Markets: Window of opportunity?

Source: DNA Money

The Sensex has risen by over 10% in just two trading sessions, recouping about a quarter of the losses it made in the past month. But it’s clearly pre-mature to get excited about this sharp rise. As the charts alongside show, it’s not unusual for the markets to rise sharply in the midst of an extended correction. Both in 1992 and 2000, the markets had risen by 16-18% from its lows towards the beginning of a bear-market phase. What’s also worth noting is that these rallies lasted for a very short period of four to five trading sessions.
This time around, the markets have risen by about 11% in two trading sessions. Going strictly by the trend in 1992 and 2000, there could be another rise of about 5-6% before stock prices start tumbling down again. What gives this theory further ground is the fact that the recovery in share prices has largely been restricted to large-cap stocks such as those represented by the Sensex. While the Sensex has recovered 25% of its losses since May 10, BSE’s Small Cap index has recouped just 12%.
If the sharp rise in the past two days is indeed a repeat of the bear-market corrections seen in 1992 and 2000, it can be seen as a window of opportunity for investors to book profit and exit.
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