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Stock Analysis using Python

 

LONG TERM INVESTMENT

Use Technical Indicators:



KPIPriorityKPIFactorExpectedComment
1SalesGrowth10% plus
2ProfitGrowth12% plus
3Operating Cash flow (Cash flow from Operations)Growth10% plus
4Operating Profit Margin (Gross Profit Margin)EfficiencyIndustry Average
Check with industry
5Most ImportantRoE (Considers only equity)Efficiency15% +
6ROCE (Considers both equity and Debt Capital)Efficiency15% +
7Debt to EquityDebt0.8 or less
In all cases should be less than 1
8Interest Coverage Ratio (EBIT / Interest Expense)Debt3 or more
92nd Most ImpPromotor HoldingManagement50% or more
10PledgingManagementless than 1%
11PE RatioValuationIndustry Average
12PB RatioValuationIndustry Average        

#1, the big five (all should be >10% for last 10 years)
  • ROIC or ROC or ROI
  • Sales/Revenue Growth Rate
  • EPS Growth Rate
  • Equity *or Book Value or BVPS) growth rate
  • FCF growth Rate
OTHER CHECKS
PB <= 1
Dividend Yield (More the better)
PEG Ratio : Lower the better
Current Ratio: More the better
Quick Ratio: More the better
Interest Coverage Ratio: More than 2.5
Graham Number: Price of stock to be lower than this number
Piotrosky Ratio : 7 or More

PEG Ratio


Zone of bulk buying







ENTRY POINTS

Utilize technical indicators (moving averages, RSI, MACD) to identify potential entry points. However, remember that no indicator is foolproof, and they should be used in conjunction with other analyses.

#IndicatorCriteriaComments
1    SMAPrice below SMANA
2RSI<70RSI values range from 0 to 100. Traditionally, and according to standard interpretation, an RSI above 70 is considered overbought, suggesting that the asset may be due for a price correction. Conversely, an RSI below 30 is considered oversold, indicating that the asset may be undervalued, and a price rebound could be imminent.
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SMA

The Simple Moving Average (SMA) is a widely used technical analysis tool in the world of stock trading. It is a trend-following indicator that calculates the average price of a security over a specific period. Here are some key points regarding the significance of SMA on stocks:

  • The choice of the timeframe for the SMA (e.g., 50-day, 200-day) can influence its significance. Shorter-term SMAs react more quickly to price changes, while longer-term SMAs are smoother and provide a broader view of the trend.
  • Purchasing a stock below its SMA might be a strategy for contrarian investors looking for a potential reversal.
  • The SMA can act as a support level in a downtrend. Buying near the SMA might be an opportunity if the stock historically bounces off or finds support around that level. However, it's essential to consider other factors, such as fundamental analysis and overall market conditions.
  • Don't rely solely on technical analysis. Consider the fundamental factors of the company, such as earnings, financial health, industry trends, and any upcoming events that might impact the stock.
  • Your investment horizon matters. If you're a long-term investor, short-term fluctuations may be less relevant. However, if you're a short-term trader, buying below the SMA might be part of a more tactical strategy.



RSI

The Relative Strength Index (RSI) is a popular momentum oscillator used in technical analysis to measure the speed and change of price movements. It is primarily employed to identify overbought or oversold conditions in a market, helping traders assess the potential for a price reversal.

Here are key points about the RSI:

  1. Timeframe:

    • The RSI is typically calculated over a 14-day period, but the timeframe can be adjusted based on the trader's preferences and the market being analyzed.

  2. Scale:

    • RSI values range from 0 to 100. Traditionally, and according to standard interpretation, an RSI above 70 is considered overbought, suggesting that the asset may be due for a price correction. Conversely, an RSI below 30 is considered oversold, indicating that the asset may be undervalued, and a price rebound could be imminent.

  3. Overbought and Oversold Conditions:

    • Overbought conditions (RSI above 70) suggest that the asset may be overvalued, and there is a higher probability of a price pullback or reversal.
    • Oversold conditions (RSI below 30) suggest that the asset may be undervalued, and there is a higher probability of a price bounce or reversal.

  4. Divergence:

    • RSI divergence occurs when the price of an asset makes a new high or low, but the RSI fails to confirm the same high or low. This can be an early indicator of a potential reversal in the current trend.

  5. Trend Confirmation:

    • RSI can be used to confirm the strength of a trend. For example, in a strong uptrend, RSI values often remain in the overbought range for an extended period, reflecting sustained buying pressure.

  6. Centerline Crossovers:

    • The RSI also has a centerline at 50. Crossovers above 50 indicate that average gains are surpassing average losses, suggesting bullish momentum, while crossovers below 50 suggest bearish momentum.

  7. Use in Conjunction with Other Indicators:

    • Traders often use RSI in conjunction with other technical indicators and chart patterns to make more informed trading decisions.





HOW THESE CAN BE UTILIZED FOR STOCK PRICING

Moving Averages:

  1. Trend Identification:

    • Moving averages help identify trends and filter out noise. An uptrend is often characterized by the price trading above a moving average, while a downtrend is indicated by the price trading below.

  2. Crossovers:

    • Use moving average crossovers as potential entry signals. For example, a "Golden Cross" occurs when a short-term moving average crosses above a long-term moving average, suggesting a potential bullish trend. A "Death Cross" is the opposite.

  3. Support and Resistance:

    • Moving averages can act as dynamic support or resistance levels. Look for price bounces or breakouts when the price interacts with a moving average.

Relative Strength Index (RSI):

  1. Overbought and Oversold Conditions:

    • RSI values above 70 indicate overbought conditions, suggesting a potential reversal or pullback. RSI values below 30 indicate oversold conditions, suggesting a potential rebound.

  2. Divergence:

    • Look for divergence between RSI and price movements. If the price is making new highs, but the RSI is not confirming, it may signal a weakening trend and potential reversal.

  3. Centerline Crossings:

    • Watch for RSI crossing above or below the 50 level. Crossing above 50 may indicate bullish momentum, while crossing below 50 may indicate bearish momentum.

Moving Average Convergence Divergence (MACD):

  1. Signal Line Crossovers:

    • Pay attention to MACD line crossovers with the signal line. A bullish crossover (MACD crosses above the signal line) may signal a potential buying opportunity, while a bearish crossover (MACD crosses below the signal line) may suggest a potential selling opportunity.

  2. Divergence:

    • Similar to RSI, look for divergence between MACD and price movements. Divergence can signal potential reversals or shifts in momentum.

  3. Histogram Analysis:

    • Analyze the MACD histogram for changes in momentum. Increasing histogram bars indicate strengthening momentum in the direction of the trend.

General Tips:

  1. Confirmation with Other Indicators:

    • Use multiple indicators to confirm signals. For example, if a moving average crossover aligns with an RSI signal, it may strengthen the validity of the entry point.

  2. Consider Timeframes:

    • Adjust the timeframe of your analysis. Shorter timeframes (e.g., intraday) may generate more frequent signals, but they can be more prone to noise.

  3. Backtesting and Paper Trading:

    • Before implementing a strategy, consider backtesting it with historical data or practicing with a paper trading account to evaluate its effectiveness.

  4. Risk Management:

    • Implement proper risk management strategies, such as setting stop-loss orders, to mitigate potential losses.






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