The Divergence Analysis

Despite all the market knowledge, we are still so far away from asking very basic questions about market and what makes it work. Market divergence in very generic terms means the difference between the returns of two sector peers, between two sector indices, intra-market or inter-market difference. We have occasionally talked about divergence, but today we are looking at the Indian sectoral divergence comprehensively.
What did we do? We took the Indian sectoral Indices and benchmarked it vs. CNX 100. Why did we take CNX100? CNX 100 is a broad market index and hence the least volatile compared to other sectoral indices. Why were we interested to compare sector returns with the broad market index?

What is divergence?
How can you analyze it?
How much percentage can two sector peers diverge?
How is divergence connected to stock selection and sector selection?
Which is the most diverged sector in India?
Does divergence means outperformance or underperformance?
What is divergence suggesting about market direction?

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Our Jiseki Time cycles are seasonal patterns of strength or weakness in assets. They are derived from percentile rankings from 1 to 100. The higher the percentile more the chance for an asset to weaken and worst the ranking, better the chance for the respective asset to outperform. 100 is top relative performance and 1 is worst performance. The idea is that performance is cyclical. A top performer will underperform in future and vice versa. A top relative performer is also the worst value pick and the top relative underperformer is the best value pick. Jiseki is another name for Performance cycles, time triads and time fractals. The signals are illustrated as a running portfolio and as Jiseki Indices. These signals can be used by fund managers for relative allocations, traders for leverage bets and high net worth clients for selective trades.
Jiseki Interpretation. Signals are interpreted as crossovers between various Jiseki Cycles. All three Jiseki cycles (Jiseki 1,2 and 3) depict different time frames. Example: An asset is ranked above 80 percentile and all the three Jiseki cycles are pointing lower, this suggests a running SHORT SIGNAL. Our Jiseki Indices use different kind of exits based on price and Jiseki Cycles. We have color coded the (Jiseki 1>Jiseki 2) SHORT zones with brown sandy (burlywood) and grey (Jiseki 1>Jiseki2) for LONG SIGNALS.