When history is so often up for debate these days, how can the future be certain? Just as talks of taper and early interest rate lift-off were gaining momentum, fear of a 'rinse, repeat' cycle appears to have gripped investors.
Given that a new month has begun after a brutal November and "retail" positions dominate single stock futures (SSF), it's going to be interesting to see how this class behaves. My gut is that markets rarely behave the same to the same stimulus. So, if last time we got a "V" shaped recovery, this time it might be different.
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That said, the frothy move between late July and mid October has corrected 50 percent on the Nifty and its 100-day moving average has also been tested. And while my immediate supports are at 16,715 (61.8 percent retracement) and 16,080 (200-day moving average), my worry is that pre-pandemic highs and their relations to the economic activity then have been completely dissociated from today's situation.
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Even if this recent development proves to be short-lived, there will be a need to justify the rich valuations demanded. If earnings growth going forward slips back to the past decades' compound annual growth rate (CAGR), then the 50 percent higher high vis-a-vis March 2020 high was an aberration and this pullback will be seen as just the beginning. If earnings growth for the recent past was driven primarily by cost controls, inflation and base effect, it could depress significantly. But, for the immediate term, this week's testimony by JP/JY would be parsed to see if taper will be accelerated and/or interest rate lift-off will be brought forward.
Still on the sidelines...
The author is an independent trader-cum-blogger and has worked at leading brokers on the institutional sales desk over the course of his near three-decade long career in the stock market.
First Published: IST