Market May Correct, Tread With Caution: Atul Suri
As the market is at an all-time high, we need to tread cautiously. It’s time to cut back your position sizes and be more cautious while taking the trade. From the bottom, the market has risen by almost 130%. This rally in the market has been global in nature. All country world indexes have gained 100-110% plus in value in just one year.
India’s market has performed the best in this. It is to be noted that in the past, markets have always recovered from crashes. In this case, let’s examine what happened in 2000, 2003-04, and 2008.
They recovered swiftly after the huge crashes. Post Lehman, the market recovered almost 180%.
The first leg of recovery after the crash. Though it is obvious that such kind of price momentum cannot continue as this is not realistic.
And after this correction, the market remains sideways for few years which is more like a consolidation phase.
However, it is difficult to predict for how much time the market may remain in the zone before starting the further leg of the rally.
There are three stages in a bull market – a vertical climb, a period of consolidation, and then the next rally continues.
It is in all probability feel we are ending the first leg and entering into the second phase of consolidation.
That does not mean individual stocks and sectors will not do well. One can still make money by selecting good stocks. This is where stock-picking skills will help.
What Next in the Market
The risk is that there is not much upside from this level unless there are some really fantastic triggers. Even if the market remains in the range, some sectors will keep making higher highs and some other sectors will keep making lower lows.
This is the nature of the market. A lot of sectors may come out and that is where the risk is because a lot of people get sucked towards this level.
IT And Metals Pack: Leaders of This Bull Run
Technology has been a top performer and its return has been even better than the indices. The technology sector as a whole has performed better globally and not just in India. In general, the sector that first gives the breakout first after the correction usually emerges as the leader of the next bull market, and IT may be the leader.
Therefore, any dip in the stock prices should be viewed as an opportunity to buy fresh stocks.
On the other hand, commodities are subject to global prices. This means they are not dependent on one thing happening in one place. For example, the price of oil is not dependent on something happening in India.
If anything, it’s dependent on what happens those influences. Commodities had a very strong decline between 2008 and 2020. There was almost a 12-year bear market in commodities, which broke down the trend line.
When the bull market began, any asset class or any tradable stuff that tends to come out of the consolidation zone firsts leads the rally. So, we should not miss the fact that both IT and Metals have led this leg of bull run.
While previously steadily increasing, commodity prices are now facing downward pressure. So, I think that commodities will be an interesting asset class to trade. The only problem is that commodities are more volatile than IT stocks.