Author: shyam

Technical Analysis of the Financial Markets: Ch 1

shyam November 9, 2011

This is the review of the first chapter of John J. Murphy’s Technical Analysis of the Financial Markets.

Philosophy of Technical Analysis

Technical analysis is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends.

It is based on the rationale that:

Market action discounts everything. Anything that can possible affect the price – fundamentally, politically, psychologically, or otherwise – is actually reflected in the price.
Prices move in trends. The purpose of charting price action is to identify and follow trends. Once a trend is setup, it is more likely to continue than to reverse.
History repeats itself. Much of technical analysis is based on the study of human psychology, which tends not to change. The key to understanding the future lies in a study of the past.

Market price tends to lead the known fundamentals. Fundamental analysis is more of an explanation of why the price action occurred while technical analysis tries to predict that price action.

Technical analysis is rooted in statistics. It is a combination if descriptive statistics (graphical representation of data: a candlestick chart, for example) and inductive statistics (generalizations or predictions extrapolated from that data: indicators, for example).

Stay tuned for more!

Categories Your Money Tags technical analysis

Technical Analysis of the Financial Markets

shyam November 7, 2011

I had done a chapter wise review of Tony Plummer’s Psychology of Technical Analysis a few months ago. Given the amount of interest it generated, I’ve decided to take a crack at reviewing the mother of all Technical Analysis books: John J. Murphy’s Technical Analysis of the Financial Markets.

Here’s how Amazon.com describes the book:

This outstanding reference has already taught thousands of traders the concepts of technical analysis and their application in the futures and stock markets. Covering the latest developments in computer technology, technical tools, and indicators, the second edition features new material on candlestick charting, inter-market relationships, stocks and stock rotation, plus state-of-the-art examples and figures. From how to read charts to understanding indicators and the crucial role technical analysis plays in investing, readers gain a thorough and accessible overview of the field of technical analysis, with a special emphasis on futures markets.

I suggest you get your copy today and join me on this journey toward a better understanding technical analysis!

Follow me on twitter @SunderStockViz

Categories Your Money Tags technical analysis

NREGA is evil

shyam November 3, 2011

Image via Wikipedia

I have always maintained that the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) is evil. Its evil both philosophically and by intent. It was sold as a scheme to create productive job opportunities for rural labor during the non-farming season and was supposed to be active in districts with acute unemployment problems. However, it has morphed into a major boondoggle.

I blame NREGA on our persistently high inflation and our seeming inability to grasp that unproductive transfer payments always end in tears for the tax payers. And now, Morgan Stanley concurs:

This program has had an adverse impact on domestic inflation for three reasons:

it discouraged workers to go to farms;
local governments that did not have the administrative setup to run this program ended up transferring payouts to workers without getting the full productive utilization of the workers’ time; and
those receiving these transfers ended up spending more on food (particularly protein items), since this represents a large proportion of their consumption basket.

Labour Bureau statistics indicate that, over the last three years, agricultural wages in India have risen by a cumulative 105%, compared with nominal GDP growth of 64% in the agriculture sector.

So the rural farm sector sees an unproductive increase in wages while the urban labor productivity weakens due to global economic slowdown and purchasing power decreases due to the Reserve Bank hiking rates 13 times in a row!

I call NREGA evil precisely because it prevents the movement of labor from unproductive sectors to productive ones. If the goal is to keep the poor unproductive and to pull down the lower middle classes back into poverty, then NREGA has been an unprecedented success. When will this madness end?

Categories Your Money Tags inflation

Lady Leverage

shyam October 31, 2011

Hussman’s Weekly Market Comment is a must read for anyone interested in finance. Here’s a choice quote from his latest:

European leaders have announced “We have agreed to solve our debt problem, leveraging money we do not have, to create a fund, which will then borrow several times that amount, in order to buy enormous amounts of new debt that we will need to issue.”

On a side note, MF Global’s 40:1 leveraged $6 billion bet on PIIGS debt, an itch that Corzine had to absolutely scratch, is probably going to result in a bankruptcy filing and a sale to Interactive Brokers. So much for becoming the next Goldman Sachs…

Categories Your Money

Nifty 50 the best and the worst months ever

shyam October 29, 2011

Image via Wikipedia

This has been a dog year for Indian stocks. I am ready to wave goodbye to this year. Can I have 2003 (India Shining) back?

The best months:

March-09	11.79%
September-07	12.52%
June-03	12.72%
August-03	13.91%
July-06	14.57%
April-09	14.60%
August-08	14.85%
December-03	16.04%
October-07	17.37%
May-09	26.65%

And the worst:

October-08	-27.39%
October-05	-22.63%
May-04	-16.99%
June-08	-16.89%
January-08	-15.93%
May-06	-15.42%
June-06	-14.35%
August-05	-11.10%
January-11	-10.67%
August-11	-10.26%

Now that the Greek can has been kicked down the road and the rest of the PIIGS (PIIS?) yet to work in their demands for a haircut, here’s hoping for a Santa Claus rally by years end. Fingers crossed!