My view on Carona virus and how to trade?

Last week we had a freefall in the market. Nifty fell close to 8%. This is the worst one week fall which I have seen in my trading career.
Is it the Carona that triggered the fall or was there something else behind the fall?
How many of you remember the yield curve inversion that occurred in the month of November 2019. For people who do not know, this means that the short term debt instruments have a higher yield than the long term instruments.
In history, this has occurred twice and both the times we had a recession following that.

  • First in 1998 which was then followed by dotcom bubble
  • Then in 2006 which was followed by a 2008 crisis.
  • We again had that in the month of November 2019 and analysts believed that we may have a recession in 2020. Was Carona just a reason which the market required to trigger a fall ?? I do not know. 

I personally did not believe that the yield curve inversion would trigger a drastic fall in 2020. The reason was simply that we are having the US elections this year and I believed that the US will not allow such a thing to happen. But now, we have had a massive fall in just 5 trading sessions. If you are to believe the inversion yield curve theory then we are able to connect the dots.

Most of the markets were around its all-time high including the US markets. So a minor correction was expected and needed for a healthy movement of the market. I personally expected a minor dip. When there was a V shape recovery in the market after the budget, I did not believe that the markets would fall below 11900 but today we are at 11200. 

Carona is a deadly epidemic that was born in China and is now entertaining the world. As of today, we have around 90000 cases and around 3000 deaths. Most of the deaths are in China. It has recently spread to the west as well. But the mortality rate of Carona is very less compared to other epidemics like SARS. Not the new Carona cases are reducing in China and are gradually increasing in the west. China has reacted extremely well in handling the issue by setting up quarantine centers. God forbid, I don't think we would have handled it so efficiently if it had started here in  India.
China had their long vacation in Jan and it was expected that a huge number of tourists would migrate to the west. So there was a huge probability of the virus being exported to the west. So the cases in the west was not a surprise to them. I am pretty sure that the west would have prepared at least mentally for this. Now, this issue is no more a China issue. Now it has become a global issue and the best pharma minds are behind this to come with a solution. So this virus was not a jolt to the west as it was to China. Now there is a fear in the market that the Carona virus will create havoc in the west. If China, which is densely populated and in a short time could reduce the number of newly identified cases, then I think that the west can handle it even more efficiently.

So how do you handle these situations and trade in these situations?
As I told you, trading is more about your character than punching orders. Discipline is not just when you sit in front of your terminal from 9am to 4pm. It is way beyond that.
I am an optimistic person and I will be really happy even when I see a quarter glass of milk. I have always been bullish in the Indian market. There are people who say that quick money is minted in the bear market as markets fall rapidly. But I believe that good money and consistent money is made in the bull market. Even after this massive fall, I still strongly believe that we are still in a bull market and the rally might continue once this Carona saga is over.
If the markets fell due to the Carona virus issue then the market movements would depend on many things. There are many things that can happen in the coming days.

  1. The Central banks can do something to the rates and markets may bounce back.
  2. The governments could release a stimulus package for the economy.
  3. Someone comes out with a vaccine for the virus.
  4. The Carona outspread may go out of control and the death toll may surge suddenly.
I do not know what will happen. But, if this fall is because of Carona then in a few months the Carona fears would be out and the market rally might continue. If that is your belief(that's what I believe) then one should look for these opportunities in building long term portfolio. There are many many stocks which are at 52 week low. Look for the right once and start accumulating. 

When bajaj finance was at 4900, I told that I may start adding to my kitty once it is below 4500. Today it is at 4200 and I am not getting the confidence to add that. I am now waiting for more fall.

 But, if the inversion yield curve theory is to be believed then the recession might have just started and the fall might continue and we may reach more bottom from here. 

Please do let me know about the article in the comments below. I would be glad to hear from you.


Comments

  1. I am worried about the inversion yield theory you have said. I am afraid if it is the begining of recession

    ReplyDelete
    Replies
    1. If there was no US election this year then may be even I would have been on the same page. I still strongly believe that once this carona saga is over we will continue the rally.I feel we are near the bottom.

      Delete

Post a comment