IT stocks wilted ahead of third quarter results. According to analysts, top IT stocks witnessed profit booking as the latest US job data failed to provide any positive signal while the rupee moved up 0.22 per cent against the green back.
The BSE IT Index finished with a loss of 1.02 per cent on Friday while the benchmark Sensex comfortably closed the session up 2.38 per cent, after touching its all-time high.
Spending plans
According to Mr Ajay Jaiswal, an analyst with Angel Broking, the IT counters are drifting sideways in absence of clear direction. “All the top stocks are in the midway between their recent lows and tops.”
From January 11 onwards, the quarterly results are likely to come in.
Till then, a drifting price trend could reflect the market’s indecision. There is still no clarity on the US IT spending plans.
But industry insiders said in the next four weeks many of the Key US spenders would firm up their annual budgets.
Mr S. Mahalingam, CFO, TCS, feels though the US financial sector has been through a troubled times in the past quarter, no corporate has said they are reducing spending.
He said that so far the existing rates have not come under pressure.
Till the dollar touches Rs 40 or above, there will be sustained weakness in IT stocks. The market is waiting for Infosys quarterly results and guidance to provide direction," said Mr Vishwas Agarwal, independent technical analyst.
Cost Realities
The guidance by the IT companies is expected to capture the unfolding reality to an extent, according to analysts.
“But until the end of the first quarter of 2008, one may not be absolutely sure how the rupee trend (against dollar) would pan out in 2008-09 and how dollar-denominated IT market would readjust to the emerging cost realities,” said an official with a domestic IT major.
Among the top counters, the fall in Satyam was the biggest at 0.91 per cent, followed by Infosys (0.83 per cent), TCS (0.58 per cent) and Wipro (0.09 per cent).
The average delivery ratio of around 60 per cent in these stocks suggested more of profit booking trend than trading activity.
Understanding Short Term Trading
Before I begin, this blog is not for intraday traders. My definition of short term implies duration of around 2 to 3 months.
Short Term stock picking is no rocket science, but rather a visual interpretation of technical charts. A basic moving average on a time frame chart will show the direction of the securities movement.
Moving averages is a mathematical results calculated by averaging a number of past data points. Moving averages (MA) in it's basic form is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. Once the value of MA has been calculated, they are plotted onto a chart and then connected to create a moving average line. Typical moving averages used for short term trading are 50 MA and 100 MA.
Types of Moving Averages
1) Simple Moving Average (SMA)
SMA is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. The usefulness of the SMA is limited because each point in the data series is weighted the same, regardless of where it occurs in the sequence. Critics argue that the most recent data is more significant than the older data and should have a greater influence on the final result.
2) Exponential Moving Average (EMA)
EMA overcomes the limits of SMA, where more weight is given to the recent prices in an attempt to make it more responsive to new information. When calculating the first point of the EMA, we may notice that there is no value available to use as the previous EMA. This small problem can be solved by starting the calculation with a simple moving average and continuing on with calculating the EMA.
The primary functions of a moving average is to identify trends and reversals, measure the strength of an asset's momentum and determine potential areas where an asset will find support or resistance. Moving averages are lagging indicator, which means they do not predict new trend, but confirm trends once they have been established.
A stock is deemed to be in an uptrend when the price is above a moving average and the average is sloping upward. Conversely, a trader will use a price below a downward sloping average to confirm a downtrend. Many traders will only consider holding a long position in an asset when the price is trading above a moving average.
In general, short-term momentum can be gauged by looking at moving averages that focus on time periods of 50 days or less. Looking at moving averages that are created with a period of 50 to 100 days is generally regarded as a good measure of medium-term momentum. Finally, any moving average that uses 100 days or more in the calculation can be used as a measure of long-term momentum.
Support, resistence and stoploss can be infered by referring the closet MA below or above the market price. The other factor that is used in short term momentum is the trading volume. The moving averages along with the trading volume can provide a better insight to short term movement.
Markets are moved by their largest participants - I believe this is the single most important principle in short-term trading. Accordingly, I track the presence of large traders by determining how much volume is in the market and how that compares to average. Because volume correlates very highly with volatility, the market's relative volume helps you determine the amount of movement likely at any given time frame--and it helps you handicap the odds of trending vs. remaining slow and range bound.
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