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Friday, June 24, 2011

About astrology and technical analysis

Many consider astrology and technical analysis at par. Both have very little scientific basis and seem to go wrong in their predictions almost as often as they go right. Therefore, both should be consigned to the nearest dustbin as far as life and investments are concerned.

While there is a degree of truth in the premise, I have reservations about the conclusion. I have never been a great believer in astrology for two reasons. The idea of being able to know something even before it occurs by charting planetary movements seems too preposterous.

This disbelief was dented when I read the detailed description of the ‘Pashupat Astra’ in an unabridged version of the ‘Mahabharata’. Quite clearly, it was the description of an atom bomb. There could not have been an atom bomb in the days of yore when the ‘Mahabharata’ was written. The logical conclusion is that the ‘rishi’s could foresee the future with their yogic powers.

The second reason is harder to refute. Several years ago, I was having a chat with the Director of the Positional Astronomy Centre in Calcutta when a businessman walked in. After he left, the Director mentioned that the gentleman was a wealthy publisher of one of the most popular local almanacs.

Apparently, he visits the Director’s office once a year before the almanac’s publication and pays good money for the calculations of the exact times of various eclipses. “Their charts are all outdated. They write whatever they want about all the other dates and times. But if they goof up about eclipses, which are clearly visible in the sky, they will lose all credibility and their business!”

But I’m not a complete disbeliever either. An ex-boss was a good amateur astrologer. Once, an acquaintance was looking for prospective brides for his son who was studying abroad. He had brought along the respective horoscopes to find a suitable match.

My boss took a good look at the son’s horoscope and expressed surprise that the son had agreed to an arranged marriage, because he was having a torrid affair with a dark-skinned girl. The gentleman almost broke down in tears and admitted that he had recently come to know of the affair and was trying to get his son married off.

Later, I asked my boss how he could find out such intimate details from a horoscope. He said it was because of his long experience of studying and matching hundreds of horoscopes. He immediately noticed something very wrong – the affair with the dark-skinned girl was an educated guess.

Technical analysis works in a similar fashion – when it does work. Two analysts can look at the same stock chart and come to completely opposite conclusions – because one is a bull and the other is a bear. Their chart interpretations tend to get clouded by their biases.

The more experienced and unbiased an analyst, the greater are the chances that his observations might turn out to be the correct ones. In last Saturday’s post about the Sensex and Nifty chart patterns, I had written: “Both indices can lose another 2-3% from current levels easily.”

As it so happened, both the Sensex and the Nifty dropped 3% on Mon. Jun 20 ‘11. How did I know beforehand? I didn’t. It was an educated guess based on the expectation that the indices looked weak enough to test their Feb ‘11 lows.

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