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By : Mathew Cherian, Research Associate/Analyst, Western Michigan University
Industry : Equity Research/Analytics Functional Area : India
Activity:  4 comments  232 views  last activity : 09 02 2010 06:04:09 +0000
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Lead forecast for daily Stock Market movement

 

Modern technology and information decimations has made it much more easier to predict the daily movement of stock market before the market commences. If one has a Bloomberg terminal all the information is available on a split second basis and it is expensive, only high networth investors will be able to afford it.

 

Small investors can use the free service available, like the internet and financial news provided by stock exchanges and financial dailys.

 

Three important leading indicators are,

1)      The ‘vix’ index of USA. It is the volatility index which gives the implied volatility of the market. If this goes up on any particular day in New York Stock Exchange, then the probability of the markets going down elsewhere is close to 1.

2)      When one gets up, the financial daily in your doorstep can tell you if the Bond prices have gone up or down. If it has gone down then the probability of the market going up is close to 1 and vice versa.

3)      Last but not the least, is the ‘delta greek’ of Options. One can keep a representative company and check up if the movement of the price divided by the movement of the option is close to 1 or greater than 1, in which case too the probability of the market moving up is close to 1.

4)      The other indicators are international gold price movement and oil price movement which are negatively correlated to the stock market.

 

All these prices can be available before the market starts, the first three are very reliable and it can make a difference in ones investment decisions.

The interesting phenomenon is almost on days these indicators give good signal for the Indian market.

 
4 comments on "Forecasting daily Stock Market movement !!"
  Commented by  Mathew Cherian, Research Associate/Analyst, Western Michigan University    | 09 07 2010 18:50:51 +0000
If you are sceptical about what I wrote, let me give a blow up of what I wrote. When a creditor allocates debt, he will sometimes ask the borrower to sign up some restrictive covenents which will state the price of the stock to be maintained and even sometimes bands high and low, so that they can manage their default risks properly. If the stock become highly volatile then the qbove problem creaps up. 
I posted this accidently again many times 'cos I didn't get the spit back when the posting wss done.
  Commented by  Mathew Cherian, Research Associate/Analyst, Western Michigan University    | 09 07 2010 18:37:34 +0000
Mr. Paul and Mr. Nateraja, thanks. Let me clarify what I know about what you said about manipulations. Reliance is I think a medium to high leverage company. So their corporae debt is directly corellated with their stock price. If it moves up too much on market sentiments, naturaly it will fall back to a level below when the market information subsides. So the creditors will ask them to give more collateral or security for the debt they have assumed from them. So the corporate managers decide on some bands in which their cost of capital won't go up. This can also free up their security or collateral for future planned debt if it is needed. Reliance is huge and their debt level runs in tens of thousands of crores and their collateral requirements will be also huge.
Thanks.
  Commented by  NATTERAJA R. ARIKRISHNAN, Area Sales Manager, HPL INDIA LTD, CHENNAI    | 09 04 2010 18:36:10 +0000
Good and nice insight and good high light by Mr.Abraham Paul.
Thanks for the referral Mr.Mathew Cherian JI.


  Commented by  Abraham Paul, Owner, FCOMNET - Future Groups    | 09 04 2010 14:24:49 +0000
Mr. Cherian,
Thanks for the insight about the probabilty of daily 
movement forecast, that can be of help to those who are 
familiar of technicalities of the factors you mentioned. 

However, we face different sort of problems these days that affect the 
investment,  especially of the retail share holdrs who invest in shares 
with "Long term" perspective.  

One of these is the manipulative way the stock splits, mergers and share 
swaps etc., being done by some companies these days. 
For example, share holders invested in 'Reliance Petroleum' hoping that 
the investment will give a decent return as the refinery going into 
production phase had to suffer great loss as the shares were swapped at 
16:1 ratio with 'Reliance Industries' just at point the new refinery built 
with shareholder's money, started operation. 

Again, recently those who invested in 'Reliance Natural' shares on 
long term view were similarly badly bruised by their shares swapped in the 
ratio 4:1 with 'Reliance Power' which in itslef had lost the value in 
the market from its IPO price and in very bad shape. 

It simply proves that Companies can always find some unscrupolous method to 
prevent the benefits of growth going to the shareholders. It is only fair 
to expect that the swap should be based on the market value of the shares at 
the point time of swap. 
It is heard that a case has been filed in Madras H.C against this. Hope that 
the shareholders who suffered loss would ultimately get some relief.  

The point is that such manipulative actions of some companies do not fit 
into any normal logic of stock market trade, and make the philosophy of 
"Long Term" investment meaningless, especially by the small and medium 
retail investors and cause loss of faith in the whole system. 

Many would have decided not to have reliance in "RELIANCE" group companies 
which enjoyed much higher respect in its founder's days. I have a feeling 
that this is one of the reasons for the down turn in the market price of 
these stocks. 
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