In falling markets, consider this for capital preservation and growth
Subscribe to enjoy similar stories. Colonel Hannibal Smith in the Hollywood blockbuster film A Team would often remark – no matter how random things appear, there is always a plan. This fortifies the belief that nothing happens in financial markets without a reason.
And the reason is always financial. With equity markets tumbling daily along expected lines and margin call-triggered sell-offs, retail traders are undeniably nervous. A statistical model-based trader like this author can see the nervousness in the market data over the last three weeks.
It would appear that some more declines are possible before the markets return back to their winning ways again. Stocks will fall far more than headline indices and retail traders are likely to feel the pinch really hard. Remember the transistor radios of the 1970s–1980s? We used to carry them around during cricket matches to keep abreast of the cricket scores.
They had built-in helical (telescopically collapsible) antennae to facilitate better signal reception. In Indian stock markets, the weightage of the Nifty and Bank Nifty indices is also telescopically designed. If an index-weighted stock falls in month one, its weightage is reduced in month two.
And vice versa. This data is freely available from the website of the National Stock Exchange. That means the indices will always fall less than individual stocks in a weak market and rise more than individual stocks in a strong market.
The other thing to note is the daily range of the indices vis-à-vis individual stocks. If you observe an owner taking his dog for a walk, you will notice the younger pups are friskier than older dogs. They move about a lot with lots of energy.
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