Wednesday, October 29, 2008

Happy Diwali with a stock market rebound

At 7:27 AM on Wednesday, the Nifty appears likely to open around 2760, which is a good 500 points above Monday's low. There is a lot of volatility which shows in the Nifty movement.

On Friday, October 17, at 3:15 PM when the Nifty was at 2525 approx, I suggested on CNBC, that investors should put in 5% of their investible funds. In the blog, later, I explained that Friday was a 4 standard deviation event - traders should take advantage of such rare moves.

I write this to explain a point - we are traders, therefore the assumption of risk is an integral part of our activities. In a new blog entry, I have explained the difference between loss (destroys capital) and risk (part of trading). You can read it Here .

Let me discuss the impact of the current up move on different classes of market participants:

1. Day traders & Swing Traders. Keep volumes low (due to increased volatility). With the market entering a short term up move, trade only on the long side of the market for the next few sessions. Buy on intra day dips.

2. Position Traders. There is likely to be more upside, so consider buying blue chips. Keep a stop loss which should be wide enough to account for volatility. If the trade moves in your favor, consider moving your stop to breakeven. Buy on a day when the market/stock is in a dip.

3. Investors. These are people who own stocks and are waiting for 'recovery'. Blue chips are available at low prices. Try to switch from momentum stocks to blue chips.

Please understand that we are looking at a short term uptrend. This may turn into an intermediate up move. But, the bear market is still intact. Nothing has changed.

Is 2252 (recorded on Monday) the low of this bear market ?
Maybe. Who can tell ? We have to wait for a few months to find this out.

Happy Diwali

1 comment:

tushar said...

At some point, today or next trading day I expect market to show weakness.
I will rather be comfortable shorting till major support 2000 nifty is tested.