What's your view on the markets?

Apurva Sheth
Are you bullish or bearish right now?

Seriously?

Think about it for a second. Knowing what you know now, with which camp would you side - the bulls or the bears?

I hate to say it, but if you answered bullish, you're wrong. If you answered bearish, you're wrong too.

Now I am sure you must be perplexed to hear this reply from my side. But it's a fact that most of the people forget to ask a counter question. They hastily reply to this question depending on their views and bias.

The counter question one should ask is that "What time span are you speaking about?"

Eureka!

I guess some of you have realized what I am talking about.

Like every person has his own tastes and preferences for food, music, hobbies etc. Similarly every investor's horizon of investment will differ based on his investment objectives, personal preferences, risk appetite and the amount of time & capital he can devote to watching market prices. One investor may be more concerned about the business cycle trend that occurs over several years. Another investor may be more concerned about the trend over the next 1 year, while a third investor may be concerned only for the intraday trend.

To answer a question like the one I raised above, it is very essential that both the people in the conversation are on same page. Only then the discussion will be fruitful. Especially for the one seeking advice.

Quite often people make their investments based on advice given by experts on one of the blue channels. The problem with following this advice is that there's a vacuum between the expert and advice seeker. In most of the cases both are operating with a different time span in mind.

Television is an excellent mode to disseminate information quickly but when it comes to giving advice it fails miserably. One because it cannot cater to specific needs of such a large audience. Second it has a time constraint. (They can't allow you to speak more than a few seconds on a question) Having been there and done that I know that anchors of business channels will want to shove you either in the bull camp or bear camp. When sometimes it is more sensible to sit on the sidelines and wait for more information/data. But then they can't sit idle during this period. Their advertisers won't pay them if channels don't come out with an interesting story every day.

I don't blame the anchors for this but it's the medium of communication that is at fault. Anyways in either case the investor is at a loss.

When both these things are combined. Lack of clarity of the trend length and seeking general advice from television channels. You end up confusing yourselves and eventually curse the expert for his advice.

Now, let me offer a solution to these problems.

I will start with trend. A trend is a time measurement of the direction in price levels covering different time spans. There are many trends. Three most widely used are primary, secondary and minor.

(Charles Dow who developed the Dow Jones Industrial Averages is considered father of technical analysis, classified trends into these 3 parts.)

He called primary trend as "the tide", this is the trend that defines the long-term direction (1 year to several years). Primary trend is the major underlying trend in the market.

Secondary or Intermediate Trend are "the waves", this is medium term movements or departures from the primary trend (weeks to months)

Lastly minor or short trends are the "ripples", they generally show nervousness with rapid up or down swings. (1 week to 6 weeks). With the advent of computers intraday trends have also gained massive fan following.

When you apply these principles to a standard 4 year business cycle you get a market cycle model which is illustrated in the chart below. In this cycle a primary trend may last between 9 months to 2 years. Intermediate trend may last between 6 weeks to 9 months. And minor trend will last between 2 weeks to 6 weeks. Mind you all stocks may not strictly follow this model but these are general guidelines which one can apply while analysis.

The market cycle model
Source: Profit Hunter

For an investor to grow his wealth safely and steadily it is very much essential to identify these trends and changes in trends at an early stage and maintain their positions until the trend has reversed.

So far I have spoken to you about various trends that exist in markets. In my next article I will tackle the second part of the problem.

Until then allow me to ask you the same question again.

What's your view on the markets?

What's your view on the markets? Share your views in the Club or share your comments here.

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5 Responses to "What's your view on the markets?"
siddarth chauhan
18 Feb, 2017
Very basic language used which is easy to understand. would really like to use this essential input to make atleast Rs.50000 per month to manage my family & business expenses. Like 
S.K. Gaba
19 Oct, 2015
Very informative and easy to understand. How the call and put rates are fixed. Is there any formula or simply on the basis of demand and supply. Like 
MUTHURAM ARUMUGAM
21 Jun, 2015
Very nice. Thank you so much. But it is not clear what is the method and particular time of judging the trend. Whether it is related with political ground, civil war, economic problems, companies events etc. If it is clear then we can be relatively alert and book the profit accordingly. Like 
Raviraj
18 Dec, 2014
Thanks for explaining the Trend. My view on the Market is to utilize the opportunities provided by the Market instead of biased perception.Like 
ghhola
17 Dec, 2014
Market does not have any strength on fundamental and technical barring a few stocks.There was excessive of Modi sentiments which were exploited by the punters and inside trades to make quick buck.There would be greater shocks in abundance in days to come. Having said that I remain invested simply to ride the tide, wave or ripple because herds mentality in the market is momentous.Like 
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