We saw this happen umpteen times between 2008 and 2013. Frenetic rallies from an apparent bottom seemed to fizzle out with equal speed. In most cases, the index gave away most of its gains, while specific stocks touched new lows. The key challenge is how to differentiate between a false rally and a genuine pullback in the market? Easier said than done, but here are some pointers.
False pullbacks and true rallies
Between 1994, when the markets corrected after the US raised rates and 1999, when the tech boom began, there were at least 14 intermittent rallies that fizzled out. Similarly, between 2000, when tech crashed and 2003, when the long term rally started, there were again 7 substantial rallies that fizzled out. So how do you differentiate between a genuine rerating and a false rally? Continue reading