Saturday, October 4, 2008

What Lies Ahead ?

The most painful part of the bear market may be in front of us. This could be the last leg of the bear. Stock prices start falling because there are no buyers left. The last of the bulls will slowly sell off. There is a complete disconnect between 'value' and stock prices. Many blue chips start selling for what may be handsome value in normal times. But, these are not normal times. Slowdown, recession, destruction in asset prices, become commonly used words. Even this phase will end, but we do not know when. It could be six months, or it could be three years.

How do you cope up in environment of pessimism ?
If you own stocks, switch from momentum stocks to blue chips. Try to create marketeable lots, meaning lots of shares equal to their futures lots. (Example: 1 future in Reliance Capital is 138 shares. if you own Rel Cap, try to make your quantity equal to 138). once you have such lot sizes, consider selling calls against your equity holdings to reduce the cost of your investment.
If you are in cash, either wait for a base formation, or buy small percentages of your available cash in panics, say 5% every time there is a dip.

Comments to this post :
if the bear markets are to terminate six to eight months from now then satyam @225, kotakbank @ 350, Dlf @ 175, Nifty @ 3175 is a possibility. Do you agree?
My response:
Yes, this is possible. We are in a bear market. Prices will move lower. We have no way of saying when the down trend will end. Maybe now, maybe later. The bear market is assumed to continue until reversal signals come in. Such signals have not yet been seen.

Gold & crude going downside, generally it has been observed that when it goes down indian mkt goes up, but now a days no co-relation exist, whats your view ?
My response:
I can only repeat what the economists are saying. Commodity prices are falling due to 'demand destruction' , meaning a slowdown or a recession in the western economies. Therefore, our stock market is under pressure since we are likely to be affected by any world wide slow down.
Yet, what could happen if crude were to fall to $50 ? I do not know the answer. It is wiser to track the price charts. the charts will tell us what may happen.


Anuj said...

Hello Sudarshan ji and readers,
“VALUE”...what is it? Frankly saying I don’t know and know body knows..
Take for example SBI and ICICI bank. Both are large banks number 1 and number 2 banks in India. Only difference is one is private bank and other is public

SBI..CMP 1483.6..EPS 159.08..PE 9.3
ICICI bank..CMP 504.3.. EPS 32.19..PE 15.6

Which has more value?
Lets calculate icici price with sbi pe...32.19*9.3=299.36
Lets calculate sbi price with icici pe..159.08*15.6=2481.6

Going by this can we say SBI is under valued and icici is STILL overvalued?...(of course PE is not the only way to “value”)..are these future prices of these two banks? Nobody knows..and honestly if these become future prices then I am pretty sure that analyst will come on TV and justify the price. People said that sensex will be 25K in January and now they are saying 9K, that is what stock market is is all about irrational people and irrational thoughts and that is what I love about the markets

A lot of people (fundamental analyst) are saying that this is the last downward trend we will see…they said the same thing in March and in July...people just try to satisfy their ego by predicting the bottom and try to convince themselves and other about proving that there decision is right !!!

That is why I really admire technical analysis you don’t get trapped in these “value traps” which every fundamental analyst talks about
“Trade with trend”…..”Trend is your best friend” is indeed true
So SBI is showing some strength for the time being but ICICI continues its downward journey

I will not be bullish unless I see stocks and market trading above there 200DMA(at least)...for me that will be the time when “value” will emerge, till then I will continue to short on higher levels. No point speculating where the bottom that’s the work of fundamental analyst and news channels to fill there airtime...with TRASH


Hemanta Gogoi said...

Dear Sudarshan,
With due refards, I just want to know why are we not discussing ways to make money in this bear market. I mean sort shelling etc. Aren't bull and bear market two sides of the same coin. They will always coexist. What lies ahead for traders? I see only money.