Kim Jong Un Is Keeping Traders Busy

Kim Jong Un, the North Korean leader is rattling the world markets with his nuclear threats over the last few days.

Markets across the world have been swinging to news from North Korea.

They drop, in sync, whenever the Korean leader acts or speaks aggressively, and recover when things seem back in control.

This has been happening for almost a month. With a nuclear war at stake, the media is naturally playing the 'end of the world' tape on a loop.

But here's the thing...

No one can anticipate the outbreak of a war.

In cases like these, where tensions escalate steadily, it's logical to assume there will come a point when good sense will prevail and all sides begin a process of de-escalation.

The option to avoid war is still open; the situation is not as hopeless as its made out to be.

Markets have been reacting abruptly to these developments with gap up and gap down moves keeping traders busy in the immediate term.

But over a medium to long term, markets will go their own way. If they want to go up then they will, geopolitical tensions and wars be damned. If they want to go down then that's what they'll do, irrespective of strong growth prospects or liquidity.

Most market participants want the markets to move up but can't handle it when markets go down. I want to share a piece I wrote a few months back which can help you get a grip in the current context.

Enjoy the read and stay calm...the world is not coming to an end.

Why You Should Rejoice If the Nifty Drops 735 Points

 
Apurva Sheth

One of our friends was celebrating his kid's birthday and invited us over to his home for it. I love birthday parties. They're a great opportunity to catch up with friends in this otherwise busy life. While we were waiting for the cake to be served (I also like birthday parties for the cakes), our discussion shifted to the markets.

A friend asked my views, and I explained that markets have moved up substantially from the recent lows and look like they need some time to consolidate the gains. 'So one can expect range-bound movement between 8,000 and 8,300 on an immediate basis. But if the correction sustains too long, we could even fall below 8,000,' I explained.

'How low can we go?' my friend asked restlessly.

'Markets have rallied from a low of 6,825 in February 2016 to the most recent high of 8,295 in June 2016. That's a rally of about 1,470 points from low to high. 50% of 1,470 is 735 points. It's normal for markets to give back 50% of their recent gains.'

'What are you saying?' he grumbled. 'Isn't this a bull market? How can there be such a big fall if markets are in a strong uptrend?'

'A drop of 735 points from the top of 8,295 would be just short of 9%. A 9% drop is very normal even in a bull market. Markets have corrected more than 9% many times in past bull markets and recovered quickly.'

'But why do markets correct in the first place?' he asked. 'Why can't they just go only up at once? Why the continuous up and down movement?'

I know his question was silly. But it was a friendly birthday party. I had to answer politely.

'Corrections are a part and parcel of the markets. They are like any other natural cycle. Take the cycle of day and night as an example. We work during the day and sleep at night. The six-to-eight hours of sleep reenergises us. It relieves physical, emotional, and mental stress and prepares us for the next day's work.

'We do most of our productive work during the daytime. It's what pays the bills. But does that mean you only want days that will bring in more money?

'No, you would want some financially unproductive days as well as restful nights to live a balanced life.

'Similarly, corrections help bring balance to markets. Corrections enable markets to reenergise and prepare for the next move up. A correction is just taking a step back to take a big leap forward. They keep prices under check and close to reality.

'I am sure you have seen many stocks in your watchlist zoom higher and higher. You might have been waiting for the right price. But the dip never came and the stock soon went off your radar.

'Corrections are a great time to flip through old notes. You will inevitably come across a great stock you wanted to buy at lower levels. During a correction, most stocks, even the strongest, will drop. Corrections, then, give you the perfect opportunity to buy the companies you missed over the past few months.

'So instead of worrying, you should be rejoicing if the Nifty drops 735 points.'

In a much calmer tone, he asked: 'Does that mean I should abandon all my positions?'

'Absolutely not. I am talking in terms of probabilities, not certainties. You never know whether that correction will happen or not. But you must prepare for it.

'This means you might have to sell a position earlier than you had expected. You may even have to sit on some additional cash for a longer time until the market finds its feet. And you may have to tighten your risk control measures on the positions you hold in your portfolio. But that's about it. Just remember one thing: A correction is not the end of the world; it's as normal as day and night.'

My friend, now relaxed, could finally enjoy the delicious cake that had just been served to us.

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7 Responses to "Kim Jong Un Is Keeping Traders Busy"
bl saboo
09 Sep, 2017
if markets fall it is an opportunity for those who could not make up at that time. makets up nd fall are natural nd happening everydal. we should wait for right moment nd act wisely. thx Like 
GAURAV
06 Sep, 2017
NEITHER it's the First time, that markets are come done and correct itself, nor it's the last time. Buy quality and sit quietly. Like (3)
BYK Rao Ph.D.,
06 Sep, 2017
The above write up is very informative.The amazing clarity,utter simplicity & deep insight about market behavior & workings are convincingly put forward for retail investors.It is very common to buy a popular share just after a small correction & get frightened by subsequent deep correction,The 50% correction is true in many cases.There must be a technical indicator to know the end of correction.Mr Apurva is doing excellent service to common investors by his insightful explanation !! bykLike (5)
RAM JHA
06 Sep, 2017
Thank the Almighty once you get up in the morning whether in Singapore/ HOCHI MINH CITY/MUMBAI/ KOLKATA or any other city of your residence. Many people do not.Like (1)
RAM JHA
06 Sep, 2017
Nice article. One does need to sleep at night for nxt day to start his daily duty of earning for a living.Enjoy your sleep as much as you want to earn for your family / yourself.Like (3)
suresh
06 Sep, 2017
Not value for time and don't make readers to become fascinate by reading the title of the post, ultimately at the end of the read it looks not a useful discussion and no value for time.Like (3)
RADHAKRISHNAN K
06 Sep, 2017
clear thoughts and clarity in presentation. a good job ,well done.Like 
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