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<DIV><FONT color=#000000>RTs,</FONT></DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV><FONT color=#000000>This chart illustrates, for a completely different
market, how </FONT></DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV><FONT color=#000000>a. using volatility as a stand-alone trigger is myopic,
to quote Dr OEX;</FONT></DIV>
<DIV><FONT color=#000000></FONT>b. Volatility expresses the double edged
function rampantly in an essentially "psychogaphic" market.</DIV>
<DIV> </DIV>
<DIV>The yellow plot is daily prices of the Bombay Sensitive Index 1990 to date,
a market that, in 1990-92, experienced totally irrational "buying
panic" of the type recently seen in US internet stocks; collapsed when
trading scandals broke out during the summer of 1992, rose and fell during a
period when foreign institutions, for the first time, picked up about 6% of
market cap (1994-98), securities legislation and computerization got
implemented.</DIV>
<DIV> </DIV>
<DIV>To put things in the 8 year time-series perspective, India's GDP grew 6% pa
compounded; there were 4 changes in government, 2 liquidity-driven
"recessions", and the external value of the Rupee depreciated from 27
to 41 v/s the USD through controlled devaluation over this period.</DIV>
<DIV> </DIV>
<DIV>I chose this market to make the "impossibility of predicting
psychographical impact" point because - unlike USA, in Bombay there is no
program trading, no portfolio insurance, no derivatives market, no intermarket
impact (bonds/precious metals/currency) to speak of ---</DIV>
<DIV> </DIV>
<DIV>Finally, the companies represented in this index (equivalent of INDU)
have grown sales AND profits better than 17% pa compound in that 1990-98 period
while all the other things were going on - none of them have an export component
of >3%.</DIV>
<DIV> </DIV>
<DIV><FONT color=#000000>Regards</FONT></DIV>
<DIV><FONT color=#000000>Gitanshu</FONT></DIV></BODY></HTML>
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