Black Monday 2015: All in a day’s work!

If you had direct or indirect equity exposure and did not know what happened on Monday, you deserve an award! Couple of charts, plus thoughts on the 6-8% drop in Indian indices.

Why did markets "crash" ?

Firstly, it is not a crash. A single day upward spike is not called a bull run. Similarly, a single day downward spike is not a crash! All we can say is that it is a sharp movement triggered by a domino effect -China, Europe, US. I don't really care. The cause will not help me much.

Secondly, it is atrocious to label the movement as "Black Monday 2015", "Monday mayhem" or "meltdown".  These are merely attention-grabbing headlines (yup, guilty as charged!).

Thirdly, such "corrections" are part and parcel of market movements. In fact, much larger falls have occurred right in the middle of a bull run (said in hindsight of course). See more here: Anatomy of a Bull Market

The red dots in the graph below represent all the days on which the market fell by 4% to 6%.

Black-Monday-2015

 

Even rarer events like a 7% or more fall (in the large cap indices) have occurred right in the middle of a "bull run".nifty-fall2

More such graphs can be found here: Worried about a 2% single day fall in indices?

Such "crashes" are just all in a day's work for the market.

Did you see as much noise from the media and your social contacts during those two days marked in green box in the top graph?

The reason for so much buzz (if not fear) now is because many invested after the market began to move up.  When a -4 to -6% movement occurred when the market was listless, not many made a 'big deal' about it.

A sharp drop during a "bull run" is enough to separate the men from the boys. Much of that 'buzz' seems to be from people busy posting and tweeting, "stay calm and buy more".

Panic is a good thing for your portfolio!

Before "educating" people to hold on or to buy, may I urge you to recall that it is called a 'market' for a good reason. It involves buying and selling. If all of us remained calm and did not react to global developments, then there will be no one to sell to when we need money. Panic selling (by others) is vital for us to make money.

Is this a good time to buy?

I strongly believe any time is a good time to buy (more on this later). If you purchased units on Monday, I suggest you please look at your finance holistically. Why do you have surplus cash to invest? It is by design or was it just lying around.

A few years ago. I made a decision to not "buy on dips" ( have never done this). It is too stressful for me. I have better things to do than to figure out dips.  I feel the happiest when I get rid of the months investible surplus as soon as possible.  I also feel happy when the market is heading nowhere - neither euphoria nor despair.

I also think that those who wish to 'buy on dips' (if you are comfortable with it) should learn some to study trends quantitatively so that they can establish a 'low' or a 'dip' better and then buy.

India VIX our volatility index (read more about this here: India VIX: The Stock Market Volatility Indexshot up prominently.

India-Vix-black-monday-2015

 

This means, that over at least the next month or so, we can expect the market to be volatile. So there should be other buying opportunities! There is no need to buy in panic!

Are we headed for a crash?

I don't know. You can use my Moving Average Market Level Indicator  to get an idea about long-term market trends using daily moving averages (DMA).

A moving average or a simple moving average is a technical  analysis tool in which the actual index data is compared with its average taken over a period of time.

For example, a monthly moving average is one in which the monthly return is calculated, with the duration rolled over by one business day.

For example, if you have data between 1st Jan 1990 to present,

You would calculate the average index value between 1st Jan 1990  - 30th Jan 1990, then between 2nd Jan 1990 - 31st Jan 1990, then 3rd Jan 1990 - 1st Feb 1990 and so on.

Jim Otar suggests the following with two DMAs (read above post for more details):

1) 5-month DMA (blue line)

2) 12-month DMA (red line)

Bearish trend: If the blue line goes below the red line, when the red line is heading south

Bullish trend: If the blue line goes above the red line, when the red line is heading north.

Nifty-black-monday-2015-1

The same graph for the last 8-9 months.

Nifty-black-monday-2015-2

 

Clearly we need more time to where the markets are heading.   All we can say is that the 5 month DMA after an year is all set to cross the 12-month DMA. The trend could reverse too from here too.

Note: This is a broad indicator and should not be taken too seriously.

This was written about 11 months ago: Nifty at 10000 in 12 months? It looked like a long shot then. It certainly looks like a long shot now!

I think we need to wait for at least a few months for the turbulence to settle down and corporate earnings to grow. Until then, the markets are bound to be directionless, like it has been for the last 6 months.

Install Financial Freedom App! (Google Play Store)

Install Freefincal Retirement Planner App! (Google Play Store)

book-footer

Buy our New Book!

You Can Be Rich With Goal-based Investing A book by  P V Subramanyam (subramoney.com) & M Pattabiraman. Hard bound. Price: Rs. 399/- and Kindle Rs. 349/-. Read more about the book and pre-order now!
Practical advice + calculators for you to develop personalised investment solutions

Thank you for reading. You may also like

About Freefincal

Freefincal has open-source, comprehensive Excel spreadsheets, tools, analysis and unbiased, conflict of interest-free commentary on different aspects of personal finance and investing. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. We do not accept sponsored posts, links or guest posts request from content writers and agencies.

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete  the entire comment or remove the links before approving them.

22 thoughts on “Black Monday 2015: All in a day’s work!

  1. Parsh

    Excellent article !!

    Something like Nikkei is hard to occur but possible... so hope for good times ahead 🙂
    NIKKEI Aug1 ,1996, 20,984.83
    NIKKEI Aug1,2015, 20,548.11

    Reply
  2. Parsh

    Excellent article !!

    Something like Nikkei is hard to occur but possible... so hope for good times ahead 🙂
    NIKKEI Aug1 ,1996, 20,984.83
    NIKKEI Aug1,2015, 20,548.11

    Reply
  3. Anil Kuppa

    I subscribed to your blog through RSS. Sadly, the feed just shows the first few lines of the post. To read the rest of the post, I have to comeback to your website. Is this intentional to attract traffic :to your website 🙂 ?
    Apart from that, what your write is really good. I'm a follower of Subra's blog and his blog mentions your website quite a few times. So, I subscribed to your blog.

    Reply
  4. Anil Kuppa

    I subscribed to your blog through RSS. Sadly, the feed just shows the first few lines of the post. To read the rest of the post, I have to comeback to your website. Is this intentional to attract traffic :to your website 🙂 ?
    Apart from that, what your write is really good. I'm a follower of Subra's blog and his blog mentions your website quite a few times. So, I subscribed to your blog.

    Reply
  5. Syamantak

    "A sharp drop during a “bull run” is enough to separate the men from the boys." - I am borrowing this line from you to share with my friends 😉

    Reply
  6. Syamantak

    "A sharp drop during a “bull run” is enough to separate the men from the boys." - I am borrowing this line from you to share with my friends 😉

    Reply
  7. Varun Girilal

    @Parsh. The data with regard to Japanese markets should also show the PE of the Japanese market. That will reveal to you that in 1996 the markets were expensively valued by a long shot compared to Historic Mean PE averages eventhough it is numerically the same level as 2015. The sharpest downsides in India have happened when markets have crossed 27 Trailing PEs.

    Reply
  8. Varun Girilal

    @Parsh. The data with regard to Japanese markets should also show the PE of the Japanese market. That will reveal to you that in 1996 the markets were expensively valued by a long shot compared to Historic Mean PE averages eventhough it is numerically the same level as 2015. The sharpest downsides in India have happened when markets have crossed 27 Trailing PEs.

    Reply
  9. Mani

    What should one do with surplus cash at this time (received gratuity and other settlements from last employer recently)? i

    Reply
  10. Mani

    What should one do with surplus cash at this time (received gratuity and other settlements from last employer recently)? i

    Reply
  11. IamNoSpecial

    @Mani: Spend 10% on yourself and family. Divide rest by 2: one part in equity and other part in debt.
    Off-course, if you have high interest rate loans then you may want to pay off that.
    This is all after you have built an emergency fund 🙂

    Reply
  12. IamNoSpecial

    @Mani: Spend 10% on yourself and family. Divide rest by 2: one part in equity and other part in debt.
    Off-course, if you have high interest rate loans then you may want to pay off that.
    This is all after you have built an emergency fund 🙂

    Reply
  13. A.Sundaram

    "If you had direct or indirect equity exposure and did not know what happened on Monday, you deserve an award!" -Pattu,I guess I qualify for that award :).I came to know of the crash late in the night when I was watching the mindless fight in Times Now- because a message was streaming at the bottom of the screen that the markets had collapsed 😀

    Reply
      1. A.Sundaram

        Ha,Ha! I am like "Thuppariyum Shambhu"(the fictional Tamil character who solved several mysteries by sheer luck).Add to that the adage "Ignorance is bliss" and my investing mantra is not far to seek 😀

        Reply
  14. A.Sundaram

    "If you had direct or indirect equity exposure and did not know what happened on Monday, you deserve an award!" -Pattu,I guess I qualify for that award :).I came to know of the crash late in the night when I was watching the mindless fight in Times Now- because a message was streaming at the bottom of the screen that the markets had collapsed 😀

    Reply
      1. A.Sundaram

        Ha,Ha! I am like "Thuppariyum Shambhu"(the fictional Tamil character who solved several mysteries by sheer luck).Add to that the adage "Ignorance is bliss" and my investing mantra is not far to seek 😀

        Reply

Do let us know what you think about the article