Archive for December, 2008

Waves India hits 74% accuracy

If you ask a Behavioral guru to define accuracy this is what he will say. The difference in forecasted and actual is accuracy. According to fractal geometry, this is an incomplete information. It’s the degree that you are studying, which will define accuracy. Degree, meaning the time frame, multi month, multi week, multi day, multi hour etc. Accuracy on different time frames will be measured differently, and this is one huge gap in the subject of behavioral finance, as it does not define the concept of degree.

WAVES.INDIA studies intermediate (multi week) to minor degree (multi day) price trends. And in the last one year, we have made 13 intermediate forecasts and near 40 minor trend forecasts. We have measured accuracy on intermediate time forecasts. All our reports talk about levels and it’s the levels, which judge how accurate we are. We have pulled out the levels along with the trends and compared forecasted with actual. An average actual intermediate move was 23% large. The total absolute actual move on Sensex for the year (both up and down intermediate trends) was at 330%. WAVES.INDIA captured 240% of this total move. The market letter captured average 17% of the 23% move. This gives us an accuracy of 74% for the year. We have detailed out the reports, the dates, the Sensex levels and have tabulated all of them in a tracker.

Our preferred positive view was challenged during the week, as prices pushed below SENSEX 9,500 levels. Now prices have moved back up again. TICKS.INDIA members were updated with the SENSEX DAILY KEY REVERSAL on 29 DEC (SLIDE 1). We are back on preferred positive again. And immediate resistances are the open gaps lying at 9894 levels. Above this we have no doubt, regarding the first positive week in JAN 2009.Enjoy the latest WAVES.INDIA ACCURACY REPORT 2008.

Happy New Year

ORPHEUS INDIA RESEARCH

WAVES.IND. is a perspective product published on Monday and Wednesday. The report highlights Indian Stock Market top sectoral Indices and Sensex (BSE 30) viz. BSEOIL, BSESC (Small Cap), BSEMC (Mid Cap), BSEHC (BSE Health Care), BSEPHARMA (Pharmaceuticals), BSECG (Capital Goods), BSEBANK (Banking), CNXIT (Technology), BSEFMCG (FMCG), BSEAUTO (Auto) etc.. The product also covers all the 30 Sensex components. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools, sentiment indicators and other alternative research tools like INTERMARKET to spot outperformers.

Reuters RICS. STOCKS. MAHM.BO, MRTI.BO, LART.BO, TAMO.BO, ACC.BO, ABUJ.BO, GRAS.BO, HDBK.BO, ICBK.BO, SBI.BO, HALC.BO, RLEN.BO, BHEL.BO, HLL.BO, NTPC.BO, SATY.BO, TCS.BO, INFY.BO, WIPR.BO, BJAT.BO, ONGC.BO, RELI.BO, RANB.BO, CIPL.BO, DLF.BO, TISC.BO, ITC.BO, BRTI.BO, RLCM.BO

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Orpheus Global Accuracy Report 2008

In a time of dismal performances, it’s tough taking credit for accuracy or capturing real alpha. WAVES.GLOBAL annual issue takes you through a complete year of work. The report which was started on 06 JAN 2008 started on an accurate note capturing the negative JAN (The JAN effect) and closes the year also on the right foot with its last positive call on 20 Nov 2008 (Selling the Trough) with DOW up 16% in barely a month.

Of all the indices we tracked viz. DOW (US), S&P (US), DAX (Germany), FTSE (UK), FCHI (France), IRTS (Russia), SSEC (China), BVSP (Brazil), BSESN( India) and NIFTY(India), we should admit, DOW was the toughest to track. The tracker (SLIDE 1) gives some explanation for this. Despite being the one creating the most negative news, DOW remained one of the top performer of the year with 35% loss YTD compared to say IRTS with 72% drop in value. When you compare markets around the world together as a group, it needs utmost emotional control to judge polarized performances i.e. being positive on one and negative on the other. This happened on many occasions during the year when we remained positive on the Russian and Brazilian Index, while negative on the rest (Emerging Cues). It was this polarized action which really kept us toiling throughout the year, analyzing the DOW and other market fractals week after week. It was on 28 Jan, after DOW hit anticipated targets (11,500) mentioned in the debut report (06 Jan), we saw a lot of oscillation around psychological 12,000 levels. We remained with a preferred positive view, looking at 12,000 as key levels to shift to the alternate negative view. And it was on 10 Mar and later on 17 Mar, near 11,500 levels that we first talked about the possibility of 7,750 levels. This is what we said on 10 Mar (DOW 12,000).

“We are entering the second week of MAR with a clear break at 12,000 DOW. This is not only a psychological break, but a break of high significance. The respective level was last breached in NOV 2006, and marks a seven year support. A lower close in MAR will also make this the first negative quarter out of the 33 year CYCLE impulse CHANNEL. After 12,000 DOW, the last support standing is at 11,500 prices. Below which prices could head to 10,000, which are CHANNEL DUPLICATION targets. 11,500 is also a FIBONACCI confluence and it’s tough to anticipate any ALTERNATE positivity if prices clearly move through these levels till DOW 10,000 breaks. After which historical highs might become fiction for a few decades.”

What happened was faster than we anticipated. We expected some supports at DOW 10,000 levels, but market surprised us, as it always does. The DOW was catching up with lost time. 30 Jun we illustrated the break at conventional supports. Then it was on 26 Aug we talked about OCT lows. Though OCT lows were marginally breached our positive call near DOW 7,550 levels continued to hold.

DAX was simpler. It was on 06 Jan we talked about targets 30% lower near 5,500. What happened was clock work. While CHINA was preparing for Olympics, we were talking about negativity on SSEC on 11 Feb. At 4,672 we were talking 36% lower at 3,000. We definitely were alone. Today Nikkei closed for the year, registering the worst ever year. But it was on 06 Jan we talked about 50% lower targets at 8,000. After we shifted from the preferred correction view to alternate negative view on 26 May, Indian markets continued to move as anticipated. Brazil made a new high, and only topped in July 2008. A rising market against a global slump was not easy to go negative on. But negative price confirmation and a primary channel break at 60,000 also put us back on BVSP. WAVES.GLOBAL’s best forecast was on Russia. We were right on top of IRTS and captured the complete move till 600. We have carried a complete snapshot with some latest updates on the Indices. We don’t see a negative JAN at this stage. Have a great new year.

Enjoy the latest WAVES.GLOBAL

WAVES.GLOBAL - WAVES.GLB is a perspective product published on Monday. The report highlights top GLOBAL indices and emerging market indices viz. Dow Jones Industrial (.DJI), S&P 500 (.GSPC), German DAX (.GDAXI), Russian IRTS (.IRTS), Shanghai Composite (.SSEC), Nikkei 225 (.N225), Brazil BOVESPA (.BVSP), Indian Sensex (.BSESN). The product covers all the DOW 30 stocks. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools, sentiment indicators and other alternative research tools like INTERMARKET to spot outperformers and market trends.

REUTERS RICS: .BVSP, .IRTS, .FCHI, .GDAXI, .GSPC, .DJI, .N225, .SSEC, C.N, JPM.N, BAC.N, AXP.N, AIG.N, DIS.N, HD.N, GM.N, VZ.N, T.N, INTC.OQ, MSFT.OQ, HPQ.N, IBM.N, UTX.N, CAT.N, GE.N, MMM.N, BA.N, KO.N, MCD.N, WMT.N, DD.N, PFE.N, MRK.N, CVX.N, XOM.N, PG.N, JNJ.N, AA.N

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The uncertainty bias

The Oct low we talked about held against all odds. A strange time cycle held against all conventional knowledge, which failed. And now that 2008 comes to end, we can sum up a few gaps in generational thinking which concerns us as a society and as economic beings. On one hand the experience is overwhelming because the ideas overlap most areas of study viz. economics, finance, history, psychology, mathematics, sciences, time cycles and art. But on the other it’s no short of revolution in research to be able to comprehend, interpret and derive applied predictive tools from such a vast scale of research areas. It may take another generation for us to look for convergence in ideas. And there are things we may never understand. But then it’s the quest that leads to solutions and differentiates one society from the other.

Though Adam Smith’s Capitalistic model stands challenged, we have had no alternate system that has stood so long. Even some long standing socialistic systems have taken elements of capitalism and witnessed enhanced prosperity. Karl Marx’s idea of capitalism as a system prone to cyclical crisis was true. But still the system has survived and lived, more than any mortal soul today. We are sure, human race will move beyond this model, but this is too farsighted a thought for us as a myopic society.

Charles Dow started modern finance discovering a fractal, without knowing it was one. Elliott an accountant by profession rediscovered that markets were fractalled. He redefined the Dow Theory with his principle. But even Elliott despite his fractal observation only later started connecting it with Fibonacci mathematics. Both Charles Dow and Elliott mentioned about social behavior aspects along with their theories but did not quantify behavioral finance like Daniel Kahneman did with the prospect theory.

Father of fractal geometry Mandelbrot may have coined the term fractal, and proved them mathematically, but he only extended the work of Dow, Elliott and Gaston Julia. And if all these connections seem strange coincidences, the fact that Eugene Fama, the father of Efficient Market Hypothesis was a doctoral student under Mandelbrot should surprise fractal practitioners and fundamentalists who might consider themselves from different school of thoughts.

But this is where the gap lies. Mandelbrot’s M set has become popular outside mathematics both for its aesthetic appeal and for being a complicated structure arising from a simple definition, but this has not really pushed Elliott structures forward to a similar popularity. It’s this lack of convergence of market fractals with the M set that has also pushed the fractal work done by Thomas Malthus and Verhulst as peripheral despite being part of the same extended thought.

This is not the only disconnect. Fractals are growth, decay structures, whether we take the M set, Elliott’s Fractals or Verhulst’s ‘S’ curve, they all convey the natural process of growth and decay, which is cyclical. Not many attempts have been made to connect cycles with fractals. Tony Plummer, cyclist, makes an attempt of explaining Elliott fractals through cycles. But this is such a nascent area that even experienced cyclists admit they have never thought about Elliott being a footnote in the larger subject of cycles. In crux market fractals being a subset of market cyclicality.

The discontinuity extends, when you read the work of physicists like Eugene Stanley from Boston, who has written many papers on power law in markets extending the thought of Kingsley Zipf, the linguist who first proved the power law relationship in popular words spoken in the language, 150 years back. Though we have proofs of power law governing us in nature and markets, we never as academicians, practitioners and scientists thought of power law in cycles. Plummer despite his comprehensive attempt on Cycles fails to talk about it. We at Orpheus link Cycles with Fractals with Mathematics suggesting Cycles as the finality above fractals. Cycles also reinforce the thought we mentioned regarding history being modelable as a science.

Robert Prechter might disagree with the fact that we place cycles over fractals. Prechter also calls Elliott a science and not art. We disagree, as cycles are about two things periodicities and patterns. Watching an understanding a pattern will always be an art and not a science. This is where we come to the other aspect of mathematics.

George Cantor theorem implies the existence of an infinity of infinities. Cantor’s theory of transinfinite numbers was regarded as so counterintuitive - even shocking that it encountered resistance from mathematical contemporaries such as Henri Poincare. A few saw Cantor’s work as a challenge to the uniqueness of absolute infinity in the nature of God. Poincare referred to cantor’s ideas as a grave disease infecting the discipline of mathematics. Some even went ahead and called him a “Scientific Charlatan”, “renegade” and “corruptor of youth” , “utter nonsense”, “laughable and wrong”. The debate cantor opened is also a cyclicality linked with the subject of Mathematics, which illustrates order and chaos. We humans are scared of the uncertain and it’s only when we overcome the fear that we understand how little we know.

This is where behavioral finance comes in. The subject illustrates the errors in our thinking. We mentioned about aversion to ambiguity (uncertainty aversion), which describes an attitude or preference for known risk over unknown risks. It is demonstrated in the Ellsberg paradox i.e. people prefer to bet on a box with 50 red and 50 blue balls than one with 100 total balls but where the number of red or blue balls is unknown. The probability of winning on a bet remains unchanged in both cases. But still we prefer betting on familiar scenarios over unfamiliar territory.

Behavioral finance researchers have also found that we as humans process uncertainty of risk and time similarly. This means that we don’t think rationally when future is uncertain and when time aspects (return to certainty) are unclear. This bias has proven to be expensive in markets both in terms of actual losses and opportunity loss. The aversion to uncertainty also explains why we as masses need more information. More information is generally considered as removing future uncertainty or ambiguity as it creates familiar ground. But still this does not change the underlying risk and return. The news efficiency also has been challenged. It has been proven statistically that more information is necessarily not efficient.

Behavioral finance has junked 200 year of economic thought just because the psychologist were not scared of challenging economists at an unfamiliar territory. And still this does not mean that Behavioral gurus will not be challenged. Hersh Shefrin mentions about predictability being an illusion. He also talks about the limitation of behavioral finance to predict and forecast and time markets. This is not true. Fractal watching can give unprecedented accuracy. This is why Behavioral finance is incomplete without connecting fractals with the subject. Stand alone sentiment surveys also have predictive elements. Comprehending and connecting the idea of patterns and psychology might be unfamiliar to the current generation of behavior finance experts.

Challenging a thought is not easy. We will always challenge the new, as we love certainty. But there is never a certainty, it’s a bias. The research revolution is ongoing and it will keep changing the way we think. Prechter’s thoughts about Economics being different from Finance might just be a research paper now, but this is the economics our children will read. Conventional research may not die, but it will become marginal, as the thought process of the society will migrate ahead. Predictability is much ahead of stories, even if we like stories. And even predictability is not fool proof, as we will always have a chaos, which will tell us that we know nothing about the world we live in.


INFLEXION LEVEL Q109

We have been waiting for this set up since OCT 2008 low. It was easy to look for a bounce from 27 OCT market low. There was historical volatilities, extreme momentum and global panic. Though choppy, we got the anticipated bounce. And what a bounce it was, gapping, sideways and slow. Prices have almost lost two months of trading action, stressing brokers and testing market patience. And now we barely reached 5 NOV highs and the market structure started looking weak again. Along with the bounce, we anticipated this choppy action too, when we wrote ‘Weak A, Phony B, Missing 1’. Now that the phony B is behind us and C up has started to crack, we would like to review the overall market structure.

Every fractal structure can be labeled as A-B-C or 1-2-3. It’s only after three legs are complete that we understand whether the move is a trend or a counter trend. When after the third leg i.e. a C or 3, markets begin a new impulse in the opposite direction (a clear five), we can clearly say that the previous three legs were A-B-C and not 1-2-3. On the other hand if after the third leg (C or 3), markets start to get choppy and fail to move in the opposite direction, despite negative news, we can assume an ongoing 4 wave structure, with a final 5 still pending.

We are at the same inflexion now. Sensex and NIFTY don’t have much space lower to move. If we are indeed in a coiling 4 and not a real reversal, markets should turn up now. SENSEX and NIFTY should continue to hold above 9500-9600 and 2920-2930 respectively. A move down from here would dash all OCT low hopes for a sustained move and we will brace up for a retest of OCT lows and possibly continued negativity in first quarter. This seems to be a low probability scenario for us at this stage. We think markets are in a potential 4 wave, which should find buying interest with every marginal dip.

NIFTY gaps, mid channel intermediate supports, weak sectors like CNXIT still above OCT lows and sideways structure on BSEOIL and BSEBANK validate our preferred view. Whether our preferred view is correct and we are in a 4 wave, should be clear tomorrow or a day after Christmas. We are expecting Santa to get a rally. These are tough times to expect too much, but we will pray.

Enjoy the latest WAVES.INDIA

Merry Christmas
ORPHEUS INDIA RESEARCH

WAVES.IND. is a perspective product published on Monday and Wednesday. The report highlights Indian Stock Market top sectoral Indices and Sensex (BSE 30) viz. BSEOIL, BSESC (Small Cap), BSEMC (Mid Cap), BSEHC (BSE Health Care), BSEPHARMA (Pharmaceuticals), BSECG (Capital Goods), BSEBANK (Banking), CNXIT (Technology), BSEFMCG (FMCG), BSEAUTO (Auto) etc.. The product also covers all the 30 Sensex components. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools, sentiment indicators and other alternative research tools like INTERMARKET to spot outperformers.

Reuters RICS. STOCKS. MAHM.BO, MRTI.BO, LART.BO, TAMO.BO, ACC.BO, ABUJ.BO, GRAS.BO, HDBK.BO, ICBK.BO, SBI.BO, HALC.BO, RLEN.BO, BHEL.BO, HLL.BO, NTPC.BO, SATY.BO, TCS.BO, INFY.BO, WIPR.BO, BJAT.BO, ONGC.BO, RELI.BO, RANB.BO, CIPL.BO, DLF.BO, TISC.BO, ITC.BO, BRTI.BO, RLCM.BO

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Heuristic Bias and the Forex Markets

The first question asked to me as a forecaster by a foreign investor few years back was not on Gold or Oil or India, but on Euro Dollar Forex rate. Such is the engagement with Forex that internationally Forex is the top traded asset. And after the equity preoccupation has reduced with the equity slowdown, this engagement with Forex has only increased. We see online trading platforms for Forex spurting out each day, enticing investors to put a few 100 dollars and allowing them to trade with a leverage of 100. A 500 dollar put in by a small investor can play up to 50,000 dollars of exposure. The preoccupation or excessive speculation in the Forex market is not just owing to these daring day traders. But also because of the normal investor on the street, who is using a different kind of leverage, the credit leverage. The idea that lending Euros is easier as it comes with a 3-5% interest rate compared to say the Romanian Lei, with a double digit rate, invariably pushes the investor to borrow in Euro.

This heuristic bias, or thumb rules are also extended to the fact that Euro is inherently considered stronger than many emerging market currencies, so a loan in Euro is perceived better than that on a local emerging currency. Be it the real estate owners, tenants, builders, or simple personal finance purchasers, the Euro bias is a part of the large global credit character. Moreover, even if one is not a trader, there is a monthly car installment or mortgage to pay, less or more is the preoccupation that increases and decreases as the rate fluctuates. A local currency exposure is less adventurous and exciting when you have something international or global to speculate on.

Similar cases have happened in other economies around the world like Indonesia and Thailand before the South East Asian crisis when two-thirds of the region companies had 40% of their debt in foreign currencies. The text book case of interest rate arbitrage traps a majority of the Forex users who fail to see beyond the interest rate differential. What happened after the South East Asian crisis was an 80% collapses in currency values in Asia and the collapse of the Turkish Lira in 2001, old stories from econohistory. The excessive speculation in Forex happens both in normal and extraordinary times.

A search on the Turkish crisis in 2001 will take you all over the information loop regarding the political crisis, the deficit, inflation etc. And it’s a rare research blog or institution that will illustrate the steps that led to the currency crisis. What happened in Turkey too was also the classic case of Turkish Banks performing interest rate arbitrage. This positioned the local bank’s profitability in the foreign hard currency. The arbitrage activity could have continued as long as the exchange rate at the end of the period did not change radically against the banks. A severe devaluation, which was not expected happened and forced the lira 36% down in two days.

These cases have a limitation when we look at the Indian subcontinent owing to “convertibility issues” or to the very fact that we still have not got used to trading currency as masses. This has its advantages. But that’s changing, as India learns to speculate on the Rupee Futures. We also have a large corporate trading based on forwards. Forward bias is another illusion. Ideally and conventional wisdom might suggest that a forward premium in the Forex market would be indicative of direction the currency might take in the coming trading days. But research has proved that forward rates are a poor predictor of future rates. No wonder surveys have shown traders betting against the forward rate. Even futures premiums and discounts on equity side perform dismally as predictive tools. Hersh Shefrin in his book ‘ Beyond Greed and Fear’ raises the question about profiting from betting against the forward rate. He proves that the prediction of error tends to move in cycles. When the error is positive, it tends to stay positive for a while before turning negative. Once negative, it stays negative for a while. Forex traders overreact, bet on trends and are overconfident making Forex market as inefficient as any other asset class.

According to Shefrin, it’s not greed and fear, but hope and fear. We all commit forecasting or investing errors because a majority of us rely on rules of thumb (heuristics). Conventional research is primarily extrapolation. We don’t live in a rational environment i.e. the world we live in is not error free. This is why the most exciting of riskless arbitrages have brought economies and companies like LTCM (Long Term Capital Management) crashing. This is why conventional Long and Short funds have failed, despite being market neutral. In a research paper published in the July 1985 issue of the Journal of Finance, De Bondt and Richard Thaler, argue that investors overreact to both bad news and good news. Therefore, overreaction leads to past losers becoming underpriced and past winners becoming overpriced. Heuristic biases are ubiquitous, germane and very expensive.

Shefrin classifies the Heuristic biases in his book. Availability bias is like the first recall, what comes in mind first seems right. Representativeness, suggests investors become unduly pessimistic about prospects of past losers, which turn out to give exceptional returns. Regression to mean is a bias too, as historical average return on equity does not mean much for equity performance in the near future. Historical averages or regression to mean is a bias with little predictive ability. Overconfidence and accuracy generally does not go hand in hand. When people are overconfident, they set overly narrow confidence bands and end up being “humbled” and surprised. Aversion to ambiguity bias explains why people prefer the familiar to the unfamiliar. Bailouts don’t happen to save the world from the crisis, but more because people are scared of fathoming the depth of the unfamiliar ground. Emotion and cognition…first we did not expect the markets in India to crash, now that they have crashed a majority of the investors might spend years worrying about it that it may happen again.

Heuristic biases are also the reasons why conventional research gets surprised. Past performance is the best indicator of future performance is a heuristic error, generally imperfect. The best way to analyze extrapolation and accountability of conventional research is to look at inflexion points. Look at Yen Dollar rate and press releases issued by the Bank of Japan and the top researchers in JAN 2007 when the pair was ruling at 122 and this is what news the search might get…“In Tokyo, the yen dropped following the BOJ’s rate decision to leave interest rates unchanged” This as we know was followed by the historic strengthening of the yen against the dollar. And now change YEN with INR and look at 15 Nov 2007 Rupee levels at 39 and hit search and you might get a Reuters Poll on the same date. Axis, Bank of America, Bank of Baroda, Bank of Nova Scotia, BNP Paribas, Calyon, Citigroup, DBS, Deutsche Bank, HDFC Bank, ING Vysya Bank, JP Morgan, Kotak Mahindra, Lehman, NCDEX, Royal bank of Scotland, Standard Chartered Bank, State Bank of India and Syndicate Bank participated in poll. All of them were forecasting INR for DEC 2008. They were nearly in consensus of where the rupee should go after a year. The Median was 37.63 (highest 41 – lowest 36.6). What happened was 50.58. We at Orpheus are not free from heuristic errors and bias. But we are trying.


WTM VS BRENT

These are many different qualities of crude that move in sync with each other. But despite being such a highly correlated pair, they have a cycle of performance and underperformance against each other. For example, every 6-9 months, WTM makes a cycle low against BRT. A similar cycle periodicity shows on crude prices also. In three weeks, this cycle between WTM and BRENT should also bottom. And when it does, this should be accompanied by an inflexion point on crude prices too.

Individually, though prices have held above recent bottoms, basing might take some time. WTM momentum is positively non confirming (SLIDE 2) and is over reactive. BRT seems to form a corrective structure above 40 (SLIDE 3). XLE continues the sideways action. While Indian energy majors i.e. Reliance and ONGC suggest minor positivity. We have also carried OMV and VERBUND, which are near key multi year supports.

However, the American OIL majors XOM and CVX, have pushed up to key resistances. We need a clear break above respective levels to look for further upside.

Above 40 reversal on OIL does give us a good turn around case. And we continue to look higher on OIL.

Enjoy the latest WAVES.OIL
ORPHEUS GLOBAL RESEARCH

WAVES.OIL is a perspective product published once a week. The report covers BRENT, WTM, XLE (Energy SPDR), top energy stocks, Natural Gas and related FUTURES. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools and sentiment indicators.

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WAVES.ROM COMPLETES 2008

WAVES.ROM was started in 2005 and has three historic years of Romanian markets behind it, a euphoric rise till 2007 and now a historic crash. International readers and local readers who have been with us all this while have seen us on the trend and thrown off the trend. It’s always a challenge to read the markets mind.

We clearly remember DEC 2006 and DEC 2007. DEC 2006 was followed by a JAN EU entry euphoria and DEC 2007 was followed by the excitement that markets will catch up after falling since JULY 2007 and the worst would soon be over. What happened may not be easy to shake off from the mass memory, as we humans link a lot of emotion to disaster. This is why disaster is remembered more than euphoria.

There was also the JAN effect, which saw markets ending negative for the month, trashing many years of positive JANUARY. We are still expecting the markets to hold above OCT lows, which they have done till now. And even if it’s not for the SIF’s stocks like SNP, TEL, BRD, TGN should be forming substantial bottoms starting OCT 2008. We will be mailing you the FRACTALS ROMANIA, Orpheus Accuracy report 2008 shortly.

On a concluding note. There are very few who would like to buy now for JAN 2009. And this from a sentiment point is an extreme. This also validates our view that we are alone yet again, like we were in DEC 2006 when we said that the big bear market of a year and a half is coming. How much can we remain on the market in the critical 2009 remains to be seen. But we will still could bank on our reader’s wishes for the new year and Christmas to keep us on the right foot more often.

HAVE A MERRY CHRISTMAS and PROSPEROUS NEW YEAR 2009

Enjoy the latest WAVES.ROM

ORPHEUS ROMANIA RESEARCH

WAVES.ROM is a perspective product published on TUESDAY’S and THURSDAY’S. The report highlights Romanian Stock Market top three Equity Indices viz. the top ten blue chip BET Index (.BETI), BET Composite (.BETC), the Financial Index BETFI (.BETFI) and the local currency RON (EURRON=, RON=). The products covers the top ten BET component stocks. (ROMP.BX, SNPP.BX, BATR.BX, BRDX.BX, TSEL.BX, ATBE.BX, BRKU.BX, BIOF.BX, IMPT.BX, TUBU.BX) and all the components of BETFI Financial Index(SIF2.BX, SIF5.BX, SIF3.BX, SIF1.BX, SIF4.BX) are covered in the report. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools, sentiment indicators and other alternative research tools like INTERMARKET to spot outperformers. WAVES.ROM, CHANNELS.BVB and CHANNELS.RASDAQ are bundled together as PERSPECTIVE products. Unlike WAVES which focuses more on blue chips, CHANNELS covers all the BVB and RASDAQ stocks.

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BSE METALS touch base

STEEL and ZINC have held on above previous lows. This is the kind of activity we expected after SILVER started giving leadership signals last few trading weeks. Hindustan ZINC the metals major has turned from 0.786 all time FIB and also has witnessed intermediate RSI turning above 40 (SLIDE 1).

The metals complex remains at key inflexion levels and the next few months decisive in terms of the commodity boom and the economic cycle. We feel both Hindustan Zinc and NSTL (NIKKEI Iron and Steel) are good proxies for their underlying metals and are at potential turn around levels.

As anticipated Platinum is also moving sideways (SLIDE 9) and SILVER has failed to push to a new low. SILVER also has a positive momentum setup on both SILVER SPOT INDIA and XAG (SLIDE 7).

Anticipating Gold to keep sideways to negative and rest of the metals sideways to positive is indeed a tough call. But this is what relative performance is all about. Gold is back at key inflexion points of multiple weeks at 830-840 levels. These are not only MINOR FIB projections, but also key conventional resistances. A break at respective levels on a weekly basis can see Gold back at 900.However, we would still need further positive price confirmation to look that far. The overall formation from key primary supports at 720 still looks corrective to us and there is no momentum confirmation too. And above that we have the GOLD CYCLE illustrated in detail in the INTERMARKET CYCLES GLOBAL report, which still points lower. We will take it level by level.

Enjoy the latest WAVES.GOLD

WAVES.GOLD is a perspective product published on Monday and Wednesday. The report highlights GOLD and other precious and base metals. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools, sentiment indicators and other alternative research tools like INTERMARKET to spot outperformers.

REUTERS RICS: XAU=, XAG=, XPT=, CU-NYC, .SPGSIZ, SPGSIA, .NSTL

Enjoy the latest WAVES.GOLD

WAVES.GOLD is a perspective product published on Monday and Wednesday. The report highlights GOLD and other precious and base metals. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools, sentiment indicators and other alternative research tools like INTERMARKET to spot outperformers.

REUTERS RICS: XAU=, XAG=, XPT=, CU-NYC, .SPGSIZ, SPGSIA, .NSTL

ORPHEUS RESEARCH AT REUTERS - UNITED KINGDOM

ORPHEUS RESEARCH AT REUTERS - USA


Russia, Oil and the Global Low

I don’t know whether Goldman Sachs would like to review their BRICs MODEL. Former Bear Stearns CEO Alan “Ace” Greenberg says the investment-banking model he helped pioneer is defunct and that Wall Street is dead. If the Wall Street is dead and so is structured finance, I don’t know how far behind is the BRIC model.

We talked about BRICS first time in DEC 2007 and this is what we said “The performance of the Russian market over the last seven years throws the BRIC emerging growth model out and suggests it was more about the commodity boom. And the very fact that markets have not corrected till now as we head into the cycle turn zone suggests that the corrections should be sharp and not the slow sideways churning that we saw during the start of the cycles.” We also did an issue on LONG MAC, SHORT RUSSIA on 12 Aug. What happened, Russia crashed 80% along with OIL.

Even calling the OIL top did not turn out that tough. The sentiment was extreme even then. This is what we said on May 12, 2008 “Nothing can rise exponentially, even if it is crude Oil. The asset’s exponential rise is more an indication of an ending trend and not vice versa. Oil heading to $200 is an OPEC belief. Does OPEC really know?” Our contrarian view also evoked some tough responses. A forum commentator mentioned “what goes up must come down’ does not add much to the debate.”

Well! what went up did come down. And this coming up and going down is what we call a cycle. Prices may go up for a few generations and then create a generation long depression. Actually prices go up and down cyclically even on smaller time frames, but it’s the larger cycles which get more attention. Oil’s fall to dollar 37 low does give cycles more credit than OPEC, investment bankers and energy investors put together.

From one extreme, the sentiment is shifting to the other now, as both Oil and Russia are now featured negatively. We don’t see many long Russia stories, just like we don’t see any long Oil stories. What we hear are dollar 5 forecasts, and how recession and auto demise have killed the Oil prices. Russia’s main exchange MICEX shut down for two days on Sep 16 after it lost 17% in a few hours. This was just like many freezing markets shut worldwide. Now the conventional reasons we hear are the over leveraged banking sector, painful process of restructuring, falling oil prices, real estate collapse, growth grounding to a halt, Russia’s war with Georgia, spooked foreign investors, capital flight, cascading margin calls. There are even comparisons of the current Russian crisis with the 1998 Rubble crisis. A few even say the gloom is not just for 2009, but also about 2010 and 2011.

Even if the magnitude of this slow down is larger than 1929 or 1998 crash, there are huge opportunities after any historical collapses. And if our Oil dollar 500 forecast has some merit, it will not be long when Russia will look like a missed bargain. 500 billion reserves and the stock ownership limited to 2% of the affluent population do give some positive highlights. Oil, gas, and metals account for some 80% of Russia’s exports. The move up on Oil can trigger not only the Russian market upside, but also stir up global activity on equity and other asset classes. The 1998 analogy with 2008 is no chance coincidence. The decade cycle has happened in many markets around the world (Simplifying BRICs). Panic lows are generally accompanied by huge volatility, also the case here.

The linkage between Russia and Oil can be extended to world economy. Markets may come down together, but they don’t always rise together in sync. The move down is fast and the move up slow. So since markets take more time to go up or create, one can see regional or sectoral leadership. All the global Indices and assets that we track suggest a turn up across the global indices. Some emerging markets are showing leadership while a few markets suggest further downside. The German DAX and American DOW also look ready to bounce from current levels, but with potential retests of previous lows and new lows late Q1 2009. But in any case a large year long turn cannot be ruled out from the respective time window. This means 2009-2010 may not be as negative as market perception. Significance of the 2009 bottom can also be highlighted by the 9-12 year Juglar cycle on DOW. 1998 till 2009 fulfills 11 years making the impending low a 4 year low. One can also see three smaller cycles in DOW in the 11 year time frame. One from 1998 to 2002, the early economic cycle witnessing the technology peak, the middle economic cycle from 2002 to 2006 with the Industrial peak on stocks like 3M and Caterpillar. The mid economic cycle was subdued because of the successive US presidential term (Yale Hirsch US presidential Cycle) and now the 2008 peak marked with the late economic cycle Oil peak and peak on Exxon and Chevron. Call it coincidence, but this is a clear example of three 3.3 year Kitchen cycles making a large business cycle bottom in 2009. The Russian and Oil turn up is a leading trigger confirming this impending bottom before the next 3-4 year up cycle starts.

So get ready for a choppy ride up on DOW, DAX till Mar – Apr 2009, after which both might head for a retest or potential new low in Jun 2009. And even this muted bounce is enough to push DAX till open gaps at 6,000 (up 50%). According to intermarket cycles, French CAC seems better placed compared to DOW and DAX. On the emerging market side, SSEC Shanghai is also witnessing a cycle up. SSEC also had an exaggerated fall (73%) among world indices and could see sizeable up moves for more than a few quarters. India is also not out of the woods yet and suggests further weakness and just muted bounces in the first quarter of 2009. A muted bounce on India is in sync with our Primary preferred 4 wave sideways view. The cycle on Brazil also suggests further downside. This could be explained from the CRB commodity Index cycle, which is still pointing lower for Metals and the other CRB components.

On the currency side Dollar index is still pointing to impending reversals early Jan 2009. Yen suggests a reversal too i.e. a weakness for a few months against dollar. Nikkei suggests a first quarter move up also. Wealth creation is a lot about cycles. And luck is when you are on the right cycle at the right time. We don’t know of anything called sustained genius, for us genius is a part of the creative cycle which may or may not be in sync with a man’s economic cycle. And since our rational mind does not believe in the sun creating economic cycles and patterns ruling us, we can just call it God (now that we believe in him more), who gives us a chance to bring our genius in sync with the market low every 3.3 year. The only catch is, believing in it.


The beauty of inversion

The first time we started inverting the charts and carrying them in WAVES.ROM, we had a mixed response from our internal analysts. Few talked about it as a specific tool, which the user may not understand. And few stood by it as a strong bias removing tool both for the user and the analyst. This was a few years ago. We hope that you our valued user have got used to inverted charts and patterns as another way to look at price.

The chart on the left is the BETFI inverted. As you can see, the formation looks more like a corrective. It is overlapping and has not breached 14,000 levels. This corrective is a sideways action, which we consider as a continuation pattern. Continuation pattern extend the previous trends. And in this inverted chart the previous trend is pointing to 20,000 BETFI.

We continue to look at BETFI 20,000. This we won’t call as a bias, but as a clear rule based forecast. Till prices on BETFI breach 14,000 we have no confirmation for BETFI pushing back into 10,000 territory. This issue of WAVES carries many more cases on INVERTED prices on BETC, BET, TEL, TGN, BETNG, BETXT etc. We had a relook and till prices don’t breach key levels and don’t prove us otherwise, there is only one way we are looking after OCT low. Let’s see.

Enjoy the latest WAVES.ROM.

ORPHEUS ROMANIA RESEARCH

WAVES.ROM is a perspective product published on TUESDAY’S and THURSDAY’S. The report highlights Romanian Stock Market top three Equity Indices viz. the top ten blue chip BET Index (.BETI), BET Composite (.BETC), the Financial Index BETFI (.BETFI) and the local currency RON (EURRON=, RON=). The products covers the top ten BET component stocks. (ROMP.BX, SNPP.BX, BATR.BX, BRDX.BX, TSEL.BX, ATBE.BX, BRKU.BX, BIOF.BX, IMPT.BX, TUBU.BX) and all the components of BETFI Financial Index(SIF2.BX, SIF5.BX, SIF3.BX, SIF1.BX, SIF4.BX) are covered in the report. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools, sentiment indicators and other alternative research tools like INTERMARKET to spot outperformers. WAVES.ROM, CHANNELS.BVB and CHANNELS.RASDAQ are bundled together as PERSPECTIVE products. Unlike WAVES which focuses more on blue chips, CHANNELS covers all the BVB and RASDAQ stocks.

REUTERS COVERAGE .BETFI, TUBU.BX, TSEL.BX, SNPP.BX, SIF5.BX, SIF4.BX, SIF3.BX, SIF2.BX, SIF1.BX, ROMP.BX, IMPT.BX, BRKU.BX, BRDX.BX, BIOF.BX, BATR.BX, ATBE.BX,.BETFI)

ORPHEUS RESEARCH AT REUTERS - UNITED KINGDOM

ORPHEUS RESEARCH AT REUTERS - USA


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