Aug 102011

The blame game begins šŸ˜€

Did you ever doubt the movements in the stock markets over the last couple of weeks was not a bear market fluctuation? Here is proof that it is- the above headline captured from Yahoo/Reuters.

Wait a second. I thought fund managers never looked at charts.Ā Wasn'tĀ it always their super intelligence and Ivy league education that drove their decision making process? You mean to say small guys who look at charts churned all those trillions of dollars of Market Cap across the globe and the fund managers just sat there and did nothing to prop up their NAV? No value buying? You mean to suggest that algorithmic trading do not take into account PE, Price to book and other parameters and just supports and resistance?

I've seen such Technical Analysis/ Chartist bashing in every bear market in the last 12 years. Having worked in anĀ institutional broking arm in the past, I can tell you thisĀ - a technicians full worth is realised only in a bear market. The PE multiples, consensus forward earnings put forward by the leading broking arms are very rarely ever, leave alone being right, even close to being right. In a bullish environment these numbers give theĀ illusionĀ of being right. So when a bear market kicks in, the mirage disappears, everyone wants to speak to the chartist and understand where the markets are headed. Do you think I'm bashing fundamental analysis? Nope. Here is the proof.

Do you know what was the consensus earnings estimate in Jan-March 2008? It was close to 1000 for the sensex(check here and here). That number was revised down to 933 in Oct/Nov 2008 citing slowdown in economy (euphemism for I'm watching price action). Any guesses when that number was achieved? Now, HOLD YOUR BREATH! Ā And take care of your Jaw! We are yet to see that on Sensex!!!!! I'm not talking about the 1000, I'm talking about the revised number of 933. The BSE website shows the current earnings for the Sensex as 913!!!! The current forward earnings estimate for Sensex is around 1200. So the next time you hear markets are cheap compared to their earnings - you might want to think or ask "based on what? Trailing or Forward earnings?"

For fundamental analysis to be effective one must have an approach like that of Warren Buffett or the Chandler brothers who stay far far away from the action, observe, analyse the markets and pick value like a hawk.

Now do not get me wrong, I know some brilliant fundamental analysts in the industry who do not come up with silly numbers like cited above. But those guys are a very rare breed.(Example: So rare that one Fund manager made the CEO of Tata Power wait so that he could talk to an analyst friend of mine)

  29 Responses to “If you had any doubts this was not a bear market..”

  1. Very nice article Jai. Carry on the good work .

  2. Very well analysed jai bcoz i used to sell equities assuming 1k eps.i even had reports of 1047 exp eps
    prjection of fii’s and big domestic request of clarification; there were atlest 4 occasions of corrections between 2003 and 2008 journey frm 3500 to 21k wherein we witnessed correction of 20% to 30% ,why they were assumed to b mere corrections and not bear mkts?especially since ur defination of bull mkt is higher highs & higher lows.

    • Rajesh,

      Except for 2004, others were corrections in traditional technical analysis. A knowledge where they are occurring in the larger trend, helps define them (This is where Elliot wave turns out as a useful tool).

      Good luck,

  3. But are only the Sensex and Nifty the only things to look out in and determinants of the other stock prices in India. There are several value buys on the mid-cap and small-cap segment. Not sure which way they will move.

  4. hello sir how to trade eurusd these days stuck in a major movement

    • Zubair,

      That will be the reason for the next stage of decline. The 1.3950-1.3915 zone needs would be the breakout level, following that a sharp decline for the Euro should start. Until that it will be a choppy sideways move.

      Good trading to you.

  5. Very well said…and your article on Gold is so true..but half the analysts are advising their clients to buy gold..maybe thats why its still holding as a safe haven…I sold ot of mine @ 2465… I am very interested in learning technical analysis..trying to self teach myself…John Murphy & Edward, Magee are helping.. And credit to you as well..

  6. Bravo…what you have been saying all this time…glad to see it in a public forum now…bash them in good and proper…they did not miss any oppurtunity to bash you earlier…:)

    By the way – waiting for our talk…


  7. Jai,

    Fascinating discussion.

    Sorry to labour the point. In continuation to what Rajesh has asked above, so you are clear that this is now a bear market and not a correction in a multiple year bull market ?

    Thanks for sharing your thoughts.


  8. Thks for clarification..can u pls restate the technical book name recommended by you earlier in response to a specific query..also if u have a view on tata power,needless to say am short..hope it does not sound like asking for too much..

  9. Awesome one buddy



    bear mkts give more money to TA

  10. Very nice article jai…..Can you please name a few stocks that could be looked as buying opportunities from medium to long term?

    Thanks & Regards,

  11. I am new to your blog..very nice article.

  12. Jai Bala,

    This is by far most complex correction ever (In my four years of trading career). I eagerly looking forward to your opinion.


  13. Jai,

    Yesterday performance of the broad market was like a “give up”. Do u see this as a sign of end of pain and close to bottom.

    Also, any update on Gold ?I did follow the last call on shorting gold ? Like usual I take responsibility for my action šŸ™‚


    • Rut,

      Im looking at a short term bottom closer to 4700-4800 and a counter-trend rally(this is what I said on Bloomberg/NDTV last week) My sense is that people are still in denial and there could be a bigger fall.

      BTW, the message from that post on Gold was more – “Dont be caught holding the bag on the long side”.

      Good trading to you,

  14. Can I go ahead and buy puts?? 4800?? Pls suggest…

    • Julie,

      I cannot tell you what you should buy and sell. Im not an investment advisor. I merely present what I see – it should be your own judgement to reject/accept it and process the opinion in a way that suits your risk profile.

      All the best,

  15. Dear Jai,

    If NIFTY & BANKNIFTY 18 months chart is compared:
    – NIFTY is more closer to its May low of 4800 (5% drop from here will take it there).
    – But BANKNIFTY is still way too pricey in that comparison – since its May low is 9000 (i.e., 10% drop from here).

    What is your opinion in this – could BANKNIFTY easily outperform NIFTY on the downside & go upto 9000 if NIFTY were to go to 4800?

    I really got interested to Buy BANKNIFTY today below 9900 levels for atleast a short term rally from here.

    Best Regards,

  16. hello sir
    as you expected nifty near 4800 level

  17. Hi,
    You gave me tgt for alstom project 492 almost there covering ..u gave counter trend rally tgt for Rec 230 235 reached, exited, CMP 170..u gave a tgt of 190 on titan almost there..add to it all other super calls on nifty ,cap gds etc much ahead of actual break dwn ..fantastic job jai thks & bst wishes..i also agree was always in denial mode about this being a bear mkt..

    • Rajesh,
      Whatever you did the credit goes to you šŸ™‚ you tracked someone on tv, you checked the past accuracy and you used your discretion to pick weaklings and asked the right questions. Well done to you. Trust me, it’s never easy to pull a trade following someone else

  18. hello sir
    what about the gold rally at 1866

  19. Ok. Jai…I have got a wrong decision on shorting Gold. How does the chart look to you. Any stop loss ?

    • Rut,
      1857-62 was a zone that should have put brakes. This is why extended waves are dangerous. Check if it reverses at close, else it might be time to fold and get back once there is a reversal.
      Good trading to you,

  20. Jai…thanks a ton. Wish u a relaxed weekend…regards

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