David Aronson has written a book to convince technicians to get more objective about their indicators and rules. Evidence based Technical Analysis is the future. Alongside his attempt to prove that charting is subjectivity, he also mentions how technicians understanding of the markets help them to identify and create indicators. In the concluding chapter of the book he also mentions how the need to differentiate one extreme from another could be the differentiating edge between two strategies. He also talks about how complex conditions have a higher workability than simple conditions. Complex conditions could be explained as two or more conditions (filters) for the rule.

This week we are taking you through a case which includes Suzlon, Wind Energy Index and Nifty. Orpheus performance cycles are built on complex conditions. First we have a group, then we have a ranking condition, then we have ranking conditions on different time frames, after this we look for extremes and then of course the Jiseki Cycle whether it has turned up or not. Keeping this in mind we have Suzlon and wind energy both filtered out as potential outperformers. And because of the fact that Jiseki is designed to buy extreme losers that are reversing, Jiseki cycles become a contrarian play with an objective signal linked with it. As you can see Jiseki cycles are already positive on Suzlon and Wind and the cycles are actually positive and suggesting buy.

Conventional technical pattern watching though exciting and the primary reason we could create Jiseki, lacks objectivity. Here we have illustrated Nifty, Suzlon prices in first outlay, Nifty vs. Suzlon relative performance, Wind Index vs. Suzlon relative performance and Nifty vs. Wind Index relative performance. These charts suggest that Suzlon has really diverged to the other extreme compared to Nifty. Suzlon is actually near an all time low while Nifty came from an all time high. Apart from this the Wind Index vs. Suzlon suggests that Wind index could have finally peaked in performance compared to Suzlon because the blue line is still below previous high. Lastly the Nifty vs. Wind Index also fell in a five wave structure suggesting that Nifty should continue to underperform Wind for the intermediate multi week or primary multi month ahead. The weight of evidence suggests that the time for Suzlon (Wind) to underperform Nifty is here. This is the same thing Jiseki cycles also suggest.

If we don't built objective systems which can differentiate one extreme from other we might waste a lot of time in tracking an asset, whose time to deliver (trend) has not come. Time to track assets is also part of an analyst’s efficiency. She can either keep tracking Suzlon (wind Index) all the time, as she believes it’s a good story, or she can build more objective systems to indicate that the time to track wind and wind assets is here.

Mukul Pal, CMT, Orpheus Capitals, Global Alternative Research