Post the killing of Iran’s Army Boss Quassem Soleimani, markets world over went into a jitter and so was it for India. We tanked 2% & continue to be weak.
Was this a surprise for the markets, were investors caught unawares? Not at all. It is just that this incident was a coincidence. Market was already showing signs of weakness from the last week of December.
After the up trend that began in September post the Corporate tax cut announcement, market had a 10% upside. In the course of 3 months that this up trend lasted, it began getting weak.
Any move for that matter, whether it is up or down, will come to an end after some time. It was the same with the markets this time. In this chart shown here, we can see as the price climbs 12k, indicators have begun showing weakness.Weakness on the index first showed at the end of November, while market did not give way, it kept pushing higher, testing patience of investors and traders. By end December, there were 3 attempts to move past 12K, each time it was only able to muster small strength.
On 1st Jan, Nifty tried to move into a new high, it lost strength as it approached close to the recent high and from there it could not manage to hold on further.
Soleimani’s death came only on 3rd Jan, it only added more fuel to fire. Else if not for this incident, some thing would have come and taken the markets down.
Almost always charts show up signs of weakness before any major events. It has happened in the past and will happen in the future. Those who had followed the indications, had the opportunity to protect their investments, either by selling the holdings, move into cash. Take a hedge with a short on futures or options. Or just be prepared that there is going to be a small move downwards and that needs to panic.
Even better option is to add to investments as these kind of events, I am not talking about the death, the correction in the markets, provide opportunity to take investments at a bargain.