Archive for the ‘Time Triads’ category

The Sleeping Gold - II

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Markets don’t know how to weigh, allocate, measure, count, subtract or add prices. We did not say that. Richard Thaler said it in 2003 “Can the markets add or subtract?” Though Lamont and Thaler were mentioning about failure of arbitrage to correct mispricing, I don’t think they would have thought that the violation of law of one price rule could extend to the violation of law of equivalent sound bites i.e. every 1% of move in gold should create an equivalent news bite. The violation (disproportion) is so obvious that though Gold has been stagnant and negative from Aug 2011, registering a net loss of 20% from 1,900 to 1,500, but it was the one week move from 1,500 to 1,400 a fall of 7% that overshadowed all the Gold news of the last 68 weeks. And suddenly we have so many bears out there starting from Goldman to Soros and from central bankers to bloggers.

This is what we said in sleeping gold (07 Feb 2012) “Gold is a premium asset that has slept for 17 months. You can give it a few months here or there, but we don’t think you will get a better chance to buy gold than now. Gold will never move from best to worst. It will wake up.” The asset did shake up (wake up) by having the worst two days fall in 33 years.  If the media is celebrating the fastest 10% fall in two days in three decades, ok! it’s news worthy. But how can an asset already falling (ok stagnating) for 17 months get bearish now. Is Gold not in bear (stagnation is a corrective) market since Aug 2011.

Talking about sound bites; the latest Economist podcast has an urgent tone. “Plunging as we speak… officially bear market… liquidity of selling does not seem to be stopping……unlikely that bull-run would continue…US economy looks stable…. Worst case scenario euro zone off table….safe heaven point of view off table….fed minutes suggest no sign of inflation taking off…as Fed tapering their…flee to gold theory has less power…Cypriots mooted selling gold reserve…What if Italy with 2500 tons of Gold decide… lot of supply out there…not heard from the Gold bull Paulson…Soros reduced gold positions and out…the big names got out…

The news mill is running overtime.

To read the complete article visit Business Standard or subscribe to the Time Triads Newsletter

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.


Gamblers of New York

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I don’t see gamblers around here in New York. I wonder where Behavioral finance saw them and how they coined the term Gambler’s fallacy. At the Market Technicians Association Annual Symposium it seemed business as usual. The panel was figuring out the future of markets and the future of technical analysis.

Dr. Andrew Lo, professor of Finance MIT wrote “Non Random walk down wall street”. He believed technicians played a key role in the evolution of research and in pattern recognition. The future of technicals rested in a combined approach of fundamentals, technicals and quants. Andrew shared his personal journey and the resistance he faced when he was disproving efficient market hypothesis. He tested price volatilities for different time frequencies to prove that markets were in-efficient. He talked about adopting a more scientific approach to markets. Even Herbert Simon mentioned that complexity was intrinsically simple and hierarchal. Could it be possible that markets had just one DNA pattern, say a snowflake or head and shoulder, which mirrored and created every other pattern? Could such a pattern singularity in markets be probable?

To read the complete article visit Business Standard or subscribe to the Time Triads Newsletter

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.


India Worst 20

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When it comes to investing, there is no doubt that India is more active than passive. Ofcourse the new money, the news channels and internet has taken trading home to my aunt and other South Delhi modern influential decision making house wives. This is all good; the problem is about giving up before you even started. Just because there is no formal induction to stock markets, Reliance does not go up or futures turned out sharper than the kitchen knife should not be the reasons to give up. What if you were using the wrong investing style?

Anything which could be reviewed quarterly and more could be considered passive. This could be academically debated, but we are talking about an investing style evolution and taking investors and investing in India to the next stage. Regarding, what is better “passive” or “active”? Actually it’s more about your risk profile (you are either active or passive, not both). However, historically short term traders are known to underperform intermediate and longer term investors.

In any case with nearly a million Indices globally and more than 30,000 ETF’s worldwide, India’s passive scene is dismally underplayed. We need more passive instruments, if we have to increase market sophistication, liquidity, choices and investor awareness. The new 25 NSE Sector indices was a much awaited initiative. Thinking sectorally is a first step towards passive style investing. More benchmarks could mean more ETFs, which would then become a virtuous cycle. We won’t trade ETFs like we trade NIFTY futures, hence a key passive step.

Why did we not think of passive earlier?…

To read the complete article visit Business Standard or subscribe to the Time Triads Newsletter

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.


The Cement Story

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How should one analyze the cement sector? We can talk about Monsoon seasonality (construction slow down period), India’s top producer ranking in the Cement market (after China), correlation with GDP and housing sector (more than 60% of the total consumption), government control with coal and limestone reserves, power supply etc.

The above variables are from the stock market domain but join a global cement conference and the variables acquire another color. The focus shifts to efficiency. The bottom line shifts from seasonalities and earnings to shortage of global slag and the abundant but low quality Chinese granulated slag. The research gets technical with ideas like ‘grinding optimization, ‘electricity’, ‘energy efficiency’, ‘energy audits’, ‘super conditioning’ and how corrosion in a cement plant can cost upto dollar 500,000 per year.

Then there are other non-popular variables which take us from the popular micro intra sector analysis to the macro inter-sector analysis. How are local cement stocks fairing in performance vs. global cement stocks? Should it matter? The Swiss global cement major Holcim owns 30% of Indian cement sector (ACC and Ambuja). What’s the correlation of cement stocks with the Indian realty components? If interest rates drive real estate, economy is inflationary and commodities and fuel drives cement, what is the cement outlook?

The point I am making here is that there will always be more available data (or possibility of generating new data) that analyst(s) and (or) experts can process. Though probability teaches us to dig into a universal urn of multi-colored balls, making a selection and estimating how the urn components looks like, but in reality…..

To read the complete article visit Business Standard or subscribe to the Time Triads Newsletter

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.


Interview (Technically Speaking)

 

 

 

Download the latest Technically Speaking, March2013


Life of “Average” - I

Just like we don’t need to understand inflation for it to trouble us, we really don’t need to be able to spell statistics for it to rule us. The realization of an average lifespan could have pushed many saints towards the spiritual path, but for us simple material investors, our life moves around a statistical average.

What is a statistical average? Starting from the average salary, to the average rate of monsoon,  to the average run rate of MSD, to the average of DOW Jones Indices, averages are not only ubiquitous but they are part of popular psyche. Now this is where the problem begins. You can take a man out of Delhi, but you cannot take Delhi out of him. Habits are hard to change. And these habits are generational. How could we first understand something intrinsic, then challenge it and then eliminate it. It’s an impossible feat. Average is a part of societies erroneous functioning.

Before we see “why”, let’s dig in a bit of etymology. An early meaning of the word average is “damage sustained at sea”. An average was about assessing an insurable loss linked to a damaged property. Strangely our case against the average here too is about how anchoring on an average is a loss making proposition for the economic man, even today.

Why erroneous? “Nature was never about equality, it was always about proportion. If weather over the long term does not have an average, the idea of average return for the stock market is redundant”. Society loves status quo and hence the benchmarks that come with it. We are in love with the average because of the comfort we get from them.

Reality is far diverging from an average…

To read the complete article visit Business Standard or subscribe to the Time Triads Newsletter

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.


The Extreme Forecast

It’s not the first time, but on many prior occasions I have been accused of getting too extreme with forecasts. My running forecasts of DOW 20,000, Nifty 10,000, Oil 300 dollars, Gold 10,000, Indian Rupee USD sub 40 could also be considered extreme for the next 36 months.

With all the objectivity that we talk about and all the objectivity that investors seek, do we really need an extreme forecast? Surprise is a constant feature of the market and even ridiculous forecasts come with a probability. Remember “miracles”? Moreover when business planning can look at “What if” contingencies, why can’t investors look at “what if” scenarios? Does it not force us to think out of the box? Prepare us for the unforeseen, for the uncertain.

Now mind it, it is all not irrational. Extreme forecasts are something that seems rare. It could be 100% up-move for DOW and Sensex in 36 months and 50% for a currency during a similar duration. Historically all of Gold, Oil, Dow, Sensex, and INR USD etc. have witnessed such large movements in periods of 36 months. Extreme forecasts as it seems are more regular than rare. This is why a Nifty move to 10,000 from 4,500 (Jan 2012 lows) till 2015 could be reasonable. The same logic could be extended to Oil 100 to 200 by 2015, Dow 12,000 to 24,000 by 2015, and Gold 2,000 to 4,000. The only problem here is that 100% is just a thumb rule. Price action could overshoot or undershoot the 100% in 36 months target.

Elliotticians find extreme forecasts very regular…

To read the complete article visit 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.


The responsible leverage

The societal fear with markets as we talked last time is also associated with system leverage. Society still feels the post crisis after shocks, so much so that we keep anticipating a succession of crashes. We made our case of a bullish market last time, this time we address a more structural issue of how to tame the leverage addiction. And why greed associated with leverage is similar to any other human addiction of sex, alcohol and consumption. The destruction starts with self, reaches the family and invariably the society. The society lacks a framework to assist the leveraged mind to de-leverage and to confess that “yes!! I am an alcoholic and (or) a compulsive leveraged trader”

Playing down leverage is more about objectivity than subjectivity. Though the society is punishing itself because of leverage no body teaches the society about responsible leverage. The leverage brokers don’t think it’s their job, and though commodity exchanges were designed for risk management and farmers, the exchanges could not do without speculators and disclaimers. Did we somewhere miss out the idea of responsible leverage? Do we need to set rules for this? Do we need to fine institutions in the business of leverage not spending enough time to teach about the risks of leverage to the participants? Why does leverage not come with a banner ad saying that “leverage is injurious to your health, and can kill you” Why is leverage not an obvious addiction as any other vices? Why is it just the trader’s job but not the responsibility of the trading institutions? Now that we punish and educate institutions for irresponsible leverage, rating agencies etc. how far is regulation from policing exchanges that fail to broadcast that leverage is for the professional and not for the family man putting his kid’s university savings in Futures.

Ok! Passive vs. Active are two school of thoughts, but on a risk and return level both styles are connected. Both 1 min trading and 12 month holdings can be measured on the same scale (The 5 minute year). If an exchange offers solutions for all time frames and disseminates price, why should passive vs. active tradeoff, performance and risk trade off (across multiple time frames) information be any different?

To read the complete article visit 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.


The Sleeping Gold

 

Recently we were asked “whether it was time finally to get out the 12 month holding on dollar?” Dollar did not move for 12 months. There was another query regarding Gold, “Should I sell it?” Two synchronous sell queries linked with two essential and interconnected assets was not a coincidence. The emotional disturbance holding on to an asset that is sleeping can be frustrating. But this is where counter intuitive thinking should come in. “If I have lost my patience with a certain asset, is this a sign for a potential reversal?”

What more do these two sleeping assets (stagnant performance) tell us? They tell us not only about their state but also about their intermarket connection. Dollar strengthens gold weakens and vice versa. Here both are sleeping. No asset can sleep for long. Dollar and gold are significant assets. Expecting them to keep sleeping is an illusion. Now whether one will break upwards and other down is also cause and effect. We are in unprecedented times and negative correlations are far from clock work; correlations work and fail.

Just like we have performance rankings for assets, assets could be also ranked on sleep factor. Which is the top sleeping asset? Which asset is ready to wake up? The idea that what is best will be worst tomorrow can be extended to what is sleeping today and will wake up tomorrow?  Gold was one top asset 17 months back. This is why we should not be surprised that it went to sleep. Gold (dollar terms) is negative (down 12%) over the 17 month period. Dollar suffers from a similar stagnating negativity. So counterintutively a sleeping gold or dollar should alert us.

To read the complete article visit 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.


Behaviour, Breakouts & Banking

Budapest to Vienna is two and a half hours by road. Just across the border we were wondering why the Austrians were not so prompt like Hungarians to clear up the snow from the highway. “After all nature knew no borders”. It was on our way that we realised that we had travelled ahead of the snow shower and our pattern recognition was incorrect.

Human mind can’t always see the big picture and though there are patterns everywhere, the patterns that accompany the bigger picture are more significant. The 3M’s were also talking about another behavioural pattern linked with historical highs. So many markets were at historical highs. Dow 30 had crossed the 2007 highs. But there was simply no excitement. Was the market anticipating snow across the border (Historical Resistance)?

Society does not know how to measure sentiment, but the market mood is definitely low. There is a lot of circumspection about terminal highs, and beginning of a new market misery. Were you expecting a different sentiment? Is it story of once bitten, twice shy? When we get hurt once are we not so careful the next time around? The idea of protection is so inherent in human mind that a 10 or 5 year breakout of resistance may not evoke fireworks and excitement but fear. The excitement only begins, when it’s too late. Last week we talked about global indices outliers and how late or not so late does not really matter, what matters is if you bought it cheap or expensive.

To read the complete article visit 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.