NIFTY, CRUDEOIL and Market Volatility
Crude Oil has broken 10 Years high,
INR is at all time weak in comparison to USD.
War situation at play………
However, markets are not cracking up
Is this all a made-up bubble which is going to burst anytime and market continue its up move?
Are we heading towards a bear market situation with more downside?
Nifty so far has witnessed a retracement of 12.7% from it’s high of 18594 (Futures). Lets have a quick look at the past,
2016 – Nifty dropped to 7008 from a high of 9191. This was a correction of 23.75%
2011 – Nifty dropped to 4538 from a high of 6349. This was a correction of 28.5%
2008 and 2020 – These years were major corrections beyond 50% and 35% respectively.
Now, Let us see what Crude Oil did during those years.
2016 – down by 74%
2011 – down by 34%
2008 – down by 77%
2020 – we all know it totally crashed to negative levels
But, what’s happening right now is absolutely the opposite. Crude Oil up and Markets have had only a minor correction. They have not cracked up.
Just looking at this we can understand that Crude Oil and Nifty have been positively correlated all the time during major corrections which is not happening now.
Now, let us also understand what the volatility levels (India ViX) been from 2008 to 2021
2016 – High of 26.87
2011 – High of 39.02
2008-2009 – High of 54.4
2020 – High of 86.64
Current in 2022 Feb – High of 33.97
Looking at the volatility levels in comparison to Nifty’s drop, ViX at an all time high of 86.64 brought Nifty down by 35% in 2020 and in 2008 a high ViX of 54.4 brought the Nifty down by 50%. Currently even with ViX going up to 33.97, we have seen only 12.7% drop in Nifty.
Volatility is the measure of people’s sentiment in the market. The current sentiment appears not that of fear which existed in all the previous major corrections.
Let us also see the fundamentals of our market (Nifty).
All our major corporates have given stellar performance for the whole of 2021. Economic policies are rightly aligned for US$ 5 Trillion economy in next two to three years. Global relationships across all countries are at its best. GDP looking very positive and inflation well controlled. And finally we have a neutral view on the ongoing tiff.
With all the above data points, my view and conclusions are as follows:
This situation is not a war situation
Its not a major correction
All of this is economically driven rather than power and panic driven
Markets are holding strong and appears to have a long way on the bull side
What should one do in the current situation if you are either invested in the market or a trader?
As a Investor
Long term – stay invested, this is just a blip which will not matter
Medium term – if your holdings are fundamentally strong and has delivered good results in 2021 then stay invested
Short term to very short term – Stay out until the markets conclusively goes up for three to four weeks consecutively
As a Trader
When the volatility is high, market’s moves are swift on either side, this gives a lot of opportunity for trading which I believe should be encashed
If the market is directional on either side, its even better for trading
Options trading especially selling will yield high returns given the expensive premium provided managed rightly
For a trader with a business approach, times like these can be highly rewarding provided one has a trading business strategy, plan and very importantly a system in place to execute the strategy and plan.
The trading system should tested for its return, expectancy & drawdown and fully calibrated to suit one’s risks. If these are in place, any kind of market condition can be an opportunity for trading.
Happy Trading and Investing.
Jitendra B Gopalakrishna (Jeethu)
Disclaimer: The views, thoughts, and opinions expressed in this article belong solely to the author, and not to be construed as an investment or trading advise. The above information is intended to be used and must be used for informational purposes only.