Simplifying TOPS

“Simplicity or singleness of approach is a greatly underestimated factor of market success.” These famous words of Garfield Drew are very hard to learn. It’s like accepting that being a fool in markets is the first step to profit. As then you are always alert to a market surprise and never get into genius’s bias.
A genius doesn’t make money in the market, the man who accepts his foolishness can turn a better profit against all market intellect. It’s something similar to another street lore, which says “beating the markets is easy, beating yourself is tough”. And to add it all, we have the classic, “Markets don’t work on hope”.
We at Orpheus believe that good research is not about making things complex, but making them easy. This brings us in sync with what Garfield said. If you still find it unpalatable, give us a minute more.
Just like POWER vs. SENSEX (India, Top 30 Index) or GOLD vs. OIL, two assets from the same market or two sectors from the same economy or two trading economies can never be disconnected. It’s all linked, Indian Rupee with Japanese Interest Rates or Brazilian sugarcane with Nat Gas or Shanghai with Soya.
The last two columns we got cues about Indian markets topping any time in the next few weeks owing to the POWER outperformance which means something as simple as an electricity bill getting more attention than all that portfolio “value”. And since ‘POWER’ is also a leading indicator for market tops along with Gold, which is a crisis commodity, we have a lot cooking here in July.
Now with CNXIT (Indian Tech Sector) vs. SENSEX ratio line also reaching an extreme, we have another cue that we are heading for at least a multi month top on India. BSE 30 has never outperformed the CNXIT since 2003. How could it? We are the ‘Tech’ nation, technology being a core competency. No it’s not like that. Technology is an early economic cycle sector, which invariably does worse when markets step in a late economic cycle stage and well in an early economic expansion. It’s a leading sector for the economy and the out performance or parity peformance is CYCLICAL. The last two times SENSEX-CNXIT ratio line reached near parity (1) was in Apr 2004 and May 2006. We all know what happened, massive drawdown, which we had someone to blame on. First time it was the BJP (leading political party) loss and second time the Hedge fund panic.
Now we have reached there again, July 2007. Well timing is a tough job, but it seems there’s not much the indicator can travel north from here. So if we assume we are at another inflexion point, the equity meltdown should start any time soon. INTERMARKET is simple. Let’s see how this simplicity pans out this time.