It is said that, when valuations go into froth zone, markets/stocks look for a reason to fall, any reason, and the reasons while valid, the reactions need not be logical every time.
Broadly speaking w.r.t the markets, one can think of going along with the market, act in accordance with the market, and w.r.t specific stocks, there could be a few different scenarios, one could start taking a position, and see what happens, because the price after a fall in some stocks may very well be a good support, so there may not be more fall, not that prices will not fall more, even the bluest of the blue fall, but this is another scenario. Consolidation is another scenario. One could look at the % of falls in the specific indices, or the stocks in the watch list, for some visibility.
I think, it is hard to follow the price of a small cap, compared to a large cap, so one has to be more careful.
So, depending upon the understanding of the business, and price levels, one can come up with different scenarios and the likelihood of them happening, and take decisions.
I have positions in mid and small caps, but these are only for shorter term, so on days like today, SLs come flying, I cannot stop them, so take my views with a good amount of salt.
