Will the market rally for the 8th week? Toss a coin
We had written on 8 February 2012 (http://www.moneylife.in/article/will-the-market-rally-for-a-sixth-week-in-a-row/23543.html) that the markets are likely to end the sixth week higher. Our guess was proved right, based on the probabilities at that given point in time. However, the markets have continued to surge higher, up for the 7th week, as well. We are into the 8th week now. What are the odds that the momentum and bull market will end up higher by end of this week?
We analysed all weekly closes data points in the last 21 years. We fond out that there have been 16 occurrences where Sensex moved up seven weeks in the row in the past 21 years. However, the 8th week turned out to be positive only half the number of times. In other words, the markets ended the 8th week 8 times out of 16. A perfectly random outcome. The last time it happened was in 2010, between the period 11 February 2010 and 1 April 2010. Interestingly, out of the 16 times the market was up for seven weeks in the last 21 years, the 8th week was positive only twice in the nineties.
Over the last seven weeks, the Sensex has given handsome returns of 15.4%. Since today is a holiday, we will only know how the markets will start this week by tomorrow end of day, to give us an indicator as to the likelihood of markets being positive this week, as well. With most global markets up, it could be a positive start to the week.
With the odds 50-50 this time around, the probabilities of the current upward momentum extending well into its 8th week has greatly diminished, but by no means improbable, given that market has an uncanny ability to surprise us. So what do you do? Toss a coin, instead, to check if the market will continue its bull run. You might be lucky, or not, depending on which side of the trade you're on.