Different Tunes At Different Times – While reading the ET today I came across a heading on Gujarat poll. It said BJP talks national, Congress talks local. This reminded me of something that I had read a long time ago in Tony Plummer’s book (Forecasting Futures Markets) where he had brilliantly captured the unfolding of a market cycle. It is one of finest explanations of why and how prices move.
In the book Plummer had described the onset of a trended move and how the narrative of the participants differs at various stages. At the beginning, both bulls as well as the bears start with their own version of what the long term holds out. Then as the move begins to unfold, the dialogue of both the sides begins to change. It is altered to suit the main plank of the group. If the bulls are winning, then they will begin extolling the virtues of whatever they are saying. Even though the bears began by preaching long term negativity, the adverse movement of prices would mean that they have to necessarily lengthen the period over which those supposed negative signals will play out. For the bulls, however, their objectives are now being realised one by one and hence, to keep the flock together as well as increase its numbers, they start focusing more and more on their current success. This different tunes their dialogue from the long term bullishness (which they started with) and now starts becoming shorter time frame oriented.
Soon matters reach a point where the price moves now favour the bulls substantially and hence it is no longer necessary to speak about the long term because the bullish group is so excited about what’s happening in the short term! At the same time, the bearish group is reeling from the onslaught of adverse price movements that they need to keep lengthening their time frame by which the expected reversals occur. The stores start becoming ever more dire with the passing day but everything is pushed ahead to the future with the warning that one should act today! Thus the situation leads to a total different tunes in the dialogue from where they began. The bulls started with why the long term was so rosy and changed their tune to the short term to suit the price action. The bears, on the other hand, began with why prices are over valued right now and that one should sell and then move on to how the outlook is bearish over (an ever increasing) the long term!
Similar to the above, the Congress, which used to extoll the virtues of the rule at the Center and how the major planks that it had worked on for the nation would also benefit a state, is now reduced to crying about one local issue after another in Gujarat. In contrast, the BJP, which was all about local politics earlier now is speaking about macro and national issues and development and reforms etc. In short, the dialogues of the two parties have gone the opposite ways, just like two warring factions in the market do so!
The turn occurs when one of the groups becomes unmindful or overlooks the underlying factors that really drive the emotions of people. Sitting far away, it is difficult for me to know or even judge what is the main underlying emotions that Gujarat is going thru at this juncture. The party that reads it wrong will get trounced. I am an unabashed Modi follower and therefore hope that they have got this equation right! Trends prevail, ultimately- whether in market or in politics!