I have been focussing too often on the Dollar Index and the S&P and the trends in equities and commodities without trying to analyse the underlying story. (And how often can one write about the same thing?). And you remember the Shanghai Syndrome I wrote about?. The need to analyse every possible thing just to be able to trade one particular thing? Well it has got me again. So here goes
1]The SPX vs Gold chart clearly shows that the trend for SPX has moved down again with respect to Gold. This to my mind is an indication that any rally in the US is due to a devaluation of the currency against other currencies and GOLD.
2]The yield spread between the 1yr and 2yr US bond has started dropping again. This again makes me believe that the bond market does not expect any significant economic recovery in the next 2 yrs.
3]The Copper vs Gold chart shows signs of dipping into a downtrend again. My belief is that commodities have rallied because of Dollar devaluation but if there was an economic recovery too then Copper being an industrial metal should rally more than Gold. While it has been the case till now, the rally of copper vs gold seems to be over at least for the time being. This again is bad news for any economic recovery proponent.
Despite this, the trend is still up for equities and commodities and I am not one to fight the trend. I am long the Nifty. Will remain long until 5000 is broken. If 5000 is broken, I will definitely chuck the longs but might put on a short position depending on how it feels at that time.
At this moment I am all for trend following. That is the way of the lazy and the passive (which I am). Not for me the rigors of trying to predict the future. Predicting the future is an exacting art and demands a lot from the practitioner. I mean just look at an analyst who tries to predict where the price of a particular company's stock is headed. First he has to understand how the company is doing (meaning talk to the management) Second he has to make an excel model which will predict the EPS number for the next few years. Then he has to look at a possible P/E band for the company. Finally he has to decide whether the current price undervalues or overvalues a company and then decide to BUY or SELL the stock. Boy! that sounds like a lot of work and much beyond my limited abilities.
Of course it is another matter that with so many variables to predict first to finally predict a price band for a company, the chances of getting it right are actually very slim. But that does not mean that trying to do that is not hard work!!!. So I stick to my passive trend following methods and hope that when the market trends, it trends enough to make up for the losses in the non trending periods.
But then a thought struck me. Am I not in the same boat?. My trying to look at the Dollar Index, 1yr vs 2 yr yields, S&P vs Gold, Copper vs Gold etc---- is it not a way of looking at different variables to finally predict the trend for the Nifty?. The Shanghai Syndrome strikes again!!!. It has this devious ability to sneak up on you when you least expect it.
P.S For those who are really interested in reading my detailed analysis of the Shanghai Syndrome can refer to an earlier note on the same subject which discusses the symptoms of the Syndrome and even gives its cure!!!.
1]The SPX vs Gold chart clearly shows that the trend for SPX has moved down again with respect to Gold. This to my mind is an indication that any rally in the US is due to a devaluation of the currency against other currencies and GOLD.
2]The yield spread between the 1yr and 2yr US bond has started dropping again. This again makes me believe that the bond market does not expect any significant economic recovery in the next 2 yrs.
3]The Copper vs Gold chart shows signs of dipping into a downtrend again. My belief is that commodities have rallied because of Dollar devaluation but if there was an economic recovery too then Copper being an industrial metal should rally more than Gold. While it has been the case till now, the rally of copper vs gold seems to be over at least for the time being. This again is bad news for any economic recovery proponent.
Despite this, the trend is still up for equities and commodities and I am not one to fight the trend. I am long the Nifty. Will remain long until 5000 is broken. If 5000 is broken, I will definitely chuck the longs but might put on a short position depending on how it feels at that time.
At this moment I am all for trend following. That is the way of the lazy and the passive (which I am). Not for me the rigors of trying to predict the future. Predicting the future is an exacting art and demands a lot from the practitioner. I mean just look at an analyst who tries to predict where the price of a particular company's stock is headed. First he has to understand how the company is doing (meaning talk to the management) Second he has to make an excel model which will predict the EPS number for the next few years. Then he has to look at a possible P/E band for the company. Finally he has to decide whether the current price undervalues or overvalues a company and then decide to BUY or SELL the stock. Boy! that sounds like a lot of work and much beyond my limited abilities.
Of course it is another matter that with so many variables to predict first to finally predict a price band for a company, the chances of getting it right are actually very slim. But that does not mean that trying to do that is not hard work!!!. So I stick to my passive trend following methods and hope that when the market trends, it trends enough to make up for the losses in the non trending periods.
But then a thought struck me. Am I not in the same boat?. My trying to look at the Dollar Index, 1yr vs 2 yr yields, S&P vs Gold, Copper vs Gold etc---- is it not a way of looking at different variables to finally predict the trend for the Nifty?. The Shanghai Syndrome strikes again!!!. It has this devious ability to sneak up on you when you least expect it.
P.S For those who are really interested in reading my detailed analysis of the Shanghai Syndrome can refer to an earlier note on the same subject which discusses the symptoms of the Syndrome and even gives its cure!!!.
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