In stock market driven by sentiment, fundamentals matter more than ever

A member of my community asked if I was short any stock or stock index. No I am not because I am not convinced this is the one. Based on my observation over the last 2 years, I think that:

  1. The market will find an excuse to rally no matter how bad things are.
  2. There might be a bubble which I believe but it is nearly impossible to time – the most bearish signals have been cancelled out time and again by V-shaped rallies on narratives that don’t make any sense.

In short, I have a super dose of skepticism for both directions of the stock market. I wrote this on 07 Feb

If this is truly a bubble however, something super amazing will happen – SiMSCI will rally back up by nobody business and it will go back to/near that all-time high at the green zone. (Many bulls who were stopped out this and last week would have suffered for nothing while bears who short equally get killed.) If it is not a bubble, a more rational market will surely give that major top at 399 a good test and probably fail.

SiMSCI weekly chart from March 2015 - present

SiMSCI weekly chart from March 2015 – present

This is a chart of SG30 (SiMSCI) captured today. Price trading at 405. Another V-shaped rally. 399 brushed aside with no resistance.

SG30 weekly chart Sep 2014 - present

SG30 weekly chart Sep 2014 – present | Source: Tradingview

In a bubbly stock market like this, only market sentiment and chart levels matter in the short term. Market participants driven by greed and fear of missing out, then killed by excessive fear-driven corrections. Plenty of longs and shorts burnt on both ends. Lots of money lost over very little real directional movement.

Did fundamentals change between late January till date to justify a steep fall followed by steep rally?  Fundamentals wouldn’t be called fundamentals if they changed day to day.

However I don’t think that fundamentals are not important – unless one is a master of scalping V-shaped moves, fundamentals are more important than ever to the average market participant. Scrutinise every stock holding carefully. At a volatile time like this, it is critical for one to hold on to stocks with super fundamentals. Those that are are strong should preserve value better while those that don’t qualify would be beaten down fairly quickly.

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