Or, Reading what the market is not saying out loud
It is easy to react to whatever is obvious. After all, it’s right in front of us and its impact or import can be either seen or understood or predicted. This is the situation that most investors face in the market. They read some good news in the papers or hear about it in the TV. They make linear expectations of what that should mean in the market. They then decide what the course of action should be. Armed thus, they come to the market next only to find that the market is doing something quite entirely different! A good example in recent times is the results of an FMCG company that reported absolutely top notch numbers but the stock reacted as though the company had made losses! There are many such instances that can be quoted.
Currently, the items that may be vexing investor minds is why the IT stocks are going up or why is the market itself not coming down? For sure there is something happening here that is not quite matching the data as it is presented. BNP Paribas questions the quality of the money that is flowing in the name of FIIs and that raises some discomfiting pictures in the minds of investors and traders, making them hesitant to commit to the ongoing rally. We read about sharply reduced recruiting by all IT firms in this quarter and that can only mean business is not as good as it was. Still, the IT stocks are among the best performers in recent times! Fmcg multiples keep rising (HLL, ITC, others) but still these stocks show no signs of wilting in their strong uptrends.
So, what is an investor to believe in anymore? Is he being fed wrong news? Of course not! Papers and TVs report matters as they receive it. Is the source of the news then wrong? Alas, that can only be known thru time. Is there some manipulation going on by those ubiquitous operators then? No way to know that for sure. These are just guess-works by people.
Is there a way out? Yes, there is. The only analysis that is really unbiased (unless the analyst brings in the bias) is technical analysis. It checks what is truly happening. Not what is expected to happen, not what one thinks will happen, not what is rumoured, not what is reported as factual, not what is analysed as research reports (which are anyway based on the same info as put out by the papers and networks). Of course there is enough bad technical analysis going around too. But I am talking about genuine, unbiased kind that a few dedicated people put out.
Seek Govind, wrote Adi Shankara eons ago in his Bhaja Govindam- meaning, seek the reality always. In more ways than one, staying rooted in technical analysis will keep you riveted to reality. Unfortunately, most people in the markets are seeking Realty! And their fortunes are going the same way as the realty shares!