CERTAINLY UNCERTAIN: A View on The Science Of Markets this Diwali

Author: SS | 14th Nov 2020 | Read Time: 6-8 mins 

ON THE MARKET SIDE:

Many a prayers went in wishing for a rocking Diwali and that’s exactly what God has provided–if we were to go by the Broad Market Indices–Sensex and Nifty. Who could have imagined Nifty almost in kissing distance of 13000 levels this time around?

Markets are treacherous by all standards. Accept we may not, but deception is a trait ingrained in all beings- from animals to humans alike. Some talk of Fundamentals, some Technical, and some Quants…but the biggest study required in markets is that of insider news and common sense. You can never make money in markets by betting on the obvious.

Take for instance the case of Pfizer announcing covid vaccine:

Technical point of view: A gravestone doji formed on the Pfizer vaccine news has now converted from just a daily gravestone to weekly gravestone. This means all the initial euphoria of skyrocketing upward move is now negated…in just a couple of days.

Fundamental point of view: Pfizer CEO sold out his own stock on the vaccine news day. Can you beat this? Rascals come in so many shapes, colours, sizes and pedigrees. We never know the game that is going on deep inside and we burn our hard-earned money if we stay as surface surfers rather than deep divers.

Quants point of view: Even in a world of near zero interest rate, PE ratios as high as 35-40 times for an emerging market like India representing an upside deviation of almost 5 SD from the mean and defying all laws of mean reversion.

All sorts of intermarket analysis covering commodities, currencies, equities and interest rates seem to be archaic, atleast on a contemporaneous basis – it is only the deep divers who can earth out significant R² between these asset classes with dynamic lags.

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ON THE HUMAN SIDE:

It has taken around 15 lakh years of evolution for humans to transcend from monkeys to beings. Among these beings, there are just a numbered few who managed to transcend all dimensions of physicality and are capable of displaying the highest principles, even in the most atrocious circumstances.

On this auspicious occasion of Diwali: Scholars, let us bow down and surrender ourselves into the immensity of “Marayada Purushottam Shri Ram”.

The trait of ‘Uttam’ i.e., the best, only comes with a deep sense of humbleness and passion. As students, we need to have the inspiration of Shri Ram in generating the passion for achieving knowledge. As traders, we need to know our limits and our duty towards our family when we design our trading system.

It is only by diluting the big ” I ” which governs our pretentious life 24/7- the identities of our body, mind, family, gender, cast, creed etc—that we may hope to experience the ultimate bliss that we all aspire for. I wish you all a Happy Diwali in the truest sense.

Sanjay Sir