Cause and Effect

The US market moved up sharply due to an improvement in both the initial and the continuous jobless claims-or so the news agencies and the Television media claim. (Even the strategists will claim that but I do not want to forever take their case) The best that can be said is that the US market recovery happened concurrent to the release of this data. To attach a causal relationship to the release of the data and the rally in the market is the easiest thing to do because any data release of that particular day is the USUAL Suspect to be rounded up and presented to the viewers/investors who demand a cause for every move in the market. Is it so difficult to believe that this rally would have happened anyway and people were just waiting for a trigger to make the move? The market had been hammered down for days and as they say even a dead cat bounces!

This need to find a cause for every action is based on the belief that once the real cause for the market move is known, one can use this knowledge to predict the future behavior of the market. The belief that one needs to know what the market is likely to do in order to profit from it is the prime reason for this persistent demand for news and cause for market moves.

This demand to know the cause of a move keeps us rooted in the past instead of reacting to the present. This inhibits our ability to react to market movements because the mind is forever trying to know why the market is moving the way it did. Even as I write this note, the Indian markets are up around half of a percent. Given what happened in the US one would have been right to expect a larger move. Instead of wondering why the Indian market have not gapped up higher, it might be better to react to the fact that Indian market have not moved up as much as it should have and accept that weakness persists without worrying about the reason for this weakness.

I continue to remain short. I will cut my short positions only if Nifty futures trades above 5210. Even then I will not go long.