This week, the market witnessed its strongest weekly rally in four years! The prolonged weakness seen from September waned and some green shoots emerged across sectors.
But, we will probably see this positivity only for a few weeks until Q4 results start releasing. Almost always, after a sustained fall there will be a bounce back. This bounce is just that.
Such a bounce can get sold into. We will see sell-offs in the expensive parts of the market which have long been in time correction. Stocks that held up so far will break down. Companies which corrected sharply in the early part of 2025 after bad numbers may also briefly rally, only to correct again.
Clearly, we are in the middle of a prolonged valuation reset. Only undervalued stocks showing strong Q4 numbers backed by positive management guidance can rise sustainably. The management commentary must support performance. Without that, even good results will get sold into.
We are in a classic bottom-up bottom fishing market. Even contrarian investors must be extremely cautious in what they pay. They simply cannot afford to overpay and see the markets punishing them shortly after they complete buying.