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Posts Tagged ‘Market Correction

……All Fall Down

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We have witnessed an extremely topsy-turvy first 6 months of year 2012. First two months the markets saw a stupendous rally mitigating for the losses of full year 2011. March was eagerly awaited due to Budget and the crucial RBI policy, however, after that the months which followed have seen a sideways action for the markets, and off late we are seeing the markets, especially the stocks rather than the indices crumbling.

Technically, the markets have undergone severe damage leading to a sea-change in the outlook going ahead. The benchmark indices have closed below their crucial 200 DMA levels, as well as breached the key retracements levels of 61.8%. Interestingly, the stocks which called the shot few months back, are struggling to find any sort of support in this market.

But as we know, history is history, what is more important is the current scenario and the outlook going ahead. Jumping to the last few weeks of trading, I think one very important factor which is developing, is the fall of all asset classes across the board. Take global equity indices, US or European, or Crude Oil, Gold / Silver, etc., all of these are witnessing a sharp correction. I think, this is a clear case of risk aversion happening across the global investors, which is leaving a deep impact on the equity markets especially.

With Oil correcting by more than 10%, it provides a favourable backdrop for RBI to cut rates. If rate cuts ensue in the next few policy meetings, markets could provide the much necessary boost.

QE3, seems to be now the talk of the Wall Street, with June meeting eyed for any chance by the Fed to inject liquidity into the system.

If it is about risk-reward, I think this zone provides a favourable risk reward ratio to investors, looking from a long term perspective.

Trading has been on lacklustre in the last few weeks, however once the markets stabilises and volatility subsides, a short term reversal can most likely happen.

As of immediate short term, it is a wait and watch, however, I believe one should look at stock specific opportunities to start building a robust portfolio for rough times ahead.

Trade with strict stop losses, and more important is trade light.

In such times, I believe one should adopt a strategy of “ Live today, so that you can make a killing tomorrow”. This means, trade light in this market, and once a favourable trend begins one can start investing in good volumes.