From the day’s high, which was also the stock’s record high, the scrip crashed 22 per cent and effectively entered a bear market. A technical bear market is defined as a 20 per cent fall from the recent high of security.
The reason for such a sharp turnaround in sentiment was not newsflow but a rapid adjustment in positioning among speculators.
The market-wide position limit on the October futures of IRCTC most likely crossed the 95 per cent threshold. NSE is mandated to put any stock where the MWPL crosses 95 per cent under a temporary F&O ban till the positions in the contract come below the 80 per cent mark.
For speculators who had been taking long positions, a ban is bad news as they will end up giving up a lot of their paper profits because traders will only be allowed to liquidate existing positions and not take new positions. Since most positions in IRCTC were bullish, this would mean that if the stock enters an F&O ban, it would see liquidation of those positions that will cause the stock price to fall.
As animal instincts demand, traders in order to protect their profits press the sell button as if they were trying to save the world. Today’s fall in IRCTC also proved that the entire rise from Rs 1,500 to Rs 6,396 was just fuelled by speculation with not much of fundamentals to back it up.
MORE TO COME..
