Archive for March 9th, 2012

Divergence and Pairs


Divergence is a strong tool. Longer the time for divergence, larger the possibility of a reversion. Now here we have taken few majors from the machinery and engineering, electrical and electronics and industrial components subsectors. We have rebased all them from start of 2009 at 100 and plotted them as a group. (BHARAT FORGE, BHEL, BHELECTRONIC, CROMPTON GR, CUMMINS, EXIDE IND, LARSEN & TOUBRO, PUNJ LLOYD, SIEMENS) Guess what do we see?

1) We see divergence and convergence between the stocks.
2)We see which has done the best (Bharat Forge) and worst (Punj Lloyd).
3) We see which of the stocks are still at 2009 levels.
4) We see how Punj Lloyd has been the worst of the group under study.
5) This divergence chart suggests that if NIFTY is negative, we should review BFRG for short (reduce or close)
6) While if we are positive Punj Lloyd should continue to emerge from worst performance.
7) This divergence chart also prompts us to run Jiseki pair cycles and signal files on BFRG and PUNJ.
8)We have also carried an additional pair L&T vs. PUNJ and the Nifty outlook.

Our Jiseki Time cycles are seasonal patterns of strength or weakness in assets. They are derived from percentile rankings from 1 to 100. The higher the percentile more the chance for an asset to weaken and worst the ranking, better the chance for the respective asset to outperform. 100 is top relative performance and 1 is worst performance. The idea is that performance is cyclical. A top performer will underperform in future and vice versa. A top relative performer is also the worst value pick and the top relative underperformer is the best value pick. Jiseki is another name for Performance cycles, time triads and time fractals. The signals are illustrated as a running portfolio and as Jiseki Indices. These signals can be used by fund managers for relative allocations, traders for leverage bets and high net worth clients for selective trades.

Jiseki Interpretation. Signals are interpreted as crossovers between various Jiseki Cycles. All three Jiseki cycles (Jiseki 1,2 and 3) depict different time frames. Example: An asset is ranked above 80 percentile and all the three Jiseki cycles are pointing lower, this suggests a running SHORT SIGNAL. Our Jiseki Indices use different kind of exits based on price and Jiseki Cycles. We have color coded the (Jiseki 1>Jiseki 2) SHORT zones with brown sandy (burlywood) and grey (Jiseki 1>Jiseki2) for LONG SIGNALS.

Avinash Barnwal is Master of Science in Statistics and Informatics from IIT Kharagpur. He has worked on human response time at Department of Psychology, University of Amsterdam.  Avinash is a Quantitative Analyst at Orpheus developing money management solutions and building statistical models to address temporal challenges.

Japan Trade and the Yen