Correction implies pullback in prices. Pullback can happen price wise and/or time wise:
1. Price wise pullback - Asset prices can correct in prices. Example: 100 rupee stock can pullback to 70 rupee stock. That's a 30% price correction. Most of the folks understand this concept.
2. Time wise pullback - Asset prices can refuse to go higher for long long time. In other words - Prices not going anywhere for long long time. Correction in time, means the market can just go sideways.
When stock prices rally exponentially in short period of time - then they undergo long period of underperformance (time correction) which allows fundamentals to catch up with prices. Time Correction can be very painful for Long-term Buy and Hold Investors.
Time Correction is just Law of Nature. Every exciting long day is followed by long night. Every exciting phase is followed by long dull phase.
Let me share few examples:
Case Study: Bharti Airtel
Bharti stock was the leader when it came to Mobile revolution in India. Here's the stock performance between 2003 and 2008
Bharti stock prices went up exponentially from Rs. 12 to Rs. 500 in just a span of 5 years. The law of nature then caught up with the stock and just see what has happened to the stock since 2008
As you can see - the stock has gone nowhere for now 9 years - yes a long long night for the stock. This is called Time correction
Case Study: Reliance
As you can see in the chart above - Reliance stock has gone nowhere for now 8 years - with a solid resistance at 1150. The Buy and Hold investors have got nothing except dividends. This price movement pattern is called Time correction
There are many other large caps suffering from time correction right now: TCS, ITC and now even Sun Pharma. What's scary: we don't know how long this time correction phase might last
Time correction is like Prison time for Stocks when gates are closed and stock prices remain below a certain level for long long period of time
Next Chapter: What happens when Time Correction ends? What signs one should look for? I will cover in next few days.
Hint: Wait for new morning/Wait for the lock to open :))
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers