Averages are used by Sub-Average Minds...

Averages are best hiding tools for incompetents.... 
O Ashuji...

Markets have historically traded at average P/E of 16x....

Markets have historically given 15% annual average return...

GDP grew at an average of 9% per annum during last 5 years after we got elected...

Average per capita income of our country is USD 30000....

Average Inflation rate for last 20 years is 5%....

Historically average interest rates have been 4% on 30 year mortgage...

How often have we heard these statements from Policy makers, Economists, Central bankers and Fund Managers...?? These are absolutely meaningless statements and are often used by these people as guiding posts....Average hides the true picture and is often used by sub-average people because they want to put everything in one number. When such averages are used to depict reality, it can be very misleading. While when same averages are used as guiding post, it can be disastrous.

Let Examples Talk....

1) Fund Managers/Analysts talking about historical average P/Es....
Many a times we hear about historical P/Es being used to justify a buy or sell for a stock by Fund managers/Analysts. Time frame for historical P/E being used is based on convenience. P/E might have range of 10-40x and yet these guys arrive on an average to make useless recommendations. Averages are used purely as justifications with no usefulness mathematically.

Concept of Average P/Es....

1) Let say an Analyst recommends a stock based on historical average P/E. Year 3 has historical average of 20x while one year forward P/E then is 23x. Analyst might put a sell based on historical average.

2) Year 4 stock actually goes up by 60% both due to P/E expansion and earnings growth. Now Analyst will spin new stories and fundamentals have changed kind of reasoning. He might assign higher "historical" P/E in year 4 and put a buy on the stock only to see stock fall by 40% in subsequent year.

3) Now average P/E for all 5 years is 24x and company is having decent growth of 20% in earnings, yet stock wildly fluctuates and so does P/E. Average concept is absolutely meaningless due to wide dispersion in P/E itself. One can construct such example for longer time frame but conclusion will still be same. If P/E doesn't have wide dispersion then target prices will be close to earnings growth and analysts are absolutely poor in forecasting earnings growth. Basically using average P/E to put across a point is result of dumb mind.

2) Fund Managers/Analysts talking about average historical return of stock markets...
Just like average P/E, many a times we hear from these experts about average historical return from stock market. Long term returns will be talked about to influence investors to put their money into stock market. These averages are used just to sell their stories/products.

Hypothetical Stock Market Returns over 20 years....

1) A lazy fund manager might say stock market over 20 years have given average annual return of 15%. This 20 year had 2 notable 5 year cycles...11-15 ---smooth trending cycle and 16-20 highly volatile cycle. Yearly returns over this 20 year period ranged from -70% to 100%.  Average would have been meaningless concept for investor entering in year 16 or year 20.

2) Similarly a fund manager trying to sell alternative investments (other than equity) might pick up pick up 6-10 year cycle and say average return for equities over last 5 years has been -5%.

Thus concept of average is absolutely arbitrarily used with no respect to dispersion within sample data or time frame used. 

3) Government talking about average inflation, interest rates, GDP growth, etc

When averages are used as guiding posts by Policy makers, Central Bankers,Economists/Analysts, outcome can be disastrous and Volatility is given. Lets understand this point through current example...

Reserve Bank of India (RBI) striving for historical average inflation of 5%...

Historical anchoring is typically derived from recent history and recent history can be very different from current reality....O Ashuji

RBI has been targeting CPI inflation of 5% since last 2-3 years and has been tightening to achieve that goal...

India's Consumer Price Inflation

1) Average Inflation has been widely fluctuating since 1994.

2) 1999-2007 had least dispersion in inflation data and this was also time when term like great moderation was coined because whole world was experiencing great disinflation for all known reasons. 

3) Anchoring average inflation of 5.7% during 2004-2008 could be misleading because each cycle is different. Current cycle could be very different than previous one. Government policies could be the reason for inflation rather than credit driven inflation. 

4) Fall in inflation during 1999-2008 would have nothing to do with monetary policy, yet those averages are used as anchor to guide current situation. 






When machine as complex as economy is guided through policies driven by averages, volatility will persist and cycles will get shorter and violent. 

S&P 500 - Melt Up or MELT DOWN....!!!

Financial Bubbles or Panics are usually better understood through RATE OF CHANGE in underlying variables....
O Ashuji....

Rate of change - may be in terms of acceleration or deceleration - is better way of understanding topping or bottoming process. This can be applied to financial markets among many other things.
Few examples...

1) Fed Laughs during FOMC Meet and Housing Market Peak

Confidence in market is directly linked to ignorance and both are inversely related. Most academicians at central banks without an iota of real world understanding are great contrarian tools. Mood is jovial when confidence is high and same is getting reflected in "Fed Laughs" during FOMC meetings. Laughs peaks precisely when housing market was peaking. Magician Ben then believed that housing price decline had contained impact. Housing Market peaked in March 2006 while Central Bankers laughter peaked in Aug-Oct 2006. There is leg impact here as well. 

If one were to watch Bernanke testimony during 2008 crises and now, there is clear difference. Magician was lot more nervous (almost stammered in many cases) during 2008-09 testimonies, while now Magician believes everything can be micro managed. For Economist/Academicians, learning from past is blasphemy. 

2) Marc Faber Media Appearance during Gold Bull Market and Now.....

There is not statistics to this but regular watcher of business channels can make sense of the statement. There was rate of acceleration in MF's media appearance with peaking of Gold price. 

3) Rate of acceleration in Conference organized by brokerage house and market peaks...

4) Rate of acceleration in Company/Industry reports released by sell-side Analyst...

Analyst tends to release highest number of reports during market peaks...They will even try to make sense of CEO/CFO's FARTS during market euphoria. 

5)  Rate of acceleration in India's Finance Minister's Media appearance and lack of its impact of market...

There was time, when Finance Minister statement would move the market because statements were scarce commodity but now comments from Finance Ministry is higher than blabbering by CNBC anchors, resulting in minimal to even negative impact on markets. 

One can find plenty of examples of rate of acceleration in certain variables and its resultant impact. 

The idea of this blog is to understand rate of acceleration in NYSE Margin Debt and its impact on S&P 500.

NYSE Margin Debt and S&P 500 Melt Up or MELT DOWN....

Monthly % change in NYSE Margin Debt

1) Rate of acceleration increases after the trend has been there for some time. (1999, 2007 and NOW)

2) Green boxes marked acceleration towards/near top (1999- Nasdaq, 2006-2007 Housing/S&P...2013 NOW). Green boxes indicate rate of increase in Margin debt of greater than 10%. 

3) Red boxes indicated sharp decrease in Margin Debt typically marking bottom or close to bottom. 

  

All of the above indicates if market doesn't melt up soon enough then melt down is a very high probable scenario. Given massive divergence among global markets, melt down looks more likely. 

Bank Nifty and Massive Dispersion in Nifty Raising Red Flags.....

Confusion acts as natural risk control measure for trader....
O Ashuji...

I have stated in my previous blogs why I believe August 2013 could be big movement month for equity markets. http://speculationanart.blogspot.in/2013/07/august-2013setting-up-for-big-move-in.html

In this post, I will discuss 2 factors that are flashing warning signs for Nifty over coming month/s.

1) Bank Nifty vs Nifty....
Bank Nifty accounts for significant weight in Nifty at around 22% (29% with HDFC). July so far has big divergence between Bank Nifty performance and Nifty. Bank Nifty is down 7.7%, while Nifty is up 2.5%. Historically, big divergence between Bank Nifty and Nifty has invariably resulted in big moves in Nifty (mostly on downside). I have taken historical cases wherein Big Nifty was down while Nifty was up.....

Let Data talk....

Bank Nifty vs Nifty (% moves)

Wider the divergence between Bank Nifty and Nifty move, greater the movement is likely to occur. Except August 2005 and December 2006, all other months had negative movement in the following month in Nifty. December 2006 shouldn't be considered because Nifty was hardly positive i.e. divergence is very small.

2) Dispersion in Nifty....
When heavy weight stocks are part of both top gainers and top losers, it is likely to be a negative divergence. Top 10 (out of 50) stocks in Nifty accounts for 70% of the weight . Larger the presence of these stocks in Top 10 gainers and Top 10 losers, closer we are to an inflection move.

Let the Data talk....

1) Green Shaded Box are stocks which are part of top 10 stocks in terms of weightage in Nifty. 

2) Look at wide dispersion of heavy weighted stocks in July both as part of gainers and losers. 


















Both factors - Bank Nifty vs Nifty and Dispersion in Nifty indicates BIG MOVE in August. 

August 2013....Setting up for BIG MOVE in Equity Markets...!!

Sudden calmness post panic is sign of even bigger panic to come....
O Ashuji

Markets faith in Bernanke put is strengthened and markets are calm once again. But most global markets are showing big negative divergence with US markets reaching all time highs while most other markets yet to claim their May 2013 highs. April-June had wild swings across asset markets aka precious metals, bond markets. But come July 2013, things have turned quite with markets most followed magician (Ben Bernanke) calming things down or so market would like to believe. VIX is back to 12's, US markets continues slow levitation to all time highs. However global equity markets (other than US) are relatively subdued, interest rates have hardly budged. Price movement post late May 2013 appears to be classic topping move with sharp fall followed by slightly higher high (while other global markets have relatively subdued move). This indicates that next down move in global markets could be sharper than one we saw in late May 2013. 

Please refer

http://www.speculationanart.blogspot.in/2013/07/time-to-sell-bernanke-put.html

(Time to Sell Bernanke Put)

http://www.speculationanart.blogspot.in/2013/07/july-or-august-2013-big-move-in-nifty.html
 (July or August 2013 - Big Move in Nifty)

Options is the best way to monetize the coming move. 

In Indian (Nifty) context, VIX has collapsed to 16.7, while Nifty continues to have higher moves (up/down). 

IVs for both calls and puts VIX for August 2013 are relatively cheap at 14 and 16-17 respectively. 

August 2013 expiry has large number of trading days (23 trading days). 

All of the above coupled with global context indicates one of the best set up to play coming move through long straddle (for conservative traders) while risk takers can buy puts. 

Bull Market In Asset Markets Thrives on Corruption.....

Corruption or lack of awareness of Corruption drives and accelerates the bull market in asset markets....

O Ashuji

Biggest of the scams in stock market occurs during roaring bull market. Bull markets, particularly later stages are driven by greed and velocity of money shoots up. Rules are relaxed and oversight is close to absent. Its only during bear market ugly things surface or may be bear market makes things uglier. Lack of awareness  of corruption tends to keep bull market alive. Lack of transparency in rules drives biggest of the bull market. Ignorance largely drives bull market. Lets look at few examples...

India's bear market (Nov 2010-till date)

Though Nifty/Sensex might be close to all time high, but broader market has been under tremendous stress since peaking in November 2010. Many stocks are going below 2008 lows. Many other markets have conquered 2007 highs. During late 2010, India had beginning of anti-corruption movement led by Anna Hazare. Though Anna Hazare has largely disappeared but mood and media has become very sensitive/active on corruption issue. Scams after scams erupted post 2010....Unravelling scams was the story of town...Business approvals from government came to standstill, what is now popularly known as POLICY PARALYSIS. Investments in the economy has collapsed. One almost get sense of peak of pessimism. But it all began with ANTI-CORRUPTION DRIVE....

US Bull Market (2009-till date)

Interest rates were reduced to zero...Accounting rules for banks were relaxed/twisted...QE raise to infinity....Banks bonuses higher than 2007.....Most Feeble recovery post recession yet markets at all time highs....

Commodities Boom (2001/03-2011/2013)

Commodities boom largely began with big banks being allowed in physical trading in commodities.
That 2003 ruling, which involved Citigroup and its Phibro commodities trading unit, ushered in a decade of bank-friendly rulings from the Fed that allowed an increasing number of large financial groups to enter and dominate commodities trading. Approved in part by then-Fed governor Ben Bernanke, who now serves as chairman, the ruling allowed bank holding companies for the first time to trade physical commodities. 

In the following years, bank revenues from trading commodities soared, fueled by increasing global demand led by emerging markets such as China and India that required more oil, metal and other raw materials. Ten leading global banks have generated nearly $50 billion off their commodities business over the last five years, according to Coalition, a financial data provider.

(Huffington Post, 19th July, 2013)
Stories after stories were invented to justify phenomenal rise in commodity price with most famous being BRIC story. But root cause was large source of capital from banks being allowed to freely flow into physical commodities. We can debate endlessly as to why banks were allowed to get into such trading. Its precisely during good times tough questions aren't asked and corruption thrives.
Commodity prices are struggling recently and with recent Fed's state to review decision to allow banks/bank holding companies into physical trading of commodities, it could seriously kill the market. If banks aren't allowed to trade into physical commodities and other rules regarding of owning of storage facilities are tightened, one can say good bye to bull run in commodities. Of Course, Brokerage house and Investment banks will have FUNDAMENTAL stories about the same.
http://www.huffingtonpost.com/2013/07/19/wall-street-commodities_n_3625750.html

There are many factors driving bull/bear market...but corruption tends to accelerate bull markets. 

Time to Sell Bernanke Put ???

Certainty in market is road to bankruptcy...
O Ashuji....

Biggest and Costliest mistakes in markets when one is certain about outcomes. Certain outcomes happens only in theory wherein cost of mistake is nothing. Economists/Analysts are certain about their projections to the second decimal point and their confidence is positively correlated with their ability to go wrong consistently. One of the most exciting part about market is outcomes are probabilistic and hence there is grey shade to every trade.

Certainty about outcome is road bankruptcy in markets....

High leverage in any trade in undertaken precisely when risk is at its highest and driving force behind such high leverage is confidence in outcome of the trade. Confidence typically comes when trend has been in place for some time or through illusion of control based insider information/some one's ability to control market. When everyone is convinced about an idea then idea is usually a costly one. I will put few examples of how certainty is quite dangerous in market context...

1) Indian market had traded on upper limit of 20% on 18 May, 2013 with Congress government coming back to power with vast majority. Everyone was convinced that it was golden time for reforms since belief was lack of majority was holding back crucial decisions. What happened after that is known story. Indian had one of the worst government in living memory. Growth slowed down sharply, policy decision came to standstill, rupee collapsed, corruption was the only game......outcome was exactly opposite of what was perceived when government won with thumping victory.

2) John Paulson became household name with greatest trade ever (shorting Sub-Prime MBS during financial crises). He became one of the wealthiest american on one trade. With that trade he was widely followed and his next big trade was as much public as his short trade on MBS was private. His next big trade was Gold and confidence in this trade for most people was very high. Confidence not only in logic of the trade but ability of John Paulson. What has happened to Gold is now history...

3) Similar confidence was in commodities post 2008 financial crises when Fed initiated all sorts of QEs and easy monetary policies....Experts like Jim Rogers and many others were visionaries...but market is humble and makes visionaries more humble...

One can find many such examples where certainty about outcomes is very dangerous thing to bet on....

Confidence in Bernanke Put....

What is most dangerous is confidence in person who is confident about everything....I was listening to today's testimony of Ben Bernanke to congress. I just amazes me how can someone be so confident about outcomes on things as complex as economic outcomes. Not only he had confidence in his ability to project all economic variables (in spite of being consistently wrong in past) but also winding down huge Fed balance sheet without market disruption. 

Not only American Media discusses him very often but he is discussed more often on Indian business channels. Bernanke becomes standard disclaimer in every fund manager's recommendation. Such naive disclaimers goes to show how useless these fund managers are because basic tenet of market is MARKET IS SUPREME. In short term sentiments drive market. Market which was ripe for correction corrected post Bernanke testimony on 22 May 2013. Correction across asset class was sharp and due for bounce yet even for bounce Bernanke was responsible with his soothing words that QE will continue. Thus, market confidence is as high as it can be with guy responsible for shake up and bounce later. Now, lets look at few facts. 

1) S&P 500 corrected 6-7% from May 2013 high and are now back to new highs. 

2) Most emerging market currencies and bonds continue to suffer badly. 

3) US10 Year yields shot from 1.6% to 2.7% and are currently at 2.5% (despite all soothing word from Big Ben)...Yields have hardly retraced their gains. 

4) Gold silver collapsed and have hardly bounced. 

Equity is the only market which has bounced and made new highs while other markets continue to struggle.....thus fact speaks otherwise while confidence in Bernanke soared....TIME TO SELL BEN PUTS....

Will India (Nifty) Follow Brazil (Bovespa)... ??

Surprise policy moves has longer impact on asset prices than most expect....
O Ashuji...

May 31 (Reuters) - Brazil's benchmark Bovespa stock index fell by more than 2 percent on Friday, led lower by construction companies in the first day of trading since Wednesday's larger-than-expected interest rate hike by the central bank. (May 31, 2013)

(Reuters) - India's boldest attempt yet to prevent a rout in the rupee delivered only a modest lift in the currency but shares slumped and bond yields jumped as investors worried that policymakers might overplay their hand and damage economic growth. (July 16, 2013)

Both Moves were intended to curb "excessive" volatility/fall in their currencies. Both India and Brazil like many other emerging markets are facing problem of stagflation (High inflation coupled with low growth rates). Brazil continued its rate hike cycle, followed by one more rate hike in July. Bovespa fell 10% within 10 trading days post surprise hike on 29th May 2013 and 16% till date post surprise hike. Though Brazil was down 8% YTD till 29th May 2013, fall accelerated post larger than expected hike. 

Indian market was taken by surprise with tightening measures undertaken by RBI on 15th July 2013 (post market). Most commentators are of hope that such measures are temporary, while experience in other emerging markets like Brazil, Indonesia (soon Turkey) indicates tightening cycle may have further to go. This indicates Indian markets may have more downside than most expect. 

Fragility vs Anti-Fragility

Decay in life comes through stability.....
O Ashuji....

Nassim Nicholas Taleb does wonderful job of explaining concept of anti-fragility in the book Anti Fragile. His central thinking that randomness/volatility is anti-fragile and stability is fragile is far more applicable to current times.

We can simplify the relationships between fragility and anti-fragility as follows. When you are fragile, you depend on things following the exact planned course, with as little deviation as possible-for deviations are more harmful than helpful. This is why the fragile needs to be very predictive in its approach, and conversely, predictive systems cause fragility. When you want deviations, and you don't care about the possible dispersion of outcomes that the future can bring, since most will be helpful, you are antifrangile. (Anti-Fragile - Nassim Taleb)

The central illusion in life - that randomness is risky and is a bad thing

Volatility is Anti Fragile....

Artisans, say, taxi -drivers, carpenters, plumbers, tailors, and dentists, have some volatility in their income but they are robust to a minor professional Black Swan, one that would bring their income to a complete halt. Their risks are visible. Not so with employees, who have no visibility, but can be surprised to see their income going to zero after a phone call from the personnel department. Employees' risks are hidden.

Thanks to variability, these artisanal careers harbor a bit of anti-fragility: small variations make them adapt and change continuously by learning from the environment and being, sort of, continuously under pressure to be fit. (Anti-Fragile - Nassim Taleb)

In Market Context, Traders/Hedge Fund Managers are anti-fragile because inefficient and inept ones are forced to leave while survivors constantly adapt and learn. Unlike analyst from brokerage house or Economists who are most fragile because they fail to learn and have grand illusion that everything in life is and should be predictable. These brilliant scholars have great love for equilibrium and constantly strives to quantify human behavior into equations. Analysts can calculate fair price for everything using wonderful tools like average (and historical) P/Es, CashFlows...except they fail to arrive at fair price of their own existence in markets. These guys are fragile because they are try to get predictability into everything and when big moves happen in asset markets and they can always blame external factors. In one sense analysts/economists are robust (not anti-fragile) is despite being always wrong in their "forecasts" , they continue to survive and in some cases thrive.

Traders/Hedge Fund Managers would love volatility because Volatility has huge optional value. It's because of existence of such  participants (analysts/economists/policy makers, etc), vast asymmetries  arises in options markets. Volatility will be under-priced or over-priced because

1) Recent behavior of asset prices will be extrapolated by spinning new stories (new normal, great rotation out of bonds into equities, India growth story...blah blah)

2) Most forecasts/recommendations by so called analysts/economists are far different than actual behavior of asset prices historically or otherwise. For eg in case of currencies, many will have yearly forecast in range of 4-7% depending on currencies. In reality many months will have such wide swings in currencies. Option tend to under price such swings after long period of calmness. In case of equities these guys will do lot of hard work and analysis but most of them will have similar targets plus/minus 5%.

Creating Fragile Asset Markets by Instilling Predictability into Everything...

Why Central Bank actions around the world are sowing seeds of huge volatility...

Central Banks across the world rightly acted during financial crises of 2008 by injecting large doses of liquidity and taking various other measures. Since, then it was essential for these central banks to increase to their balance sheet size due to broad de-leveraging in other part of markets and falling of velocity of money. With reasonable success at their efforts in taming the crisis, central bankers are now trying to instill predictability into everything be it direction of interest rates, timing of direction, conditions necessary to undertake various decisions, etc. Most participants spend more time analyzing "what Ben Bernanke will do" than anything else. Instilling belief that central bankers are in control of everything is dangerous because it creates illusion of calmness among participants. Taking Variability/Volatility from economic variables or creating such illusion makes system highly vulnerable to sudden and very sharp swings. We have seen how asset market can swing even at hint of variability by these central bankers. Recent behavior of fixed income markets, precious metals, etc is just but sign of times to come. 

Is Nifty's Implied Volatility Under Pricing Actual Volatility.....?

Most policy makers (particularly central bankers) strive for equilibrium/stability and those steps sow seeds of volatility.....
O Ashuji

Volatility across asset classes has widely picked up since April 2013 (coinciding with Japan's monstrous monetary experiment). Precious Metals experienced historic sell off (SPDR Gold ETF holding is down close to 400 tons or close to 30% since Jan 2013), Bond Yields across countries (First Japan and recently US and Emerging Markets) have turned hugely volatile, Emerging market currencies are behaving like penny stocks. Only, asset class whose volatility pales in comparison to such wild swings across asset class is equity markets. Will it play catch up....Very Likely....!!!

Is Nifty's Implied Volatility Under Pricing Actual Volatility.....?

Chris Cole at Artemis Vega Fund (www.artemiscm.com) does some really good work on volatility and same is shared for free on the website. Many opportunities in the market arises due its participants tendency to extrapolate recent price or volatility action. Indian Stock Market (Nifty) like many other stock markets have experienced sharp collapse in Implied Volatility since June 2012. Avg Daily VIX collapsed from 23 in June 2012 to recent Avg Daily VIX low of 13.9 in Jan 2013. Recent average has been 18-19. As, I have stated numerous times in past price compression during Oct 2012-Jan 2013 was historic and anyone extrapolating that behavior is likely get news anchor job at business channels. Recent, pick up in Implied Volatility looks slower compared to actual pick up underlying price behavior.

Let DATA talk.....

Methodology

1) Number of Daily % moves are used to understand volatility. A month is considered to be volatile if it has large number of moves greater than 1%, 2% and 3%.

2) Score is calculated assigning weights to those moves. For eg, 1% move is assigned weight of 1, 2% is assigned weight of 2 and 3% is assigned 3.

3) Weighted average score is calculated. High score would imply higher volatility.

4) Score is compared to IV's in those months to understand if actual volatility is being under priced.

Results

Number of Daily % Move, Score and Avg VIX 

Conclusion

1) Score greater than 10 is compared with Average IV. July 2012-April 2013 didn't have score greater than 10 and just shows how dead market has been in terms of movement. 

2) Score greater than 10 tends to have corresponding VIX of 20+ atleast. However, recent score of greater than 10 (May and June 2013) is having lower corresponding IVs. May and June 2013 IV at 17 and 18.7 is much lower. This indicates IVs could increase given actual increase in Volatility. Options continues to be the way to play this. 

July or August 2013 - BIG Move in NIFTY...??

Mind of Economists/Analysts can be compressed for long but not Price of Asset Markets....
O Ashuji....

Two previous blog posts puts reasonable effort in explaining concept of compression in asset markets and clustering of volatility.

1) Entering Volatility Globally....(28th Feb 2013)
http://speculationanart.blogspot.in/2013/02/entering-volatility-globally.html

2) Market Compression Reaches Extreme !!! (26 Dec 2012)
http://speculationanart.blogspot.in/2012/12/market-compression-reaches-extreme.html

The idea of this blog is to take one of the measure of market compression and understand the probabilistic outcome over coming months.

July or August 2013 - BIG Move in NIFTY....

Methodology

1) Absolute monthly returns for Nifty are analyzed. (Since 1991)

2) Absolute monthly returns are added over period of 4 months to arrive at a score. 

3) Score less than 10 is considered as compressed score i.e. price move on monthly basis is compressed. 

Results

1) There have been 5 periods (excluding March-June 2013) in which 4 Month Cumulative Score of Nifty (Absolute Return) has been less than 10. They were...Sep-Dec 1991, Jan-April 2004, April-July 2010 (also June-August 2010), April-July 2011, Oct 2012 - Jan 2013. 

2) Each of these periods were followed by big monthly moves. 

Absolute Monthly % Movement Nifty 

Nifty Returns Post Compressed Months

Conclusion

Cumulative score for Mar-June 2013 stands at 8, which indicates July or August 2013 could be month of big move for Nifty.

Analysts/Economists Vs Traders.......

Opportunities in Markets arises because academicians with no real life experience sets policy of real world....
O Ashuji

Most of the blogs, I have posted stresses importance of data in trading. This post will look at qualitative aspect of a Good Trader vs Analyst/Economist.  

1) Economist/Analyst are normally visionaries and rationalizes how things should be, while traders are realistic and accept the way things are.

2) Economist/Analysts most of the times believe market is wrong and will hold on to their view till they are thrown out of job and/or company has gone bankrupt trading on their views. Good Traders, on other hand will always accept market is supreme and opinions are useless.

3) Good Traders are passionate about markets and understanding the same, Good Analyst/Economists are passionate about bonus checks and their views.

4) Analyst/Economist believes markets can be controlled through policies and can be micro managed. Traders on other hand believes, only thing that drives market is human emotions aka Greed/Fear.

5) Economist/Analyst tries to formulate/Quantify human behavior and sees world in black and white, while traders see everything in terms of probability and hence grey shades.

6) Economists/Analysts knows what will happen in future (also how will it happen), why things happened in past and what resulted in present. Good Traders believe future is uncertain (path is probabilistic) and history is great learning tool.

7) Economists are the only breed who gets doctorate without any real life experience...Dr Ben Bernanke, Dr Paul Krugman....

8) Economists/Analysts will have view on everything because view is free and salary is assured. Traders are accountable for their view.

9) Economists/Analysts have visionary hindsight.

10) Economists have the ability to project anything for a country or world as a whole, be it GDP, Inflation, Interest Rates, Deficits, etc and they maintain close to 100% track record of being consistently wrong because most of the times fundamentals change in future and they can't have fundamental under control. Stock Market Analyst tend to know more than Chairman or Founder of the Company.Traders, on other hand, struggles to predict what will happen next working day.

11) Certainty about everything is guiding principal for Economists/Analysts. Uncertainty is the only constant for Traders.

As long as Economists/Analysts exists, Traders will find ample opportunity to make money and world will have frequent business/market cycles. The moment, traders become part of policy making, stock market or other asset markets might not be as exciting.