Archive for June 5th, 2012

How black is this bear?

Even if Assocham tells the industry to stop crying BEAR, it may not work. India’s 6% growth suggests relative outperformance vs. the 2% global growth. Market participants just don’t understand relative performance. However the very reason markets work is that 80% are always trapped in illusions and as behavioural finance says “biases”. And it’s only the 20% that make money consistently. This rule is everywhere whether in “options exercised” or stock selection. 80-20 also means that 80% of the markets participants feel the BEAR is of the same size, large, dark and scary. Only 20% can judge it’s size and measure how potent the current bear is. Rest are so busy with the colour and the fear that the only thought is “black”. Most of investors never get to think whether the black bear is toothless, clawless or just a figment of imagination.

What price performance is too statisticians, price confirmation is for technicians. Performance leads to easy comparison. Here we have taken the YTD (year to date) comparison of our Orpheus Risk Management Index Long 30 components. All the ORMI India Long 30 component are positive. Barring one component HLL, which has underperformed Nifty 50 rest every other component has outperformed Nifty. And in the last 5 months some of our long 30 components have diverged 90% from the blue chip Nifty.

This again brings as to challenging the popular assumptions.

1) Do markets and market components rise and fall together? FALSE
2) Divergence between market components can not be too large. FALSE
3) Even if there is a divergence, identifying such opportunities is tough. FALSE

The bear may be black, but what if the bull is running on another highway.

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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.

Domnita Pascut is the founding member of Orpheus Capitals.  Her interest in charts and market patterns was an extension of her keen understanding of social mood and sentiment. How charts could say so much intrigued her. She worked on market patterns, economic research, cyclicality and economic history. It was her liking for history which helped her see the cyclical natures of markets and patterns. Domnita gives more weightage to conventional technical analysis, channels, trendlines, market patterns and Fibonacci. She combines all this with basic Elliott structures, performance cycles and high low close bars.