Asymmetric market | stockbee


Asymmetric market

The market has been correcting for sometime and there is a great deal of gloating by shorts. Chronic bears have found new followers. But if you look at the markets objectively,one of the first thing you will notice is asymmetric nature of market moves. Given the recent weakness, you would expect great number of stocks down majorly. However if you run a scan of stocks down 50% or more in a month ( priced higher than 5 a month ago) as of now, only 3 stocks are on that list.

Given the amount of ink which flows from chronic bears, you would expect sound logic and methods. But most of what is offered as bearish strategy is same general opinionated gibberish and extreme scenarios. Most of them do not have a clearly defined methodology. They have strong opinions but few valid methods. As an individual speculator one must take in to consideration the simple fact that in majority of time even a poorly designed long strategy will beat a well designed short strategy. You can seat on the sidelines during corrections or bearish phase and still, over the long run, beat the pants of those who short or follow a combination of long short strategy.

Structural odds in the markets are against the chronic bears. There are very few periods when bearish strategy works. Markets across the world have a documented positive bias over long run. If the chronic bears are so intelligent, why they do not understand it is a great mystery.

But it is paradox that in markets as well as in general life negativity sells substantially more than positivity in the short run. Newspapers and magazines survive on negativity. Death, destruction, misfortune, scandal, doomsday scenarios, and extreme projections is what attracts most people.

But the story of mankind is written by those who bet against such negativity. History is about optimism and those who bet against negativity and panic. Chronic bears and pessimist do not even make it to the footnotes in history.


gosu said...

How about this method Pradeep:
1) If percentage of stocks above their 200 day moving average >= 75, markets are overbought and will go down.
2) If percentage of stocks above their 200 day moving average <= 30, markets are oversold and will go up.

I saved myself and locked in my profits using the above method.

gosu said...

I don't think its about permabulls (Larry Kudlow) or permabears (Koss)
But the understanding that markets move in both directions and look for indicators that will help you predict the moves so that you are best prepared for the upcoming bull or bear market.

KN said...

hello Pradeep

just read an interesting article of Ken Fisher about the earnings yield of companies. Here is the link

Any thoughts?


Pradeep Bonde said...

Any well thought out method works in the market if it is based on markets cetral tendencies.
Market move in both direction, but they move more in positive direction than in negative direction. They spend significantly more time in up mode than in down mode.

Pradeep Bonde said...

Ken Fisher has a interesting way to look at market. His recent book is pretty good.

Sometime market work on fundamentals, sometime on sentiments. Most of the time general market direction is sentiment driven, while specific stock behaviour is fundamental driven in some sectors. So after 8 month rally, sentiments are more important, market is unlikely to start rallying vigorously till some time passes, no matter the fundamental. IMHO.