ELLIOTT VS TIME
Challenging a seventy year old market forecasting theory isn’t easy. It is tougher if one is a practitioner himself and a believer in the Elliott wave theory of price fractals. However, when we talk about TIME FRACTALS, PRICE FRACTALS have a strong challenger, even if the theory of TIME is at a nascent stage.
We should admit that it was a pleasant surprise after nearly 10 years of digging price patterns to reach TIME FRACTALS. The latter part of the year will be devoted to explaining ELLIOTT FRACTALS through TIME. The two rules of Elliott i.e. 3 wave is never the shortest and 2 wave does not get into 1 are rules of TIME also seen in Elliott waves. Currently EWT is the closest theory to TIME.
Illustrated below is a small example of a performance cycle between BSE500 (Indian 500 stock composite) and BSE30 (Indian 30 blue chip composite). Performance cycles are the direct proof of cyclicality in time or fractal nature of time. If we can prove that an asset A outperforms and underperforms asset B in a cyclical nature, we are simply proving that a ratio line which has no units of price associated with is has an order associated with it. Why anybody did not see it yet and we are the only one talking about it, because the idea is too simple to be accepted or believed. As we say the idea of time driving markets and nature is ahead of its time.
INDIAN PAIRS
So what is with BSE500 and BSE30? Can you really make money on SHORT BSE500, LONG BSE30? On a primary basis, markets have witnessed about 10 performance tops on BSE500 against BSESN since 2000. Barring one signal, rest all of them came at or near historical tops viz. Mar 2002, Jan 2004, and Jan 2008. Where are we on BSE500 vs. SENSEX now? The performance cycle between BSE500 and SENSEX (BSE30) just like its global peer is at an extreme. This might look coincidence, but even if there is a relative performance cycle between DOW and SENSEX, global equities move together. The broad market indices weakening against blue chip indices don’t excite us. They tell us that the best part of the 2009 bull reprieve is over and whatever reason we may give us, the odds are against us as equity owners. India is a great story. It will be always a great story. But if the broad market depicted by BSE500 decides to falter against top 30 stocks, markets are heading for atleast a month or two of exhaustion. The post Jun low which could push markets higher seems a bit distant at this stage.
There are some extreme variations in results starting 5% to 60% annualized. But the interesting part is that the strategy delivered positive results most of the time. 20% average spot annualized gains are not easy to ignore whether you are fund manager or a trader. Leverage on derivatives makes this simple strategy look too good to be true. We will see how the strategy works out now.
AMERICAN EQUITY PAIRS
Performance cycles can shed some light on where Sensex and global equities are headed. A global pair relationship between S&P500 and DOW 30 illustrates the relationship between broad 500 stocks and 30 blue chips. We write about the two indices and the performance cyclicality between them. The pair hit a CYCLE low, both on an intermediate and primary basis on 23 Nov 2008. This suggested that the broad 500 blue chips could not underperform the top 30 American blue chips any more. Why? Because performance cycles are based on time fractals, there is an order in which broad market performs or underperforms the blue chips. Market turnarounds have a lot to do with the respective dynamics.
When broad markets fall against blue chip, rises become shallow and unsustainable. Another interesting aspect to be observed here is that it’s only now after Nov that the broad market has turned lower against DOW. This removes any doubt for us that the intermediate path of least resistance remains lower not higher for American equities. READ MORE….
CROSS PAIRS
Then there are cross pairs. The anticipated turn on OIL we talked about happened. Prices fell nearly 23% from Jun highs. READ MORE…
METAL PAIRS
In conclusion, pair performance demonstrates the mathematical nature of time and how markets move from disequilibrium to equilibrium oscillating in an ordered fashion. We can keep trying to avoid time, ignore it, but it will continue to manifest in various forms, various global pairs creating risk and return in a fractalled way telling us that SHORTING S&P500 and going LONG DOW may not be such a bad idea after all. READ MORE…
*This is a perspective product and not a strategy product. Long Short strategies are not riskless strategies. Please mail us for a detailed working or consult a local financial risk manager to execute these pairs. For more details please subscribe to the ECONOHISTORY research products.