Why am I Recommending Caution?

Sep 9, 2020

Many of the regular viewers of the Fast Profits Daily videos have asked me to explain why I am talking about being cautious in the market.

Why am I telling you it might be time to do nothing? Why am I talking about the NASDAQ whale? Why am I saying, 'don't buy'?

The answer lies in my proprietary statistical trading model which I have developed after many years of hard work, knowledge, experience, and trial and error.

In this model, subjectivity is cut out and objectivity is brought in...and it's telling me all is not well.

And in this video, I'll tell you all about it.

Let me know what you think...

Hi, Vijay Bhambwani here and in this video, I want to clarify a few things and also answer a few questions that my viewers have asked me either in the comments section on YouTube or asking me on my social media pages.

Now, why have I suddenly become circumspect from the market and since over 10 days, why am I telling you it might be time to do nothing? Don't buy? I'm also talking about the NASDAQ whale. I'm talking about a very narrow market. I'm talking about a few stocks lifting the headline indices up. So I want to share with you the 'why' of what I am saying. The why is basically the crux of any argument. So here it goes.

You see, I depend pretty heavily on our in house statistical trading model, which been formulated after trial and error and learning from trading the markets for decades. We basically rely on statistics for a simple matter that there is no overhang of emotions. There is no such thing as subjectivity. If, or, maybe, should we, can we wait? Statistics doesn't really believe in that. It's cut and dried. It's either a yes, or it's a no. So ambiguity is cut out. Objectivity is brought in.

Tomorrow at 5pm: Get the details of India's #1 defence stock

Now, what I have noticed over the last 10 or 12 trading sessions is that even if the headline indices have risen, the market breath is not really all that impressive. By market breath, I mean, the number of gainers versus is the number of losers. This tells me that the only the index heavyweights, select companies that push the headline indices up or down are seeing all the buying activity. The other counters are basically not really enjoying all that much of the sunlight.

If you are holding stocks in the delivery segment, in the smallcap, midcap, microcap, the SME etc, over the last 8 to 10 trading sessions, you would have noticed that these stocks in the cash segment aren't really doing too great. Now, this is a sign of the bulls showing signs of fatigue. Does it mean that it's the end of the bull run? I'm not saying that yet because it's a little premature. You will only know when a previous swing low on the headline indices is violated.

As we speak today, on the ninth of September when I'm recording this video, the previous swing low on the Nifty 50 is 11,111. So 11,111. Only if the cash market nifty starts trading below this level, will you actually go out there and raise a red flag. Till then, let us assume that it is a corrective phase but the correction is for real. I am seeing the market breath being poor, and what happens when the markets are going up, is that the volumes tend to be lower, and when the markets fall, the volumes are higher, both in the cash segment and in the derivative segment.

The other thing is statistical beta. If there is any one metric that I would swear by and I would put my company's money on a single metric in the market, I would put it on statistical beta. Now the statistical beta of the markets when they are rising, tends to contract, which means the vibrancy in the market tends to be lower on up trust days. Look at the days when the markets are falling. Even a one single session decline, sends the beta up zooming. This in statistics, is called volatility clusters or volatility spikes. The volatility actually spikes on days that the market is falling, which is, according to me, not a very good sign and there's an old saying in Wall Street, The markets go up the staircase but come down the elevator shaft, double the speed.

There is a reason. When the markets are going up, they are labouring against the selling pressure of the bears and the delivery based sellers. They are going up on the limited resources of the bulls, who have to keep buying and raise the prices higher, and thirdly, they are fighting the forces of gravity. Anything that goes up has to come down. Now, the last time I mentioned gravity, there were some wise guys who said the stock prices cannot react to gravity. Stock price is not an animate object. Do Google search the concept of centre of gravity oscillator before you post any comments. So it will cut short a lot of your doubts or ambiguities, and the centre of gravity oscillator is a good one. You should learn about it.

When the markets are falling, the bulls have run out of money. The bears are sharpening their knives and shorting the market, and gravity is pulling prices lower, which is why rallies are slower, declines are faster and the market might take a couple of weeks, if not a couple of months to top out, because invariably, a rounding top is more a prominent or more frequent phenomena before the markets tilt over and fall as compared to a V shaped recovery in the bear market. Markets trying to sell off in a bear market and then recover very sharply. October 2008 or you can even look at the post 9/11 decline and a V shaped recovery.

So sell climaxes result in a V shaped recovery but tops are made in a very lazy rounding our formation because the bulls have had a lot of money and they have a lot of vigour and power to pay for mark to market. They've enjoyed and bull run for an extended period of time. So they give in very, very late after putting up a spirited fight, which is what I suspect might happen. I'm using the world might here. I am suspecting it might happen here, and the bulls will one fine day cave in, and that's when the market might just fall down the elevator shaft. Which is why I think it is my duty to warn you, to forewarn you as my reader, that maybe it's time to lighten up your commitments and go easy on your portfolio because the markets just might surrender a little bit of their recent gains.

Now, for a couple of questions that people have asked me both on YouTube as well as my pages. If I am so circumspect about the market why is Equitymaster recommending buys in their other schemes as compared to my videos. Look. Make no mistakes. Equitymaster has a whole lot of different products, and most of their products are for long-term value. Investors who pitched their tent in the market would dig their heels and think long-term. I am one of those wicked guys who live and die in the market day in and day out, and I am thinking like a trader. If you asked me what's long-term, I'd say, long-term is tomorrow. For me, every trading session is a battle by itself. So when you're talking to me and I am expressing concerns, I'm expressing concerns as a trader, not as an investor. So please keep a Chinese firewall between the two services that you are comparing. I am a short-term on a micro-trend trader and Equitymaster's other products are long-term investments.

Which sectors do I feel should do well over a period of time? I feel any sector that caters to basic human demands. Food, shelter, clothing, shelter is, of course, out. That's real estate. So food, clothing, pharmaceuticals, basic necessities of life which people need. So if I see a company that's manufacturing non-discretionary products, products that a consumer does not have any choice, right? Say, for example, toothpaste, spectacles, medicines, eyedrops, footwear, etc, I think it's time to go back to the basics and think like a caveman and build a portfolio accordingly.

Like I said, this is a phase where your first priority should be capital preservation, should be capital protection, and not alpha. I was the guy who in the month of April, May and June told you that the market data is positive and markets either in the Coppock oscillator video or in the economic data four points video, that I mentioned. It did seem a little bizarre to a couple of people but remember, the market's rallied thereafter, and I'm the same guy who's telling you now it's time to take a little bit of money of the table.

Whether you want to or not, it's your call but as far as my statistical model is concerned, it's flashing a few lights that I would I really want to see in my portfolio. So let's be careful out there. It's your money. Actually, not your money. It belongs to your family, your children, your spouse, your parents, etc. So let's not lose it in the market to excessive optimism or excessive greed. Let's be a little careful out there.

On this, cautious note, I bid goodbye in this video, till we meet again in my next. Take very good care of yourself, your friends, your family, your trade and investments. Have a very profitable day. Thank you for watching my video. Vijay Bhambwani signing off.

Stay safe.

Warm regards,

Vijay L Bhambwani
Vijay L Bhambwani
Editor, Fast Profits Daily
Equitymaster Agora Research Private Limited (Research Analyst)

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4 Responses to "Why am I Recommending Caution?"

Nitin Solanki

Sep 21, 2020

Truly a privilege to have you as coach and mentor Vijay Sir!!!
The caution you give in this video indeed played out today. With Regards....

Like (1)

Vijay Bhambwani

Sep 17, 2020

Thank you for the kind words. This services is for you, I'm glad you feel we're doing a good job

Like (1)

y v s c chowdary

Sep 10, 2020

Dear Mr. Bhambwani. Your videos, presentation and advise are great. Your advise is very informative and honest. Because of your advise I bought sovereign gold bonds when you first advised to buy gold. Now, I am sitting pretty on this investment. Based on your videos in September 2020, I am not buying stocks at the moment because of your cautionary advise. I am finding your advise very useful even for long term investing, even though you tell its mainly for traders. Please continue the good work. Don't worry about some criticism from some critics. It is natural. I request you to present some videos on fundamentals of and how to trade on 'Futures' and 'Options' trading for layman like me. Thank you. Regards. Chowdary

Like (1)

PREMKUMAR R

Sep 10, 2020

Noted.

Like (1)
  
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