"A lot of people understand the market sell-off that occurred last week may have deeper legs and we may see a longer correction" (John Person)
It was a great day for bulls. Markets bounced back sharply, and closed at the high end of the trading range. After many days, newspaper will post a positive headline on the market Bulls beat bears by 341 points. Unfortunately, that will not be the case with the cricket Tendulkar pulls out from West Indies tour; and India gets second successive defeat from West Indies. But I am still very bullish on Indian cricket team, and I think this is a minor correction, and Indian team will come roaring back to defeat the West Indies team. Is that the case with the equity market as well?
Was this a bounce back or a signal that correction is over?
Well, if you read the quote above, it fairly sums up my understanding of the market too. After such a steep correction, a strong pull back was expected. But even after this strong bounce back, I am still bearish on Indian markets. Please read this news in all major newspaper - Deccan Air IPO refuses to take off. Remember in bull market, even a bad company gets fully subscribed multiple times, at any valuation.
I know lots of people are very relieved after yesterday rally, and recommendations have again started emerging. If market rallies again today, you will see a poster Happy days are back again. Anyway, I am still bearish, and think every rally should be sold. Interestingly, FIIs were net sellers yesterday.
But what if I am wrong, and market resumes its bull run? I may miss an opportunity of picking a stock in such a fantastic correction or sorry, crash.
I prefer to be wrong than sorry. Anyway, nobody knows what market will do, and hence investing in market at regular intervals is the best strategy. But dont get greedy of just putting everything in the market after this crash for spectacular returns. There is a theory called "Bull Trap", and you may know this term only after it hits you badly.
Please, note, I am not saying Dont invest. I am just saying dont go overboard. I guess the best way to describe action in next few days would be Recovery.
Recent experience can be dangerous in financial markets. I repeat this statement for new entrant.
In bull markets, you tend to ignore correction, and sit on your position, especially leveraged position, assuming market will bounce back, and you will be ok. Why we saw such a steep correction or crash in last 5-8 trading session is because of denial from short term traders that market can crash. They thought eventually market will bounce back, and they will be ok. The good news is that market has bounced back but the bad news is only after making them bankrupt. This I am talking of people who have been in the market.
Now, lets talk of people who completely missed out the last Bull Run. They saw, how market rallies once it starts running. Hence, they may like to board on the bus immediately with whatever they have. This is the money waiting on the sidelines, we have been hearing since last few months.
Generally, when markets crash the way it has done in last 5-8 trading sessions, it creates lot of nervous investors. These are the people who didnt got an opportunity to exit from the market in this crash, and they will use every rise to de-board this Bull Run bus. Hence, I fear we may again see a strong downslide, purely on technical terms, which can get accelerated by bad global factors. This is not to scare you, but to make you more watchful in the way you should be investing. Dont be greedy and you will be fine. It may also happen, that market may have a run away rally from here, and I may prove out to be wrong, but thats ok. My objective is not to be right but to make sure you do not get trapped in this market. This is called a "Bull Trap", which gets created by new and stubborn bulls who venture out after a strong crash assuming previous trend will resume immediately.
cheers,
nkpanjiyar
To be continued...
It was a great day for bulls. Markets bounced back sharply, and closed at the high end of the trading range. After many days, newspaper will post a positive headline on the market Bulls beat bears by 341 points. Unfortunately, that will not be the case with the cricket Tendulkar pulls out from West Indies tour; and India gets second successive defeat from West Indies. But I am still very bullish on Indian cricket team, and I think this is a minor correction, and Indian team will come roaring back to defeat the West Indies team. Is that the case with the equity market as well?
Was this a bounce back or a signal that correction is over?
Well, if you read the quote above, it fairly sums up my understanding of the market too. After such a steep correction, a strong pull back was expected. But even after this strong bounce back, I am still bearish on Indian markets. Please read this news in all major newspaper - Deccan Air IPO refuses to take off. Remember in bull market, even a bad company gets fully subscribed multiple times, at any valuation.
I know lots of people are very relieved after yesterday rally, and recommendations have again started emerging. If market rallies again today, you will see a poster Happy days are back again. Anyway, I am still bearish, and think every rally should be sold. Interestingly, FIIs were net sellers yesterday.
But what if I am wrong, and market resumes its bull run? I may miss an opportunity of picking a stock in such a fantastic correction or sorry, crash.
I prefer to be wrong than sorry. Anyway, nobody knows what market will do, and hence investing in market at regular intervals is the best strategy. But dont get greedy of just putting everything in the market after this crash for spectacular returns. There is a theory called "Bull Trap", and you may know this term only after it hits you badly.
Please, note, I am not saying Dont invest. I am just saying dont go overboard. I guess the best way to describe action in next few days would be Recovery.
Recent experience can be dangerous in financial markets. I repeat this statement for new entrant.
In bull markets, you tend to ignore correction, and sit on your position, especially leveraged position, assuming market will bounce back, and you will be ok. Why we saw such a steep correction or crash in last 5-8 trading session is because of denial from short term traders that market can crash. They thought eventually market will bounce back, and they will be ok. The good news is that market has bounced back but the bad news is only after making them bankrupt. This I am talking of people who have been in the market.
Now, lets talk of people who completely missed out the last Bull Run. They saw, how market rallies once it starts running. Hence, they may like to board on the bus immediately with whatever they have. This is the money waiting on the sidelines, we have been hearing since last few months.
Generally, when markets crash the way it has done in last 5-8 trading sessions, it creates lot of nervous investors. These are the people who didnt got an opportunity to exit from the market in this crash, and they will use every rise to de-board this Bull Run bus. Hence, I fear we may again see a strong downslide, purely on technical terms, which can get accelerated by bad global factors. This is not to scare you, but to make you more watchful in the way you should be investing. Dont be greedy and you will be fine. It may also happen, that market may have a run away rally from here, and I may prove out to be wrong, but thats ok. My objective is not to be right but to make sure you do not get trapped in this market. This is called a "Bull Trap", which gets created by new and stubborn bulls who venture out after a strong crash assuming previous trend will resume immediately.
cheers,
nkpanjiyar
To be continued...
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