Investors always like stocks at market tops, and their desire for higher ground often affects the ability to recognize signals the market or individual stocks are sending, says Vipin Khare of William O’Neil India.

There’s a big difference in investing in the future you’ve imagined or guessed at and buying a stock that is right now demonstrating fundamental strength, institutional accumulation, and breakout characteristics – or the exact opposite.

The same holds for the overall market too, when it corrects, you don’t hold and hope for gain. Instead, you need to step back, take profits, conserve cash and wait for the market to signal a new uptrend. (see Eicher Motors chart).

This year started with a correction on major indices, the Sensex declined 8.2 percent till April 5, the day on which market status was changed to Rally. The
Nifty declined 3.8 percent during the same period.

However, on April 5, the Nifty rallied sharply on Day 5 of a Rally Attempt, the Nifty composite gained 1.9 percent that day to 10,325, status was changed to Rally. From April 5 to August 8, the Nifty index gained 13.7 percent (see below chart). In the same period, Sensex gained 15.8 percent.

If the investors were holding Eicher Motors, even after a change in the market status, hoping for a recovery, they would have lost 24 percent of their wealth.

Investors always like stocks at market tops, and their desire for higher ground often affects the ability to recognize signals the market or individual stocks are sending.

source: moneycontrol.com