As a follow on to the previous post, let’s look at some market statistics (advances, declines, 52-week highs/lows) to compare the current strength/breadth of the market with that in May, when the Indian indices made record highs before undergoing a major correction.
The chart below shows daily advanced & declines, along with corresponding 10-period moving averages. It looks like the breadth is starting to deteriorate with fewer stocks advancing along with the major indices.
The same data can be plotted as a ratio (advances / declines) as below - we again see the A/D moving average trending down of late:
Finally, the chart below shows number of stocks making 52-week highs versus those making 52-week lows:
Note that the current number of 52-week highs is much lower than that during the mid-May top, while the number of 52-week lows is much higher. Yet another divergence?
With the Indian indices approaching their May (and all-time record) highs, let’s look at how the big boys - Mutual Funds & FIIs - have been behaving recently, as compared to May. The chart below shows year-to-date cumulative investments made by MFs & FIIs, with the May 10th top & June 15th bottom pointed out:
Note that FII investments (in blue) have recovered back to their mid-May levels after a 50% drop in June. However, mutual funds (in pink) have not put in much additional capital at work during the current bull run. Wonder what the FIIs know that the MFs dont?
The above data can also be looked in terms of daily net investments (purchases minus sales) by MFs & FIIs, shown below:
As you can see, FIIs started bailing out at the top, while MFs kept buying until end May. Since then FIIs have made significant purchases, while MFs have been neutral.
Found this article in the SFO Magazine, via Trader Mike: “Home Base: Is Yours a Good Fit for Trading?”. It talks about the need to proceed slowly when considering a full-time career in home-based trading.
The article characterizes day-trading as:
* a full-time, dead-serious business
* takes lots of cash, tools and discipline
* has a steep learning curve
* likelihood for more setbacks than gains at the outset
And how about this: “Some of the poorest trading results based on previous vocation are engineers, doctors, dentists, attorneys, economists, accountants and computer programmers.”
Given that I’m an engineer, programmer & an MBA, I probably shouldn’t quit my day job anytime soon
Last month, Kotak Securities becamse the first Indian brokerage firm to offer fixed fee-based brokerage model for online trading - supposedly 3x cheaper than normal. Market pundits expect this to start a price war, given the relatively high (%-based) commissions being currently charged to investors.
Now imagine a world where you can trade for zero commissions. That’s exactly what Zecco is planning to offer (for US markets)! Per the press release:
* “The big guys need the commission to keep their marketing machine going” explains Zecco.com founder and CEO Jeroen Veth, a 37 year old entrepreneur and former Merrild Lynch Vice President. “The actual cost of a trade is around $2 but if you spend $500 or more per customer in marketing costs and run your business on old legacy systems, you need all the revenue you can get.”
* The disruptive business model offered by Zecco.com is further augmented by a website that blends financial blogging, discussion forums, financial news updated and trading into a seamless web 2.0 experience.
A free article by the Economist - “Alpha Betting” - talks about the divergence between ETFs and hedge funds in terms of growth, fees & performance.
* Morgan Stanley estimates that ETFs control some $487 billion of assets, up 16.7% from a year ago; Watson Wyatt, a firm of actuaries, estimates that “alternative asset investment” (ranging from hedge funds through private equity to property) grew by around 20% in 2005, to $1.26 trillion.
* Beta is a commodity and alpha is about skill
* Peter Harrison, chief executive of MPC, a fund manager, says that American pension funds have analysed their liabilities. “They need more than 6% to make up the shortfalls in their funds. Whether they earn alpha or not, they have to roll the dice and try to get it.”
The International Monetary Fund (IMF) recently put out a comprehensive report on factors that might impact the stability of global financial markets. Here’s some interesting charts:
The 2nd chapter (Household Credit Growth in Emerging Market) offers lots of statistics for India: