Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance Security Analysis – II - Question Paper

This is only 1 case but there are many cases like this. Ketan Parekh also rigged the price of Global Trust Bank’s (GTB) scrip in league with its promoters before the announcement of the decision to merge GTB with UTI Bank. SEBI has identified clear evidence of insider trading, price chains and circular trading in the stock exchanges. While a part of the money came from the promoters and brokers, a larger part was derived from illegally diverting depositors’ money from banks such as the Madhavpura Bank. But still a more clear and quiet investigation is needed in the insider trading cases on the part of Securities and Exchange Board of India.

Caselet 2

learn the caselet carefully and ans the subsequent questions:

9. explain the support and resistance level with the help of demand and supply theory and also discuss how bulls and bears affect the support and resistance level.

(8 marks) < ans >

10. There are a few principles to be kept in mind while applying support and resistance lines for pattern analysis. explain these principles.

(8 marks) < ans >

A tech. analyst sits with a lot of charts to conclude trends by viewing how a stock is being traded in a certain period of time. By employing complex statistical tools, analysts study the graph of stock price and its volume traded over a period of time. After all this efforts an analyst expect the graph to tell about the increase or reduce in the price of the stock. Such kind of analysis moreover looks in support of certain price levels in a stock’s performance in the past e.g., 52-week high and the 52-week low. These levels infer about the highest and least price of the security for the past one-year. The 52-week low is called the support level as it is generally believed to be the 'support' level beneath which the stock's price shouldn’t fall other than there is something fundamentally wrong in the company. Simply, support is the floor level, beneath which the stock price cannot fall and resistance is a ceiling price level above which the price should not increase. When the price of the security break through a support or resistance line, the traders will drive the price to the new price level. When a resistance level is penetrated and successfully tested, it becomes a support level and vice-versa.

Investors usually buy the stock at support line in anticipation of increase in prices and sell the stocks at resistance level expecting the price to come down. Mostly these support and resistance level are triggered through fundamental modifications that varies with expectation and also through psychological factors. The foundation of most tech. analysis tools is rooted in the concept of supply and demand. In almost all charts support and resistance level are the most popular. It is always wise to again take a note of new facts after the support /resistance level is broken. For example, if there is a breakout above the resistance level, 1 should again analyze the new pattern and should consider new fundamental and then may think about selling the stock. This creates an observable fact that is referred to as "traders’ remorse": prices return to a support/resistance level subsequent a price breakout. The pattern of price line after this period is important. There is a possibility of 2 things here. Firstly, if the expectation is defensive then the price will move back to the earlier level and secondly, if the expectation is positive, then the price will continue on in the identical direction.

Earning:   Approval pending.