Archive for the ‘ATMA’ category

The New Volatility

I was at the CSTA (Canadian Society of Technical Analysts) annual event at Toronto.

It was a two day event where many speakers talked about volatility.

‘The New Normal’ was the theme of the conference. Richard Rhodes, award winning newsletter writer and now asset manager, talked about VIX at and above 45 levels. He illustrated how this was infrequent event, which had happened 120 times over the last 20 year history of VIX. There was a monthly Key Reversal on VIX. He emphasized that monthly KR was a strong signal that worked. He overlaid his VIX case with Intermarket sector rotation, explaining which sector he would over allocate and vice versa. He also showed the historical workability of S&P500 with such spikes in VIX.

Ralph Acampora, founding member of MTA illustrated VIX with an overlay of historical news and talked about markets as a discounting mechanism. He also illustrated the similarities between sideways action on 1964-82 and the ongoing sideways action from 1998-2011. He also talked about low volume markets and choppy price action and how the current volatile swings could be a consolidation stage that could lead to further upside. Benner cycle low of 2011 confirms Ralph’s view. I have illustrated the two sideways actions.

David Hickson, an expert on Hurst Cycles illustrated the Hurst complex on the VIX cycles. His cycle perspective suggested a rising volatility well into May 2013. Hurst nested cycles were able to identify 2008, 2002, 1998, 1994 and 1990 spikes.

VIX interpretation is an essential part of a technician’s tool box today not only because it’s a sentiment indicator but also because VIX looks at the broad S&P500. The Jiseki cycles on VIX on an intermediate multi week cycle turned positive on May 2011 and VIX is still among the worst 5% quarterly performers among a global composite asset performance. This means that there could be continued rise in volatility till the Jiseki cycles turn down, whether it breaks or retests 45 however remains to be seen./em>

This article was written for ATMA.


INR Q4 Seasonality - II

This is what we mentioned on 25 Dec 2010

INR weakness seasonality may persist. One simple reason is the unbroken 0.618 Fibonacci support at 44. Price confirmation is king. Till INR breaks 44 low we continue to look atleast at a multi month weakness on INR against USD, even if not primary. Above this we don’t see the move down from 2009 top as a clear five. Markets have enough capability to burn time in stagnation or weakness. The ongoing complex corrective could just persist till H1 2011. What does this tell us about equity? This tells us that Nifty VIX broad basing formation should not be ignored as equity could surprise early 2011. And since we are in larger complex corrective in Indian equity also, performance cycles (relative performance) should be used to reduce out of overstretched sectors and accumulate into best potential outperformers.

The above view had a forecast for the Rupee and the stock markets. Now Rupee is up and markets are down. The other key observation was that seasonality could have a polarity. Some Q4 inflexions strengthen the INR on a primary degree and the subsequent Q4 inflexion weakens the INR. This is no magic, seasonalities are about phase changes and markets just have two phases, a trend and countertrend phase. We can call it positive and negative etc.

Today we have taken the time ratio for these inflexion points. Since time has statistical properties, the time ratio proportionality can be seen in INR Q4 inflexions too. Between two subsequent periods, one can observe equality, 0.6 or 1.6 ratios. Now if we should project these ratios in time INR could weaken against the USD till Dec 2011 or till Dec 2013 to attain this proportion. This is clearly beyond our Sep time forecasts for the market and an extended negativity.

This article was written for ATMA.


The Ising Model

The Ising model is a mathematical model of ferromagnetism in statistical mechanics. The model consists of discrete variables called spins that can be in one of two states. The spins are arranged in a lattice or graph, and each spin interacts at most with its nearest neighbors. The goal is to find phase changes in the Ising model, as a simplified model of phase changes in real substances.

In 2000 while working on the Murphy’s Price - Volume - Open Interest I started scribbling arrows in a 3 by 3 grid writing about how Price - Volume - Open Interest (PVO) should define trends. The PVO model looked like an Ising model.

 

 

Today I will try to explain the 10 year old analogy. In an antiferromagnet there is a tendency for the intrinsic magnetic moments of neighboring valence electrons to point in opposite directions. When all atoms are arranged in a substance so that each neighbor is ‘anti-aligned’, the substance is antiferromagnetic. Antiferromagnets have a zero net magnetic moment, meaning no field is produced by them. Antiferromagnetism can be considered like a neutral market as anti aligned spins (Fig. 1) are similar to non confirmations. Many non confirmations also mean undecided market.

From a PVO perspective, it could be a stock with a positive spin and another with a negative spin causing the aggregate market to be neutral.With the passage of time the neutral situation leads to a topping or bottoming situation, in other words a market bias, spin, direction, Ferromagenetism. A topping, where a market reverses direction sees the price pointing lower, volume leading higher and drop in open interest position (as longs square off – Fig 3). On the other hand a bottoming market ready for reversal is when the prices point up, volumes are still lackluster and negative, but open interest starts to build up new long positions (accumulation – Fig 2). This confirmation among stocks finally gives a negative and positive bias to the market. This is how stock markets could have a physics parallel in the Ising model spins. The Ising model could also validate the weight of evidence approach in technical analysis.

This article was written for ATMA.

 


Elliott, Timing and China

As a chart of the week, we have taken SSEC China (The Shanghai Index). China has been always been of key interest to the world. India looks at it to understand relative growth in China compared to India. On an Elliott perspective, SSEC seems to be making a cycle structure expanding diagonal with another final ongoing 5 cycle wave. The 1 and 2 primary circle of the 5 cycle wave seems complete and we are headed into the 3 primary cycle wave up.

This means that despite all anticipated negativity Chinese SSEC should head higher from 2011 lows. Now we have added multi month and multiyear Jiseki cycles along with the Elliott count. The multi month Jiseki is already turning up from worst rankings near 20 percentile and the very fact that cycles lows are non confirmed by higher lows in price suggests that our 2011 low anticipation could be correct. On the larger multiyear Jiseki structure the cycles are down for the last 4 years. SSEC has been falling and underperforming global assets since 2007 now. The rankings and cycles are still high and we have no change of trend confirmation on multiyear Jiseki cycles. The confirmation will only come when all the 3 cycles (red, blue and grey) turn up.

One should also keep in mind, that final 5 wave Elliott structure could also see a non confirmation from long term cycles. In conclusion the Jiseki timing model suggests potential multi month primary upside before anything. We anticipate support coming in soon enough for SSEC.

This article was written for ATMA.

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.


The 3D Time

 

If 3D Time and 3D Space were interchangeable, we have a unified theory of science which is easier to comprehend than the complex string theory. The recent work on possibility of multiverse rather than universe bring us closer to understanding the cosmos and the closer we get to understanding cosmos, the closer we get to understanding Time. The Big Bang mystery of expansion and contraction has been challenged by a new theory which uses dark matter to explain why the big bang may not contract but expand forever.

On one side this confirms the second law of thermodynamics (increasing entropy) but on the other side it opens up another debate regarding the symmetry of time. Physical processes at the microscopic level are believed to be time symmetric as laws of physics remain true even if the direction of time is reversed. However at a macroscopic level there is an arrow (direction) of time that exhibits such time-asymmetry. Time takes the direction of entropy, moving in the direction from low entropy to high entropy. Increasing entropy is the reason why we can’t convert a broken egg back into an egg or why we can’t stop aging or decaying. Arrow of time is the reason future and past is distinguishable.

On one side the arrow of time explains the life that we live in this universe and on the other side if the second law of thermodynamics was a rule, life as we know it won’t be possible. This contradiction works against a unified theory of science as it fails to explain why low entropy can co-exist in a high entropy environment like the expanding universe. In other words how can order exist in world that is meant to be disordered?

Boltzmann brain was hypothesized as a self-aware entity which arises due to random fluctuations out of a state of chaos. The idea is named for the physicist Ludwig Boltzmann (1844–1906), who advanced an idea that the known universe (order) arose as a random fluctuation. Boltzmann proposed that even in a near-equilibrium state, there will be stochastic fluctuations in the level of entropy resulting in only small amounts of organization. The data disproved this as the level of order was much higher than being due to a random fluctuation. Above this the fact that we are close to finding more habitable planets like earth challenges that life is indeed a rare fluctuation.

Sean Carroll retweaked Boltzmann working and explains that though fluctuations in a high entropy state could explain the reason for life, living in a fluctuation (an extreme rare event) is not enough to explain the visible order. There was a large proof of habitable life in thermal equilibrium (which is not conducive to live).

Cosmos clustered and formed galaxies and states of low entropies more frequently than expected. There were more than a few fluctuations in nature. There were more than a few low entropy states in a large entropy environment. Sean suggests that the answer might lie in events before the big bang. Assuming there was nothing before the big bang was not convincing enough. There was a need for a better theory than general relativity. Sean explains how high entropy systems continually create low entropy big bangs. This was the reason we were a part of a multi verse and not a universe. These conditions create lack of thermal equilibrium and the reason for life. Multiverse also explain why time is symmetric even if live through one arrow of time.

Though Sean is unsure regarding his multiverse, time fractals suggests a symmetric time and confirm Sean’s view. Symmetry of time means there is a moment when time symmetry starts and time when the symmetry completes before starting again. A low entropy moment is when a time cycle starts and highest entropy is when a cycle peaks. The two aspects of time, the repetitive and change time also explains why though time is ordered it also brings relentless change. Putting simply time is the reason why we live in a measurable and ordered world with an unpredictable future. The reason history does not repeat but rhymes is because evolution goes on with changing time. Repetitive time is the reason the entropy starts again and why despite high entropy in one universe we have another low entropy beginning of a new universe in a similar time.

Low to high entropy can also be seen as efficiency to inefficiency. More entropy is the reason for more inefficiency than efficiency in nature. We can also describe entropy process as a shift from homogenous to heterogeneous, normal curve to fat tails, mean reversion to divergence. High entropy seems to be a natural feature of everything around us. Entropy is the reason life is full of extremes, inefficient extremes. Because time is symmetrical in all directions and is fractalled we can experience coexistence of high and low entropy in similar time.

Universe is one arrow system. But since time is symmetrical and 3D in nature time can have various arrows of time in all directions. This is the reason why multiverse is a reality. Our paper on Temporal Changes suggested changes in time duration being the reason for inefficiency in markets (more than a few fluctuations). Using cosmic Time to illustrate a similar inefficiency would prove that 3D space is an extension of 3D Time. And life is not a rare fluctuation it is an order caused by the vibrating string called Time.

To read more of such updates on subscribe to Orpheus Research Reports.

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.


Momentum vs. Cycles

 

Momentum was the first think I learnt in technical analysis. But after practicing the vocation for more than 10 years, I use few momentum indicators. For me all of them whether it’s RSI, MACD or anything else, they all tell me a similar story. Though I am a believer of confluence, my approach is not to look at various momentum indicators and look at the combined weight of evidence, but to harness various degrees of time. I was always more interested in knowing what is the result of the weekly, daily and 60 min RSI at the same time. What do they tell me together and not separately? This is where momentum miserably fails.

There are other reasons. Momentum is noisy. It has so many signals. If weekly RSI is a sell, daily RSI can be a buy. There can be a conflict. Third, there is no way of saying prior when an indicator has reached an extreme reading, how higher or lower can it go? One may say Constance Brown’s over-reactivity on momentum works. I would say it’s brilliant and I use it, but over-reactivity also can’t harness multiple degrees of time. There can be a negative reversal on 60 minutes and positive reversal on daily.

What’s my process? First I filter stocks through numeric rankings. Second I look for performance cycles (Jiseki) signals. Third I look at the price structure through Elliott and only after that (fourth) draw momentum. Just to make my case I have illustrated TCS here. Daily, 60 min RSI are oversold and weekly RSI is at 40.

A conventional approach would be to stick around for a price confirmation break of the potential Head and Shoulder neckline. Now if I look at momentum the signals are unclear, but if I look at Jiseki performance cycles, the sell signal is clear. Jiseki says TCS is ready to crack.

To read more of such updates on subscribe to Orpheus Research Reports.

This article is written for ATMA

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.

Nifty March Seasonality

March seasonality has a good track record for Nifty. We have had seven signals since 2003 March. Barring Mar 2004, every March has brought in a reversal of multi week or multi month degree. Multi week or multi month is what traders live for. Now we are in March again. If the March seasonality is to be understood, it brings a reversal. A sideways movement is also a reversal.

 

The previous trend from Jan was negative and brought Nifty lower by around 1000 points (15%). Now March seasonality has arrested the previous down trend. This is a reversal too. This was anticipated in our bounce back case in ‘The Sensex Projection’. We think that the bounce back case is still unfolding up till 5,600-5,700 levels.

The quality of the bounce seems corrective at this stage and suggests a lower resolution after the countertrend move is over in the final week of March. After which the next down leg sub 5,000 to 4,700 should begin.

To read more of such updates on subscribe to Orpheus Research Reports.

This article is written for ATMA

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.

 


The Primary Inflation

Relative performance line between the Commodity Index (CRB) and Global Bonds can indicate whether the time ahead is inflationary or not. The primary case (Fig 1.) illustrates that Bonds have outperformed CRB and are now at historical extreme of more than a decade. There has been a relentless rise in global bonds, but that has not been the case with commodities, which have slowed down and stagnated a bit compared to the controlled interest rate situation.

So where does this leave us? Extremes are unsustainable, especially when they become of a multiyear nature.

This article is written for ATMA

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.

ATMA - The BSE Power

BSE Power is one of the worst 12-month performer registering -3% for the period. Barring BSE Real rest of the sectors have outperformed power. BSE Consumer durables were up 82% for the year.
For us at Orpheus, a year-long loser is attractive value. To study the price structure, we inverted the chart. What did we observe?

This article was written for Association of Technical Market Analysts

Alpha is a daily strategy signal product that gives long only, short only, pair trading signals. Alpha is a numeric Ranking product based on TIME fractals. The signals are carried over minor (10-30 days) and intermediate (above 30 days) time frame. The signals are illustrated through tracker and running portfolios. Alpha can be used by fund managers for relative allocations, traders for leverage bets and high net worth clients for selective trades. This is a part of the time triads analytics developed by Orpheus Research.

Naked and/or pair strategies are not riskless strategies. Time arbitrage portfolio legs should be risk weighted before any implementation. Please mail us for a detailed working or consult a local financial risk manager to execute these pairs. For more details please subscribe to the Orpheus Research products.

Coverage India: BSE500 traded stocks and Indian Indices.


Benner, Pareto and the structure of time

Benner was the first one to illustrate time hierarchy and Pareto showcased hierarchy in everything. Could they have connected the idea in 1900 before the Pareto curve?

Benner’s Prophecies - Future up and down in prices was written in 1875. A keen technician will sooner or later hit the fascinating time geometry of the Benner cycle. Samuel Benner was a prosperous farmer wiped out financially by the 1873 panic. He turned to wheat farming in Ohio and took up the statistical study of price movements as a hobby to find, if possible, the answers to the recurring ups and downs in business. He noted that highs of the business tend to follow a repeating 8-9-10 yearly pattern. With respect to economic low points, he noted two series of time sequences indicating that recessions (bad times) and depressions (panics) tend to alternate.

I updated the Benner cycles and they suggest a top in 2010, a slowdown and low in 2011, a cycle high again till 2019 and then depression in 2021.

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.

This article is written for Association of Technical Market Analysts


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