No other better time than this to pull out Sir John Templeton's famous quote out of the hat. "Bull-markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria."
From a new low on 28 Aug 2013 of about 5100 odd we are now at 6300 odd and Sensex has already crossed its all time high. We got a repo rate hike on 29th Oct and market went up (some say it was actually an easing as the operating rate currently is MSF and not Repo but then didnt he do the same thing on 20th Sep - Hike repo and cut MSF). So mood changes are quite swift. But some people did see a move coming even though it was hard to say which side. For the first six months of the year we had a very sedate Vix and hence the moves were slow and few. Post Fed tapering talk in June/July the vix spiked up and it showed that bigger moves were on their way. Most of the time Vix up move suggests a down move as down moves are usually more swift and sudden, but not always. We can have upside as well as downside volatility.
Now for a bit of history - in Jan 2008 when we had the reliance power ipo, mood was euphoric, retail was gung ho - after hitting the new all time high we corrected from 21,000 to 15,000 in 9 trading sessions. So all the ingredients for a top were there. It doesn't seem like that this time. But let me say that I dont know. And that keeps me nimble and humble.
Is it a new bull market? It doesn't seem like. So then it must be if it doesn't seem like. You know what - Again, I don't know. And neither does anyone else. Everyone is just going to guess and outguess and double guess. So then how do we invest or trade in this scenario. The good part is that it doesn't change much. While investing just buy the companies doing well and expected to do well and while trading follow your system. Don't trade or invest blindly purely on views. Sure somethings will change tactically between investing in an overall downtrend or an overall uptrend but the broad strategy is to buy strong companies (strategy) with good technical strength (tactics).
To confirm if this is actually a new bull market or uptrend it will take some more doing. So I would wait for the nifty to go another 300-400 points from here and then make a new low above 6300 and bounce back from there. Thats when I would say that the market is now in a new uptrend. But then people who have the urge to buy at the bottom and sell at the top will end up doing the exact opposite i.e. end up buying at the top and selling at the bottom. As for me I am happy to catch a part of the move in between and willing to be wrong at the turns.
So what to do - keep investing in good cos. Dont try and play catch up by buying beaten down names in the name of High Beta - there is a very reason why they are beaten down. Manage your risk and the return will take care of itself. Not the other way around. Most of all decide what format of the game are u playing - Test, ODI or T20. The game is still cricket but the rules, strategy and tactics are different.
Look forward to comments.
Happy Diwali.
