Investing: Forward looking markets…

Jayant Pai | jayant@ppfas.com

My friend whom I mentioned last week is pretty relieved on two counts :

  • He adhered to my suggestion and did not discontinue his Systematic Investment Plan (SIP) program.
  • The broad indices have managed to creep up above the 200 Day Moving Average (DMA) thereby signifying (in his opinion) that the uptrend had resumed.

His joy did not, however, stop him from dwelling on the sudden upsurge. How is it that the markets have rallied so strongly in the face of such negative developments, whose implications are as yet unknown ? After all, rarely do we simultaneously witness the emergence of unholy trinities such as scams, natural disasters and public uprisings. He even coined a term for this….the SME effect (Scams, Middle East and Earthquakes). Continue reading

Investing for the long term

Jayant Pai | jayant@ppfas.com

A friend of mine is considering discontinuing his Systematic Investment Plan (SIP) program. I was surprised to hear this because when he commenced it last September he was resolute that he would invest every month for a period of 25 years (yes, 25, no less…!).

When I inquired as to why he had decided to change course mid-way he gave me three reasons : 1. The broad indices had slipped below their 200 Day Moving Average (DMA) (2) There were too many “negative events” happening worldwide currently. (3) Some of his analyst friends had indicated to him that corporate earnings would be downgraded leading to a P/E de-rating. Continue reading

Technical Analysts : Predictably unpredictable?

Jayant Pai | jayant@ppfas.com

Ever since a well known channel (Channel X) hired the services of a phalanx of technical analysts by poaching them from another channel (Channel Y) and offering them eye-popping remunerations, I have been tracking their performances. I am not a fan of technical analysis and after listening to them for the past couple of months, I do not think I will be converted anytime soon.

When they began their sojourn at the channel, the markets were rising steadily. At that time they held out that markets would soon make a new high and that the “market structure” looked sound. Sectoral leadership would continue to be provided by the same sectors which had led the bull run for the past two years viz. autos, banks, technology and pharmaceuticals. However, as stocks began falling like nine-pins they slowly came around to the view that markets were indeed weak, the bull run appeared to have ended (this, after a 11-12% correction in the Nifty from the top) and the aforementioned sectors would now lose their leadership and would soon be replaced by some new (as yet unnamed) sectors in due course.

A couple of them started predicting further corrections of 15-20% from the current beaten down levels, citing all the negatives which were already well known, viz. Poor IIP data, high inflation, the events in the Middle East, FII outflows, etc. This is surprising, considering that technical analysts have always maintained that in their discipline they close their ears to events and believe only in the charts they see in front of them.

Remarkably, their confusion regarding the overall market direction did not deter them from giving DAILY stock ideas to the viewers such as Buy so-and-so at Rs. 120, with a stop-loss of Rs. 116 and a target of Rs. 128……I personally think such ideas are a case of the one-eyed leading the blind. Anyone can come up with a laundry list of “ideas” but where is the accountability for the same ?

I wonder how these “star analysts” are different from the myriad other technical analysts on the street. I agree that they may be more experienced but I wonder if this alone is enough. They too seem as flummoxed as the others. Instead of predicting the next move they merely react to it. Of course, it may be too naïve of me to assume that these analysts (or anyone else for that matter) can predict. Markets today are too deep and complex for anyone to do so, accurately and consistently. But if that is the case, is there any justification for placing them on a pedestal? Also, I have a feeling that many viewers will cease to avidly follow them if they really track the performance of their recommendations. But most of them are too caught up in acting on the their next idea, to critically examine their past record.

The most hilarious sidelight to this entire development is that Channel Y has taken to regularly airing the opinions of two USA based technical analysts who merrily expound their views on the Nifty and the Sensex. As if there is a dearth of Indian analysts….

However, I believe that TV channels will always aim to please the majority and hiring such analysts is merely an extension of this objective.

The one thing I can predict with some degree of confidence is that as long as the trading community seeks such ready-made ideas by the bucket load, the future of these technical analysts is very bright indeed.