Justification for a Short Position

I said yesterday in my note that I have already prepared reasons to justify a short position on the Nifty. Little did I know that it will come in handy so soon. I went short on the Nifty yesterday when it broke below 5022. This short position is in the money and I will cut that short position and go flat only above 5063.                                                                       To come to my justification for the short positions

1] The Efficient Market Theory can talk only of pricing known uncertainties. Things one does not know that one does not know cannot be in the price. Given the fragile situation in the world, the possibility of an unknown unknown hitting the market is non negligible but is not priced in by the markets making the markets vulnerable to a large fall. (I love this unknown unknown bit. Makes me feel like a real strategist!)                                                 

2] Fundamental valuations are cheap on a historical basis as long as one looks at the last 10 yrs only. But PEs have been lower in the past specially in a high interest rate and a falling earnings scenario. We could therefore see PEs contract further and consequently push the markets down even more. (Completely irrefutable logic. Only thing is that I am not sure that the facts I have stated are right. Are we really in a scenario of falling earnings and increasing interest rates?)

3] Dollar Rupee is depreciating and FIIs might want to withdraw money before more depreciation hits them. (Who can really say what the Rupee and the FIIs will really do? And why predict Rupee movement to predict Nifty movement? But talking about something other than the Nifty or earnings makes it look like I know what I am talking about!)

4] The RBI has no leg room to cut interest rates or CRR. Any reduction could hit the Rupee even further. Inflation is already high and a depreciation of the Rupee is adding to the inflationary pressures. So the best case scenario is interest rates remain where they are. (Complete hogwash but one has to hope that the readers will only look at the confidence with which a statement is made and not at the veracity of that statement)

5] The last 10 Decembers have given positive returns but it is time to mean revert. Therefore this December's returns has to be negative. (Again pure speculation and totally debatable use of mean reversion theory but at least 5 points have to be made to justify a short position)

Finally I also have attached a chart which shows the possibility of a further fall. The chart shows a classical Head and Shoulder pattern on the Nifty. There is also a classical retest of the neckline etc. The potential fall can take the Nifty to 4100.

So in the last two days I have given good reasons to be long and now short on the Nifty. Using these two notes as primers you can always take whatever position you want and justify them to pesky investors who insist on questioning every well intentioned decision that you make.

Don't you agree that I am making life much easier for you! Don't you also feel that this incredible value addition deserves some great commissions?