Will the markets end positive for the 9th day?

Moneylife Digital Team 17 September 2012

The Nifty has closed positively for eight consecutive days, for the first time since 30 June 2011 and only the 3rd time since 2007, as it rallied from 5,238.4 to 5,577.65, up 6.48%. What does the past suggest about today’s close?

The Nifty has closed positively for eight consecutive days, for the first time since 30 June 2011 and only the 3rd time since 2007, as it rallied from 5,238.4 to 5,577.65, up 6.48%. The streak is a result of several factors, especially the US Federal Reserve quantitative easing, or printing more dollars. Even the European Central Bank (ECB) has pledged to buy troubled sovereign bonds indefinitely which had cheered the markets world over. Finally, the paralysed Indian government has announced several policy changes such as allowing foreign investment in airlines and retail companies and a major disinvestment programme of public sector units. After eight days of rally what will Nifty do today? Will it close up for the 9th day too?

A Moneylife research found out, by pouring over data going as far back as the 1990s, that there were 44 instances where Nifty has had a streak of eight consecutive green days. We found out that when this happened, the 9th day turned out to be positive 24 times, or a 54% of the time—almost a random outcome. The average return of these days was 1.06%, while overall return was 0.04%. The maximum return was a 2.80% recorded on 1 October 2007. Furthermore, we found out that the probabilities of the 10th day being positive, given that the 9th day is positive, was only 11 occurrences out of 24, or less than 50%. In either case, it seems like a near random event and anybody’s guess.

Moreover, the Indian market was surprised when the government suddenly decided to undertake reforms, by allowing foreign direct investments into the aviation and retail sectors, two of the politically sensitive areas. This knee-jerk reaction from the government amidst scams has hugely impacted the market, positively, at least in terms of sentiment. But already opposition to these moves are building up. Nevertheless it cannot be denied that the sentiment has changed and the speculative bulls, long starved of a good story, are in a mood to keep charging ahead.

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