Monday, June 30, 2008

Panic in the Stock market

The Market continued its decline today, with the NSE Index falling by another 94 points to close at 4040. Today's low was 4022. The last time the Index made a low below 4050 was inA ugust 2007 when it touched 4002 - which was the lowest point before the final bull market rally to 6350.
The Nifty is now testing the August 2007 lows. There seems to be a sense of panic in the market. July futures were trading at an 80 point discount, closing the day at 3960 ( cash index at 4040). Are the futures telling us there is more downside coming, hence the discount ? Or, was there a panic in the market causing this large gap between cash and futures ? There is no clear answer, since only time will tell us what the reason was.
The intermediate trend of the market is down. The minor trend is down. The deep discount in futures does suggest that the market is 'oversold' and waiting for a relief rally. The start of a rally should be good reason to take profits on existing short positions. Any signs of exhaustion in the uptrend (the one that may start) will be good reason to enter new shorts.
The bear market will end when the lows made are not broken. This will be happen when the Nifty rallies, then falls again to make a higher low. As of now, with new lows made every day, there is no evidence of the market bottoming out.
There is a band of support in the 4200 - 3600 zone. It is possible that the Index may find support as it drifts towards 3600. Much will depend on International markets, the politics affecting the stability of the central government and inflation rates that come in every friday.
Traders strategy should be to go with the intermediate trend - this trend is down. If a minor rally starts, take profits on any short psoitions then wait for (a) the rally to end which will signal the start of another round of down moves, or (b) higher lows to be confirmed which will signal the start of a new bull market.