Archive for August 9th, 2012

Mean Reversion Indicator in Market Efficiency Journal

Read the paper..

Which is that stock? - II

..Which is that Stock? - II, Technical Updates and Perspectives..

It was on 13 April 2012 we filtered out Wockhardt and Gillette from the BSE 500 universe as undervalued components that were still headed higher. The feature “which is that stock?” delivered. Now this is a different kind of anticipated and happened. This is not just a technical case we foresaw and it happened. This is a statistical filter suggesting that extreme reversion is capable of identifying winners.

We believe that risk management is at the heart of capital conservation and potential profit. This is the reason why we want to build our stock selections on a risk management system and only after that look at patterns (charts). But then even though systems are more important, pattern watching has it’s merits. It’s a to and fro movement from patterns to machine learning and back. This is why we still want to look at beautiful pictures and think about ways to quantify those patterns. In this special technical update we have carried updates for the running INDIA 30 ORMI ©.

A is an exit if it breaks clearly below 340 levels. B is struggling at 70, a reversal from current levels would suggest an exit. We need more negative price confirmation on C to look lower. D is struggling at current levels. Review levels lie at 230. Power Grid remains positive above 120. Rest every other running component remains positive.

Coverage India: CNX100, BSE500 traded stocks and Indian Indices.

Michesan Anna-Maria, discovered her interest of markets immediately after completing her graduate studies in Economics. She followed it up with post graduate studies in corporate finance. A host of research work in behavioral finance, option strategies and quantifying market sentiment followed. Anna covers Indian equity and combines Elliott, Time Fractals and Time Analytics to deliver accuracy across time frames.

Rubber Band Signals

If it was once a fortnight, once a week or once a day, it would have been nice. But signals and signal generators have no religion. If you need a signal, the market has it; for any market, for anytime. And, if you are not going to sue (challenge) the signal, it could come stamped with 100 per cent accuracy.

Signals have become like a rubber band. You can stretch them for any time frame and from any side; long or short. But this creates conflict, on one side the society can generate so many signals, and on the other hand it barely outperforms the market. This is the reason passive indices claim, “What good is active anyway?” We live in the times of limited Alpha (risk adjusted return) but unlimited signals.

We punish politicians, punish insiders, punish scamsters, but how ethical are we ‘the signal society’ which seeks and delivers signals. “Please give us a signal, don’t explain us cycles, history, perspectives, risk; just tell us what to do, buy or sell?” Now that the markets have moved sideways for years, how happy are we triggering?

Okay, what should the signal society do? What can it do better? Can we simplify? How can it bring objectivity? Apart from building signal systems that work across asset classes, signals that can be indexed, signals that also assume lower risk, we can relook at the whole signal generation process, the big picture view.

Since we are looking at the same elephant, the rubber band can be viewed differently. If the market is indeed a rubber band, speculators, investors and other market participants pull the band at extremes. The best performers see consistent interest as they move higher. While the worst performers continue to see continued selling pressure as speculators suppress price and investors exit, tired of waiting for a reversal.

You can read the complete article in Business Standard

Mukul Pal, is a Chartered Market Technician, MBA Finance and a member of the reputed Market Technicians Association (MTA). He has more than a decade of Capital Market experience dealing with derivatives and global assets. He has worked for Bombay Stock  Exchange, multinational Banks and brokerage houses in leading research positions before starting on his own in 2005. He is the President of the MTA Central and Eastern European Chapter.