In early part of my investing career I used to frequently time the market, and was partly successful. Got it right sometimes, wrong sometimes. But over a long period of time, I have realised that its often difficult to time the markets. Inspite of being a student of technicals, maybe I am a bit too reluctant to time the markets, especially now that I probably can do a better job of it. But things have worked fine even without resorting to timing the markets. Every sharp correction awakens the need to be be good at timing the markets.
In past few days, I have been asked this question by some investors about how much cash I have in my portfolio and whether I time the markets or not. Fact is I usually am fully invested most of the times. On rare ocassions, I am partly in cash, particularly when I have sold off one/trimmed one or two or more of my major positions.
What I have usually done during past corrections is to try and strenghthen the portfolio by weeding out the mistakes (even if it means booking losses of varying degrees) which have led to inclusion of stocks which do not outperform significantly. This often happens when I have invested in breakouts that look good, and once markets correct significantly, these very stocks correct and hit stop losses in trading positions. But at the same time, I keep a track of stocks where major breakouts have happened on a longer term time frame, and where stock prices had run up, but now with overall weak markets, these too have corrected and have come to significant support/entry points. I use these opportunities to buy into these stronger techno funda opportunities, and it has often worked very well for me. So that is the kind of exercise I am currently considering.
Regarding overall markets, we have had many such sharp corrections and rallies ever since we went into the correction post Oct 2021, from the top of 18600.
Just to keep track of these things, we went down from
18600 in Oct 21 to a low of 16966 in Dec 21 (a fall of 1600 points) , and rallied to a high of 18350 in Jan 22 (a rally of 1350 points),
then went down to a low of 15671 in March 22 ( a fall of 2679 points), again rallied to a high of 18114 in April 22 (a rally of 2443 points) ,
then fell to a low of 15183 in June 2022 ( a fall of 2913 points), again rallied to a high of 18082 in Sep 2022 ( a rally of 2899 points)
And now the fall from the recent high of 18082 to today’s low of 16978. ( a fall of 1104 points till now)
The level of 16947 to 17018 was a gap up area ( marked in dotted blue lines) in the Nifty between 28 and 29 July 2022. 16975 is the 38.2% retracement (marked in dotted fluorescent green ) of last leg of rally from 15183 to 18082. And finally the 200 dema ( marked in solid fluorescent green ) which is rising is at 16879. Today’s low was right in the middle of all these important areas. If the markets stabilise above around 16800-900 and rallies, we can have a tradeable bounce, if not, more pain. So at current juncture I am not too keen to take a cash call. If a cash call had to be taken, it had to be taken closer to 17800-18000, but at that time there was a lot of momentum in markets and hence a cash call was difficult to take.
In the past nearly 11 months beginning Oct 21, we have had three major falls and three major rallies, which took investor sentiments in entirely different directions at bottoms and peaks. Each time during the fall it looked as if things are going to get ugly near the bottom and that was exact time of reversal. And vice versa near tops.
We had an expanded triangle like formation ever since Oct 21, and recent swing highs were the first time markets were able to trade a few days above the falling trendline before correcting. So we need to see how things pan out going ahead. (hypothesis: We could have completed the first half of a pattern called a diamond pattern, where the first half assumes the expanding triangle and second half assumes contracting triangular pattern and since this is a pattern whose each leg runs for few weeks on either side, we might see more rallies and falls going ahead, but in a more contracting nature. I do not have any conviction in this hypothesis, but this is a wild guess to see if things can happen in expected manner. )
