(Source: www.shutterstock.com/cartoonresource)(24 January 2016)
After a tumultuous start to the new year, the last week finished off with a relief rally. Are we done with the correction?
‘It isn’t over till the fat lady sings’ is a colloquialism classified as a proverb. It is used to caution against the following:
Assuming that the present state of an event is permanent in nature.
Trying to draw a conclusion as to how an event will end.
In other words, we should not presume to know the outcome of an event that is still in progress. As we head into a truncated week, the following thoughts come to mind:
- The fact that the Nifty Small Cap 100 Index hit its 52-week low does not reflect the pain in this segment.
- Foreign Institutional Investor’s (FII’s) are not very active in the Small Cap segment. As a result, most of the selling in this segment is either pure retail or ‘smart money’.
- Selling can be for a variety of reasons; profit booking, tax planning considerations and rebalancing are the ones that come to mind.
- Is the ‘fat lady singing’ going to come to an end or is the fat lady going to take a breath and resume singing? The Bears interpret ‘fat lady singing’ to mean that when her song ends, and the curtain comes down, the bull market is over. The Bulls interpret it to mean that when the curtain comes down the bear market is over. Take your pick.
- I am siding with the bulls. I don’t know when the ‘fat lady singing’ will stop. In any case, when she stops singing it might be too late. In such an environment, the Magic Formula is a very useful tool for stock selection and investing.
- Those of you who are unaware of ‘Magic Formula Investing’ need to read the earlier post. You can do that by clicking here.
Click Magic Formula Stocks – Nifty Small Cap 100 Index to download the file. As usual, the top thirty stocks are highlighted.
Is trying to time the fat lady tantamount to an attempt to time the market? Undoubtedly yes. I prefer to call it: ‘being human’!