Risk In A Bull Market

The Nifty keeps on making life time new highs regularly. The gains are spectacular, to say the least.

Together with the rise in the Index, there is a commensurate rise in the chatter which says, “This is a bubble, a very risky market.” Let us examine this prevalent ‘wisdom’.

What is the risk in a bull market?

Well, the first risk is that this may not be a bull market at all. It could be a rally driven and manipulated by a few to sell their own shares.

Our View: A market that continues higher for more than 4 years (Since 2014) is NOT manipulated. This is a real bull market.

The second risk is: Valuations are stretched. So, the market is waiting for a reality check when prices will fall to ‘correct’ valuations.

Our View: This assumes that the market has no idea of the valuations. Only the doomsday gurus are having a correct perception of what the market should be valued at. We trust the market and its wisdom. Valuations rise because more people want to buy stocks. History has many examples of valuations expanding for years. The current U.S. stock market is an example.

The third risk cited is: Markets have moved up almost without a correction. Any day, any minute, a correction could start.

Our View: This is a much more reasonable explanation of risk in the market. BUT, let the market tell us it wants to go down. When our support levels start getting broken on the downside, we will get a sense that markets are likely to correct. Traders miss big moves when they start waiting for a correction, or rather; they end up demanding a correction from the market. Much better is to let the market tell us what it wants to do.