for 7-8 years before it starts moving? That’s the decision that you want to take but also you also look at the opportunity so maybe you don’t want it to hold it for 10 years but you also look at the opportunity that it is giving a monthly crossover it is a heavyweight on the index. So I may like to allocate some portion of my money to this to this stock and not a major portion but some portion of that money and probably it will give me a decent return over the long term but again you never know.
HELPFUL TOOLS – TECHNICAL SCREENER AND FUNDAMENTAL SCREENER
That’s what we did. We went over the sectors, we went over the stocks and I’ll also tell you a couple of good tools which will help you to find out these things. So these are technical screeners and fundamental screeners. So one of the screeners is chartink.com. You will find a good screener there and you just search for a let’s say 10 20 crossover is what we are searching. What we did a 20 ema so search for a 10 20 crossover and there are some good genius people who have already made the screener here right so you just borrow that 10 20 crossover above. Right click any one of them and you will see the screener okay and we can change it according to our needs. I’m doing a monthly ema monthly close 10 crossed above the monthly ema for 20 and I want to look at nifty 200. 200 top stocks okay and I run the scan so Coal India is the one that comes on the on the screen. Coal India – let’s look at it. It is on the verge of a monthly crossover. It’s almost done here okay so there’s an opportunity over there but would I want this stock for the long term. No i don’t think so because look at look at what it has done it has actually destroyed wealth over the long term. So i don’t want this for the long term but there is an opportunity here happening for those who want to take a call on it. Let’s look at what the volume is suggesting. Quite a decent bit of volume here in the last few months – more than the average volume that it has seen over the past years. There’s quite a decent bit of volume over here so it’s quite possible that this can see a jump over the years or maybe couple of years or so.
So because we are looking at the monthly chart so we are you know we will be expecting the target over a few years okay it is not a small term investment. But would I want this in my portfolio – no. I won’t want this because you know look at how it is going right so this is a way that can you can you can use the crossover. Just for the sake of understanding I’ll take Nifty 500 year although if it were my personal portfolio I would not have gone into a nifty 500. I would want the top 200 stocks. Nifty 500 okay let’s see you know we want to see monthly so we put monthly over here we want to see an exponential average so we do exponential monthly close 10 crossed above the monthly exponential average of 20 right and I run the scan on nifty 500 stocks. There’s no more – there’s only Coal India that’s happening right now but you can keep doing this and over a period of time you will find the stocks coming over as the markets recover. You will see stocks being listed over here.
Screener.in is the other tool that I wanted to introduce you to. This is a good screener for fundamental analysis right so the stocks that you are taking in your portfolio you also want to make sure that they are fundamentally strong. They are giving good results, they are fundamentally strong, the business is strong and you also want to check on that aspect so that is why we can use this tool. It is quite a good tool that is providing a lot of things and it’s available for free. It’s a wonderful tool – look at this, I’m just looking at Dabur. We saw the chart of Dabur it was at quite a good level and look at the roc – return on capital – 27.3 percent. Return on equity is 23 which is quite good and let’s say if you put your money into FD you get 5-6 percent or you’re putting your money in Dabur and the business is earning 27 percent so
that’s how you look at it. The price has actually come down over here and so probably it’s a good time. There are some pros and cons the pros – company is debt-free and so many you know pros and the cons of what has happened uh you know according to their prospective screeners perspective you can have a peer comparison with the other stocks in the FMCG sector you can have a look at it. I like to look at the profit and loss statement over the last 10 years so they see that it starts from right from 2010 onwards and I want to see how it is growing over the last 10 years, the sales, the expenses, the operating profit margin, profit before tax and the earning per share – eps – over here starting from 2.89 in 2010 to 10.39 as on date. And you see the compounded sales growth, the compounded profit, cagr and the return on equity over the past 10 years so quite a good tool uh to use you know for fundamental analysis and then you have the balance sheet, the cash flows, the ratios, the shareholding pattern, who are the promoters, which are the FIIs who have invested into it, which are the domestic institutions that have invested into it over the years and the public shareholding.
So this is this is a good tool for you to check the fundamentals of the company that you want to invest over the long term okay so those are the two tools that i wanted to talk to you about. Chartink – you have the technical screener and for the fundamental screener you have screener dot in.
Thank you so much; those are my connection points.
Let me see if I can answer some questions. BSE for the long term okay let’s look at the chart of BSE. Look at the monthly chart. It has not done well from 2017 onwards when it was listed. It was actually going down. The 10 moving average was going down but now it has recovered and this is a recent phenomenon for this stock. And the volumes have picked up over here and now it has staged a very smart recovery in this post covid stage. You also want to go back to screener and look at the fundamentals of the company. Is it doing well in terms of the roc and the roe. Look at the roc 8.58 percent. Do you want to invest money in a company that you know earns 8.5 percent in its business? Do you want to keep it for the long term? The return on equity is 5.89 which is actually pretty dismal. Okay so here the pros and cons are given over here you want to see the profit and loss over the last 10 years; what is the growth, compounded sales growth – 2 percent, 0 percent, -2 two percent and trailing 12 months is 26 percent. So the the rise here is a pretty recent phenomenon. Personally if you would ask me, I would like to wait and watch and see if the operations of the business is it going to continue well for a slightly longer term and then I would want to decide.
But this this is you know what I’m saying is for the long term. This is not for the short term. What i’m saying right here is for the long term it is not for the short term as i said earlier this crossover can also be a good opportunity for uh you know a medium term uh you know getting in and getting out. But today I just concentrated on long-term stocks which you actually don’t want to sell at all okay that’s the kind of long term that you want to think you want to give it to your children as a legacy you know those kind of stocks those are the stocks and those are the businesses which actually create a lot of wealth in the long term.
Reliance we already saw. Do you have any small case product? We have small case product – those are good products and we are also distributors for small case products. So any basket for the long term? So this is what I would suggest you know – do some work for yourself also. Because my basket would be different from your basket because our risk appetites are different so but I also showed you how to look at the indices and kind of focus on sectors you know right now which is the sector to focus upon you know we saw auto is in a good place, we saw FMCG is in a good place but those are not the most favored sectors in the media right now. Because they are doing they are they are down actually so when you are when you are investing for the long term you want to get it at a good price then those are the sectors to look into and the heavyweights in that sector are the one that you want to accumulate in your portfolio.
So how does PE and PB ratios affect a stock? So we looked at the screener. You can see the stock pe over here which is the price earnings ratio it is 64.3 uh right and the book value is 558. So profit to book value ratio so these are let’s say they are indicators so what the the pe ratio is what is the pe ratio actually telling us it is saying that the earnings per share; the price of the stock is 64 times the earnings per share. That’s what it is saying so you want to look at the company and decide whether you are willing to pay a premium. Let me try to explain it again uh so when you see uh we are looking at the BSE Limited and the stock pe says 64.3 which means that the stock price multiple is 64 for the earnings per share right so the earnings per share is x amount and 64 times that amount is the price of the stock.
So would i be comfortable taking you know buying a stock at that price? That’s what the pe wants to tell you if you’re comfortable because these days the valuation are stretched so you know this pe would not be actually you can you cannot rely on the pe as a sole indicator uh for your investing decision same goes for pb also for the book value those are uh you know good indicators but not in isolation. I’m not investing in the US markets directly but I have you know I invest through etfs and mutual funds into the nasdaq and the s&p 500. I do that so but I don’t know I don’t invest into the US market directly. so yeah see why but one of the good things about technical analysis is that you know you can apply it to any chart so the the we cannot apply i mean the screener dot in does not have a fundamental uh analysis of US stocks but you go look at the charts of the you know of the s&p 500, you look at the charts of the dow jones, so you look at the charts of nasdaq you know look at the monthly charts where are they going are they close to 10 ema are they close to 20 ema? In fact nasdaq is a lot you know has lost a lot of value recently uh but look at those uh or what those indices and then look at the heavyweights in the nasdaq, which are the heavyweights in the nasdaq the Alphabet or the Meta platforms, Netflix and all of the faang stocks. Look at those stocks where are they standing in terms of uh you know 10 ema and 20 ma the same analysis can be done for that and i don’t know of any website that gives the fundamentals but of course on the individual company websites you will definitely find their annual reports and you can look at you know what is the progress uh fundamental progress over the last 10 years or so you can you can analyze those stocks in the same manner. Yes i would not like to predict about the growth possibility of anything but i would like to look at the charts you know prediction is actually you know it’s good you know it is very thrilling and you know you can have goosebumps with your predictions if they go right or not but that’s not the way uh you know that’s not a way to uh what should what should i say it’s not it’s not a very reliable thing no better to look at the charts you have to look at the charts and you see that uh you you see that the 10 ema is going up uh you know let’s invest in that stock you see the 10 ema is going down get out of the stock you know no bias why why what there’s no need to have any kind of a prediction bias uh you see it has been compound if if the stock has been compounding wealth over the last 10 years there is a very good probability that it will continue doing so in the in the next 10 years so you want to take a bet on based on you know the the probability the the best probability but if it doesn’t let’s say it doesn’t and your analysis goes wrong the monthly 10 ema crosses down then get out of the stock find some other stock right there always the universe is wide open.
No I don’t have the chart of the faang companies over here on my trading account over here but maybe you know investing.com or some other website would have that right
Any other questions
So I’ve showed you the basis uh basic uh you know way of which the method on which you can do you can apply it to find companies you can apply uh to Indian companies’ technical analysis is the same everywhere yes you can look at bitcoin also in the same way but bitcoin is you know you it doesn’t have a ten year history uh you know I don’t know if there’s a ten year history on that on the charts that is available uh i don’t think so uh but uh that’s it’s too volatile in the short term it’s too volatile in the short term and uh you know uh you know I would rather if you if you are doing I’m not an expert on crypto so I will not uh you know you know I will not venture to tell you anything about that but you know uh my view is that you know you can look at it for the short term but the long term I don’t think it is there it has not you know the uh there are the charts available for long term I don’t know I’m not into crypto so I don’t know right okay so we’ll end this session over here and uh thank you for joining thank you for asking all this wonderful questions I hope this is helpful and you know I hope that it will help you in your analysis uh we’ll keep sharing on more of these things and you know you if you want to connect and then these are my connection points we’ll see you soon thank you so much bye