Thursday, June 26, 2008

Bear Market Rallies - What did you sell today ?

This is not quite an original title, since a google search for 'bear market rally' threw up 3,62,000 links.
But that's what the Indian Stock market is currently going through. After a low at 4100, yesterday, the Nifty moved up to a high of 4330 today, a rather dramatic up move of over 5% in two trading sessions. That's five percent in a benchmark index - quite remarkable. Now, here is the disturbing news:
In a bear market, every decline is interrupted by sudden but all too brief period of optimism, known to traders as "bear market rallies".
It is fair to suggest that the two day rally which the Nifty has just seen is a correction in a down trend. Just as corrections in an up trend bring prices down, so the corrections in a down trend take prices up. In an uptrend, corrections are low risk buying opportunities. Then, in a downtrend, corrections are low risk selling opportunities.
So, what did you sell today ?