Missed the rally in May last year? Is the Market giving you a second chance?
The Nifty has corrected significantly in the last two months from a high of 9100 registered in the first week of March to a low of 8000 registered in the first week of May. To understand if the market is giving a second chance for the investors who missed the rally last year we need to understand how the markets behave in every bull market. This is the psychology of investors and traders which is very important to understand. As can be seen below the “Market Curves” figure has been respecting world over for many decades.
Lets understand this “Market Curves”. There are 4 phases that the markets have to go through. This is the market cycle. Theses 4 phases are – Stealth Phase, Awareness Phase, Mania Phase and the Blow Off Phase. The start of the cycle is always with the Stealth Phase. Here you can very well relate that the years 2010 – 2013 was the “Stealth Phase”. Here investors are ignorant, skeptical and have no interest in investing in the stock markets. This is also the phase where the intelligent professionals or the “Market Scientists” start accumulating based on extreme long term views. This is the reason why the markets take off which brings in a phase where the markets start rallying. This leads two the second phase which is called the “Awareness Phase”. In this phase the markets display a strong rally and the Intelligent Professionals start making a lot of money. It is in this phase that the common investors do not dare to enter the markets but wait for the markets to correct. The markets do not correct and the common investors are mere spectators to this big rally. It’s in this phase that the so called “Big Boy Market Scientists” are actively making money and are sitting on decent profits. This phase was seen in the year 2014. The common investors start feeling that the wait and watch approach that they have been adopting all these days will keep them deprived from the markets. It’s only then that the common investors enter and the Markets take a sudden sharp “U” turn. This is a trap for the common investors. The “Market Scientists” have booked profits and the common investors are fresh buyers. The markets see a slide making the common investors bleed. Now the common investors feel that the market is now going back to the long term bearish phase. The markets then come back near the mean of the recent rally where the Bulls lay a trap for the bears. This is called a “Bear Trap”. It’s this phase that we are experiencing now for the last couple of months. This trap is laid to ensure the weaker section of the investment community is flushed out from the markets.
After this much needed deep correction, once again the “Market Scientists” and the “Big boy Scientists” would be seen in action as a new top is made in a flash. The media highlights this and a lot of Enthusiasm is seen in the markets as the general public is seen attracted once again to the markets. This is the phase where the emotion of “Greed” overpowers the common senses. This is when a new all time high is registered. Over a period of time the market valuations are overstretched but the market participants do not accept and are in a state of denial mode. This is called as the “Mania Phase”. The “Market scientist” exits the markets and this marks the start of the down trend. But for the common investors it’s only a correction and this correction is brought into by the common investors to average their purchase price. Because of this fresh buying at lower levels the markets give a relief rally which is meant to exit but this is misinterpreted by the common investors. This relief rally is also called as a trap laid by the Bears – “Bull Trap”. This time the Bulls are trapped and the market’s slide amidst the emotion called “Fear”. It’s in this phase that we see a phase called as “Blow off Phase” where we see investors sell in despair, distress and anguish. This is where the cycle comes to an end and once again the stealth phase is in the making.
It’s this psychology with which the markets have been behaving for centuries. Here I strongly believe that we are in the second phase called as “Awareness Phase” and the current correction will be followed by the “Mania Phase” which will be an opportunity for all investors to mint a lot of money. For all those investors who feel that the markets have nothing left in for the future would surely be left out. Technically, there is some more pain for the Nifty in the days to come but the right approach at the right time will help all intelligent investors to gain in the years to come.
Hence if you have missed the rally last year, the market is giving you a second chance in the days to come. Grab it!!!
— Kiran Jadhav – CMD.
Precision Investment Services.