Monday, October 27, 2008

Monday Morning - the day after

My Blog Entry 'This Bear Market is Different' evoked a number of thoughtful comments. You can read the entry and the comments Here .

I am pleased to say that the comments have caught the market scenario better than my own thoughts.

Now, on Friday, the Nifty fell by 14% - (four standard deviation move) - this is a rare event which should happen once in a few hundred years. But financial markets do show a lot of variation from the laws of probability - hence, events that should not take place, do take place often.

We have no control over the markets. But, we can define our own response. What should investor response be ?

This is how I thought on Friday, 3:15 PM.
We are looking at a rare market movement - a 14% decline which is coming after a significant decline has cut the Nifty by 60%. The only example I could think of quickly was the 1987 crash in the Dow. It fell 23% on 'black monday'. The next day, Tuesday, the Dow opened lower but rallied soon. The Dow remained in a trading range for over 12 months subsequent to the crash, but did not fall below the lows made on Tuesday.

The Nifty may fall more, I am not making a call on the lows of the bear market. Yet, there appears to be probability that the decline may result in a bounce. I do not suggest ever to catch to buy in a falling market. Yet, a once in two decade event calls for exceptions. Therefore, my suggestion to investors to invest 5% of their available funds in the market today.

Monday Morning

My weekend reading suggests that there is much more pain ahead. But the markets have a mind of their own. After a large range expansion (RE Bar) it is wise to trade lesser volumes and expect choppy markets.

5 comments:

Jagdish said...

JK Galbraith, extract from The Great Crash, 1929, 1954.



"A common feature of all these earlier troubles was that, having happened, they were over. The worst was reasonably recognizable as such. The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to ensure that as few as possible escaped the common misfortune. The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that there would still be another. In the end all the money he had was extracted from him and lost. The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. The bargains then suffered a ruinous fall. Even the man who waited out all of October and all of November, who saw the volume of trading return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or a fourth of the purchase price in the next twenty-four months. The Coolidge bull market was a remarkable phenomenon. The ruthlessness of its liquidation was, in its own way, equally remarkable."

Technical advisors said...

My chart reading says we might hit zero value for many stocks.. is it possible?

ashu said...

Greetings Mr. Sukhani,

I write to you as the NIFTY FUT has just made a low of 2266.

I favour these levels, even two hundred points lower because this is the ONLY traded price, which according to classical Technical Analysis, was a resistance that was established as a support on the charts.

Still, I am a bit too headstrong as far as the lessons I learnt from the masters themselves....

I would like to stick to what I commented to your "This Mkt. is Different..." article...

Let me see a consolidation formation on the chart of my choice and I shall go long... The bigger the chart, the longer I am ready to go!

Once again... and by the time I am writing this.... it has hit 2228...!!!


I would like to ask.... when we saw 70 degree rises in 2007, we somehow never complained... why do we do so now?

Also, after complete destruction only is new life and new opportunity born... Why fear darkness when ... a. it is inevitable... and b. it leads to light...!

Wishing you and all students of this beautiful science, a prosperous future!

Warm regards

Manish said...

I generally like your comments. You mentioned ICICI will fall at 300 when it was 500. Many so called Pandits were saying buy ICICI. And look now. Previously ICICI was advertising for loans and now they r advertising for FDs. Can't those pandits understand difference. Everything is changed.

And as for global problems, it is catching countries one after another. Yet Indis is not fully in bear mode. Yet "real" estate price is, unlike its name, "unreal". Gulf countries r next to go down and face problems. So Sensex should go down to 6000 or it may go below that.

B M Kajaria said...

Today Mr. Rajat Bose said on cnbc that in 1837 such a situation occorued when selling ressure was such that when all the people started selling in a panic and when selling was complete then only the market stablised. Is this that type of a situation that selling pressure will continue till it last point of stablity is to be made.