The purpose of this note is not to force down any complex technical analysis / direction views. The simple visuals - allows you to conclude.
The study deliberately uses the Indian BSE-30 index versus the SP 500 ( the Indian NSE-50 was too much in line)
Visual I
In May 2004 the markets dropped (”crash” in Indian markets). ( BSE dropped from 6500 area to 4200 area while SP-500 had dropped from 1160 to 1065). Post the market drop - we can clearly see the SP-500 lending ( leading ? ) direction when the markets turned around.
Visual II ( since July 2006 )
Since July 2006 - both the Sensex and the SP-500 have been tracking each other.
Visual III ( S & P 500 movements since 1997 )
Conclude
- Pretty clear that S&P 500 leads BSE-30 on market turns / direction
- In a rising market S&P 500 has too many resistances - and could rise slower than BSE-30
- However in a market thats falling - S&P 500 would fall harder and longer initially - compared to BSE-30
- A lateral thinking solution for the short/ medium term- without having a view/bias towards the direction of market - could be - “BUY” BSE ( or Nifty- NSE) and “Sell” S&P 500. ( i.e make a spread trade using one markets momentum against another)
The conclusion given does not seem to automatically follow the visuals. The conclusions that I got from the comparison above are (1) The Indian equity story is as good or as bad as S&P or Shanghai for that matter (especially since last one year) and (2) If S&P seems highly resisted, then so would BSE be and (3) Both seem to have given very sharp degree of upward movements and hence correcting to the previous congestion appears a goo bet on both!!! Nifty 2600 anyone??
KRG
1) The conclusion - does not follow the visuals - from the point of view - of market direction - 100% agree ( was not intended to)
Market direction conclusion - was deliberately left for the viewer to decide ( see start of the note).
2) The Indian story FOLLOWS the S&P story is clear. ( so that by itself can lend a long term direction)
3) btw have a look at http://www.intelligentguess.com/blog/?p=7
( under Category “Stock Index” )- where a directional view is presented for the NSE/ S&P / FTSE/ Nikkei - medium and longer term.
4)The lateral thinking conclusion was given as an alternate way to think - IF one did not have a directional view of the market- i.e odds are:
-S&P would have strong drops first - without the possibilities of strong rises from hereon - so
” Sell S&P”
-A small rise of the S&P - currently creates (in % terms) stronger rises in India - and drops in S&P do not result in similar % wise drops in India - so
” Buy India”
4)
to Nifty 2600 ( check on point 3 if you dont getit)
Regs
Rao