Any Reason To Panic?

Jai.Shewaramani · #1 19th May 2006, 02:29 AM

ANY REASON TO PANIC...???

Has the 826 points fall shooken you up? Are you thinking in terms of a market crash? Well, think again. The major support just below the 11,000 mark yet persists. Thou such a fall was expected after the major bull run, but 826 points in 1 day was a little too much to ask. But if the bulls think that they are out of the game, they are wrong. As long as the 11,000 support stays strong, there's nothing to worry about. Below 11,000 there would be panic selling for sure. Minor support also exsists at the current levels, but it might not be able to withstand the pressure of the 800+ points fall. Investor confidence would stay put in the market as long as the 11,000 support holds strong. So don't panic, and be on the lookout of buying opurtunities.

Jai Shewaramani

Jai.Shewaramani · #2 19th May 2006, 04:06 AM

Indian shares plunged yesterday, with the main Bombay stock index dropping nearly seven per cent, or 826 points its biggest point drop ever mainly on fears of higher taxes on foreign funds investing in Indian stocks.

The Bombay Stock Exchange's 30-share Sensex fell to 11,391 points. On the National Stock Exchange, the 50-stock S&P Nifty closed at 3,389, down 246 points, also 6.8 per cent.

Analysts said a part of the decline was due to the fall in global markets triggered by Wednesday's drop on Wall Street.

But the biggest contributor was a government notice that indicated that foreign institutional funds, which have played a great role in driving up Indian stocks, could be slapped with taxes as high as 30 to 40 per cent from zero now.
But late in the day, Indian Finance Minister P. Chidambaram clarified that none of the foreign funds qualified as stock traders on whom the higher taxes would apply.
Analysts said some volatility was only to be expected in a market that had soared in the past two months.

"India's long-term growth story is still intact. GDP will continue grow at 7.5 to 8 per cent, consumption will continue to rise and you will still get double-digit returns over a three-year horizon," Sanjay Prakash, CEO of HSBC's Indian asset management unit told Gulf News.

Foreign funds have invested billions of dollars in India's stock market, driving its current rally that began in April last year. The Sensex has since soared more than 100 per cent.

Yesterday's fall was the biggest percentage decline since May 2004, when stock prices plunged following election results that paved the way for a communist-supported governing coalition in New Delhi. The benchmark index fell 11.1 per cent at that time, but the market bounced back within days.

The Indian stock market, which has been surging since the middle of last year, has been volatile lately. Last week, share prices dropped sharply only to recover earlier this week.

P.V. Mathew, chief executive of Barjeel Geojit Securities in the UAE, which manages funds for Indians, told Gulf News that the correction was healthy considering the Indian market had run up sharply in the past two months.

"Investors are not really pressing the panic button yet since they have made a lot of money over the last couple of years. The volatility only gives you an opportunity to buy," he said.

Abhay Aima, head of equities at HDFC Bank in India said the fall made valuations a little more realistic. "India is a classic momentum driven market where prices have been moving away from valuation. But the long term India story has not changed," he said.

Jai Shewaramani

dilip2k · #3 19th May 2006, 10:16 PM

Reminds me of 1929

Quote:

The 1920’s were a time of peace and great prosperity. After World War I, the “Roaring Twenties” was fueled by increased industrialization and new technologies, such as the radio and the automobile. Air flight was also becoming widespread, as well. The economy benefited greatly from the new life changing technologies.

Quote:

From 1921 to 1929, the Dow Jones rocketed from 60 to 400! Millionaires were created instantly. Soon stock market trading became America’s favorite pastime as investors jockeyed to make a quick killing. Investors mortgaged their homes, and foolishly invested their life savings in hot stocks, such as Ford and RCA. To the average investor, stocks were a sure thing. Few people actually studied the fundamentals of the companies they invested in. Thousands of fraudulent companies were formed to hoodwink unsavvy investors. Most investors never even thought a crash was possible. To them, the stock market “always went up”.

Sounds Familiar doesn't it?

Quote:

The stock market crash of 1929 was identical to any other financial bubble. The classic pattern of extreme euphoria and irrational expectations will always lead to devastating financial crashes. Learning how to identify these timeless patterns will allow you to profit whether the market is rising or falling.

Jai.Shewaramani · #4 19th May 2006, 11:26 PM

Quote:

Originally Posted by dilip2k

Reminds me of 1929

Sounds Familiar doesn't it?

Thank you Dilip. It was rather interesting the way you highlighted the main events that took place over the years in the youth of the stock market. It might sound familiar, but there's a major difference. In those years, there was lack of liquidity, lack of education, lack of discipline, etc. But nowaday, its not the case. I'm not saying that we should rule out the possibility of a crash, neither am I saying that we should invest all our life savings in this market, all I'm saying is that there is yet no major reason to panic. The 38% retracement of the bull run of sensex comes precisely @ 10,780. Today's low was 10,799. Coincidence? Maybe...maybe not. Assuming that this is a crash, are you telling me that you are rulling every possibilty of the major role this 38% support would have. I'm satisfied with your arguement that this era of the stock market might be a financial bubble, but it might be a little too early to judge that. Now let's assume the other half (that it is not a crash), in that case it's a retracement (more commonly known as correction). 38%-50% retracement is healthy in any market (its more commonly found in forex). Specially with the major bull run since the recent months, a healthy retracement will only confirm the solidity of the market and give an assurity that it is not a financial bubble.
I hope I'm not contradicting your statements, I'm just trying to put forward a clearer picture.

Take care
Jai Shewaramani

cooltetra · #5 20th May 2006, 12:38 AM

Quote:

Originally Posted by Jai

The 38% retracement of the bull run of sensex comes precisely @ 10,780. Today's low was 10,799. Coincidence? Maybe...maybe not. Assuming that this is a crash, are you telling me that you are rulling every possibilty of the major role this 38% support would have.

Hi Jai
Please excuse me if you find this too childish a question.
But why 38% why not 40% or for that matter any other number? Is it some thing related to Fibonacci numbers? I have heard about this being used somewhere.

Best Regards
Coool.

Jai.Shewaramani · #6 20th May 2006, 01:09 AM

Quote:

Originally Posted by cooltetra

Hi Jai
Please excuse me if you find this too childish a question.
But why 38% why not 40% or for that matter any other number? Is it some thing related to Fibonacci numbers? I have heard about this being used somewhere.

Best Regards
Coool.

Hi cooltetra,
Yes ur right. it is a fibonacci number. It is widely used to analyze stock markets. Important fibonacci retracements are 23%, 38%, 50% and 61%.

AND I'll like to appologize coz the 38% retracement is 10,765 and not 10,780.

Jai Shewaramani

dilip2k · #7 20th May 2006, 12:54 PM

Dear Jai,

You have put a nice technical view. I would agree with it fully. What im trying to paint is the wider macro reality. Most "trader" and "investors" in the market have no idea of the value of the companies they buy and sell day in and day out.

Most prefer the cost rather than the value behind the company. Reason why you have more buyers for penny stock

, the i want a 1000 share for a 1000 bucks ( not bothering if that 1000 shares are worth the blip they represent in their DP account ) rather than 1 share for 1000 buck, which might have a hidden value of 1500.

That we are in an era of asset bubbles is a reality which will haunt us for awhile after the crash, maybe a very long time.

Coming back to your retracement. I would thank you for pointing it out. Lets hope it does lend support and the penny investor's get another chance to survive.

Regards

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