Archive for December 16th, 2010

52 Week High to Low

52 week highs could be used as a reallocation exit strategy back into assets quoting near 52 week lows.

Highs are more visible than lows. So we buy what is visibly gaining than what is struggling at the lows. I know two experts who have a 52 week strategy. One talks about buying stocks which break above 52 week highs. The other expert is Gupta uncle (a veteran investor) who sells stocks when they reach 52 week highs.

Momentum investing is easy. This is why there are more people buying stocks then selling stocks at 52 week highs. Actually I know very few people who sell at 52 week highs. We have more trend watchers among us who get excited about new highs than get worried about them. Gupta uncle never looks at charts also. He keeps a track of the prices and exits when they reach 52 week highs. Another reason why he is able to do it is because he works with a portfolio. He has a large portfolio, so he is not in love with stocks and his detached approach helps him get out. He has a similar approach to entry. When things get too subdued he buys.

Overconfidence makes us believe that we can trade our way to richness with a single Nifty. One asset trading is the biggest illusion of “modern” investment. There are courses and books on trading built around one asset trading. Master swing on E mini S&P 500 futures. Abandoning a portfolio at the expense of higher risk (single asset) strategy invariably turns against the trader, sooner or later. Now that we already showcased that Nifty Sleeps (Visit ATMA - Chart of the week). One asset trading is suicidal and absolutism built around that asset dead. One has to really ask the question, whether he is in the business of making money consistently in the long run or feeling great about doubling in a week? I understand that the kick of doubling money in a week is high, but believe me in the long run you are heading into karmic punishments not rewards.

Stock markets are like any other enterprise where you are going to make big deals only 20% of the time. So if you are not going to contain the risk in the rest 80% of the time, you will never reach the 20% opportunity. You have to avoid the burn out. This of course is not what they teach you at Dalal Street.

Markets are about managing risk more than generating return. Rather markets are all about managing risks. The more you attack risk the more you can generate a consistent return. Humans are shortsighted. They will always be and this is why we have forgotten the idea of buying stocks without margin at 52 week lows, holding them for a year and booking partial gains by selling the stocks when they hit 52 week high and start all over again.

Time Triads, Time Fractals, Time Arbitrage, Performance Cycles are terms coined by Orpheus Research. Time Triads is our weekly market letter. The report covers various aspects on TIME patterns, TIME forecast, alternative research, emerging markets, behavioral finance, market fractals, econohistory, econostatistics, time cyclicality, investment psychology, socioeconomics, pop cultural trends, macro economics, interest rates, derivatives, money management, Intermarket trends etc.

TGN VS. NATGAS – Positive or negative correlation?

Did you know that while Natural Gas was falling from Jan 2009 by 76%, Transgaz was rising by 176% during the same period. This means that TGN outperformed Natural Gas by 252% in nearly 24 months. Such a divergence in performance suggests a negative correlation between Natural Gas and Transgaz. Is this negative correlation going to continue?

If we go back in history from 2008 to 2009, one can observe a positive correlation between the same assets. How is this possible? How can correlation change from positive to negative? Will the correlation between the two assets change to positive again? For us at Orpheus, like everything else, even correlation is cyclical. It gets stronger and weaker with time.

We have illustrated the Rieki pair cycle between TGN and Natural Gas. The Rieki structure has topped and suggests that it may be time for Natural Gas to outperform Transgaz. Above this the Alpha Numeric Rankings suggest that Natural Gas is the worst performer and Transgaz is the best. Since performance is cyclical, either Transgaz should fall or stagnate (underperform) and Natural Gas should move up. The Relative performance has turned lower and Transgaz has failed to move above previous resistances. This confirms our preferred negative view on TGN.

Rieki is still negative for other top indices. We continue to look lower as the year comes to a close.

Enjoy the latest Alpha Indices.

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