Technical analysis to take a leap!
I was listening to an interview of Manish Chokhani over the weekend. I have always considered him a brilliant mind and listening to him is such a pleasure. In a sweeping coverage of many areas, each on superbly analysed and lucidly explained, Chokhani held out the view that the next few years are going to see some major changes and it is very difficult to value what is going on or what is going to happen because technology disruption is happening at an unprecedented pace. We are well aware of that fact and are seeing it every day in our own lives. Things are changing rapidly even in our everyday lives too.
This brings me to the market. If minds like Chokhani say that they will find valuing the future of the companies difficult, where will it leave the rest of us? Most research that happens in the broking companies, bar a few, is of the Excel sheet model variety. Most of the people in these research depts are youngsters with no real experience of the markets or handle on history. How are they going to deal with these anticipated changes? I doubt that they can, unless they can upgrade themselves. Chokhani himself says he attended a program in the US that teaches a course on the future of various businesses and said his mind has got literally rewired. There are so many things that are looking possible that the mind is currently boggled, according to him. I too wish I can attend that program- it sounds so incredibly exciting!
Markets, however, are not going to shut down meanwhile and we still have to deal with them. If the market is essentially discounting the future but the future itself has become very hazy, then how can this discounting mechanism work smoothly? So, one of the things that will happen is an increase in volatility. However, there are enough geniuses in the world and enough number of them are either interested in the market or working for those who play the markets. Thus, there will always be someone who can decode possibilities of the future and then act on it when he or she sees the opportunity emerging. I have a sense that some of that is already happening in India as we have some of the brightest minds in the world right here and the bull markets we are witnessing currently is partly owing to that.
All this will reflect in one area that can never be hidden- the Price. In the context of the scenario described by Manish Chokhani, I feel the role of Technical Analysis will increase multi-fold. In an arena where it is difficult to track using hitherto-known ways of analysis, the market place will struggle with the new, the changes. But price analysis framework remains the same and its role will be to pinpoint those areas in the market where fresh or changed activity is manifesting. We have to therefore only redesign our technical models – certainly away from the current trading-oriented models- to be able to spot such changes and we will be ahead of the curve. It may well come to pass that some areas of TA will get co-opted into the mainstream as newer technical-fundamental models get created. This happened to some extent earlier with Behavioral Finance and Algo Trading borrowing generously from TA concepts. I think round two of such shifts will occur across the next few years.
I am excited about the possibilities and challenge that the markets of the next 5-10 years hold out for us. TA has helped me deal with changes thru the past few decades and I am fairly certain that it will do an even better job in the days ahead. It is up to us to design it in such a way that we can spot changes ahead of time. We may not exactly com to know exactly why something is happening but we need to know that they are happening. The pace of change now is going to be rapid and seeking an explanation for every change may be a futile exercise as there may not be many who can explain it to you! In the markets, speed is of essence and TA may be a useful way to stay on top of what is happening if not exactly on why it is happening. You will still be way ahead of a lot of others this way.