The Hindu Business Line : Tech Tools

Please tell me what role is played by F&O cues in technical analysis. How are they related to each other? Also let me know the patterns that are formed on charts, when a stock is in both medium-term and long-term uptrend. Sameer Grover

The derivatives segment in the stock market gives some additional pointers to the trader that helps him to gauge the strength or the lack of it in any stock. This aids in his decision to initiate, hold or exit any position.

Most technical analysts watch the open interest build up/liquidation in a stock or index. Open interest represents the total number of options and futures contract that are not closed or delivered at the end of a particular day.

Tracking the open interest of a particular stock over a period would give clues about the stocks that are gaining favour and those where the traders are losing interest. An increasing open interest would signify that a significant spurt could be in the offing, as traders are accumulating futures and options.

Decreasing open interest would suggest that traders are losing interest in the stock and they are moving out.

The other cue that helps technical analysts is the premium or discount at which the derivative instrument trades when compared to the spot price. If the price of the future is greater than that of its underlying, it is said to be trading at a premium.

This denotes that the price of the stock is expected to move higher in future, so the traders are willing to pay a higher price for the future.

On the other hand, if the future price is lower than the underlying, it would denote bearishness and that the traders expect the stock price to move lower. An increase and decrease in the premium and discount can also be a measure of the sentiment changes in a particular stock or index.

The turnover in the derivatives segment is the other pointer that traders can watch out for. Significant spurt in the turnover of a stock future would also denote that the stock could see some action in near future.

Implied volatility and historical volatility of stocks and indices are factors that more seasoned traders and technical analysts study to help in understanding the direction in which a stock or index can move.

There are no specific patterns that are identified with a stock in a medium-term and long-term uptrend. Such stocks consolidate sideways for a while forming a flag or a pennant and then move higher.

But there are some technical tools that help in identifying stocks in a long-term or medium-term uptrend. Stocks in a long-term up trend trade above their 200-day moving average lines and their long-term trend lines.

Stocks in a medium-term up trend need to trade above the 50-day moving averages and the medium-term trend lines.

I hold shares of Dabur India. What are the long-term and short-term support and targets? Ramesh

Dabur (Rs 151.8):

The market correction in May and June last made the stock fall 38.2 per cent from its high of Rs 173. But the long-term trend in this stock continues to be positive. Target for the long term would be Rs 184 and then Rs 208. Long-term support for the stock would be at Rs 135.

For the medium term, the stock is moving in an upward moving channel. The upper boundary of this channel is positioned at Rs 167, which would act as a medium-term resistance for the stock. The lower boundary positioned at Rs 140 would act as a medium-term support.

Lokeshwarri S. K.

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