With the 9th day ending up positive, Moneylife finds out whether the 10th day will be positive or not
As expected, the positive sentiment emanating from the government’s reaction to clean up its image, albeit hurriedly, resulted in the stock markets ending up positive on the 9th day. Along with this, global factors helped too, with the European Central Bank (ECB) and Federal Reserve promising to be saviours. We had written a piece yesterday: Will the markets end positive for the 9th day? The Reserve Bank of India (RBI) had cut down Cash Reserve Ratio (CRR) by 0.25% to 4.5%, the amount of money Indian banks are mandated to hold with the RBI. However, it had kept rates unchanged, as it fears that a loose money policy may stoke inflation, with already easy money sloshing around globally. Will the stock market streak continue? Will the 10th day be positive as well or will it get jinxed?
We poured over the data and found out that the National Stock Exchange (NSE) Nifty Index has stretched its positive run nine consecutive days 24 times (25 times, if you include today), and found out that the 10th day was positive only 11 times, or 46% probability (again, random chance). The average return of these days was just 1.19%, with the maximum being just 2.80%. The last time the stock market extended its run to nine consecutive days was nearly five years back, on 3 October 2007, leading up to the peak of the global sub-prime crisis. We also found out that if the 10th day did indeed close positive, then the probability of the 11th day being positive was even lower, with only four occurrences out of 11. The average return on these four occurrences was found out to be, again, a paltry 1%.
Unless profit-booking happens to a large extent, with the RBI cutting CRR which will unleash at least Rs17,000 crore into the economic system, it looks like the positive sentiment is here to continue. However, as the numbers suggest, it is still a random outcome of guessing whether the market will close positive or not.
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