One of the complaints or even fears about the current market rise has been the absence of corrections over the last nearly a year of advances. But is this really true? Are people justified in being cautious or skeptical about market trends because the usual correction is not visible? It does not seem quite correct, in my opinion. Periodic corrections have been occurring during this upmove. Only, they have been small in dimension. We are all thinking of a correction of being 8-10% on the index and something larger in the other indices and individual stocks.
Corrections have been going on every month (except October) and have also been progressively increasing in their extent.
While they have been limited in extent (highest so far is 4.99% and lowest is 1.5%), they have all been averaging a similar length in time (6-8 bars on an average).
Thus the impression that this is a market that has been rising without any correction is incorrect. Every market develops its own characteristics and this one is doing time corrections and gradually increasing price corrections. Perhaps the latter is owing to influx of liquidity. Since this shows no signs of waning, one can believe that this type of corrective pattern will probably continue into the near future as well.
All corrective dips have seen momentum signals remain intact. The circled areas denote the formation of Positive Reversal signals after every new high and Divregence- clear indication that the trend will continue. Right now the prices have formed a new high in price and momentum is accompanying the prices and therefore we should continue to expect the rise to continue ahead. The pitchfork is shown as a guide for tracking the trend ahead and it can be seen that until the 10000 area is not lost, this trend is not in any kind of danger even in the short term.
The Mid cap area of the market has been faring even better compared to the Nifty. Note in the next chart that the corrections may be larger in extent compared to the Nifty (something that is quite normal) but the time element is much shorter, implying that the market snaps back much faster in this area compared to that in the Nifty! Also notice the excellent trended nature of the rise as the Magic bands are maintaining an excellent hold on the trend and only in May was it breached ever so briefly. The recent correction was about only half of the extent experienced back in May and June- showing that the market was uninterested in relaxing the grip on the mid cap area.
The situation in the Small cap index is quite similar to that in the Mid cap, perhaps, even a shade better! This clearly shows the market’s preference for the mid and small cap segment compared to the large caps.
Conclusion of the above study is that the trend is likely to continue. The sharpness of the correction has increased in the Nifty over the last 3 occasions but not reflected similarly in the Mid and Small cap index. This may perhaps impute a greater sense of nervousness in larger players than among the retail investor. The trend dimensions of all the indices are quite firm in their current positions and therefore it would take much to disturb the trend and change it. We may see some sharp moves now and then but extent of damage is quite limited, suggesting that it may be prudent to stay thru any correction rather than run scared from them and abandon positions owing to fear.