January 18th, 2008: After sensex crossing 21000 mark, the stock indices are continually registered new low levels which has nearly triggered off panic selling. What is the right course of action today for those who have positions and for those who are willing to enter at the right time?

 

First of all, this is not the first time in recent times that markets are behaving in this volatile manner; in fact in the fast 4 months since September 2007; this is fifth such instance.

 

Each time, the correction limited itself to about 10% and if this rate repeats this time, then markets may have bottomed out. However today is Friday, and, traditionally, investors don’t retain long positions on weekend.

 

If one just takes a look at the global concerns which are coming in, recession is the biggest concern which is coming from the US markets, but at the same time, it is being pointed out that the likely recession or US markets will be there shortly. Meanwhile US has firmly denied that its economy is in danger of immediate recession, an announcement that should cheer markets up. Even today, the fall in sensex is less than that in US markets.

 

Bottoming out of markets, if we may consider so, and this announcement is bound to add cheer to market and markets should register some gains at least after initial hour or two of trading, however, some profit booking at each higher level may keep index in check. Hopefully, from Monday onwards, markets should register gains and recover lost points in indices. I would strongly recommend against taking short positions especially when the results are good and front line shares as reliance etc are expected to bounce back fast.

 

Previous major losses were recovered in just about 5-7 sessions. The loss of index from 2nd to 12 November was covered in just 7 sessions and losses from 12-19 December were covered in just 6 sessions. However metals, IT and FMCG sector shares take slightly longer in bouncing back.

 

This time with huge IPOs in the market, may cause bouncing back delayed by another two to three days, but bouncing back appears imminent. I don’t expect Bears to take exposure much beyond this especially in view of the coming budget session, though markets may continue to be volatile.

 

Another factor that might add volatility in the rally is the extent of Fed rate cut. Markets have fully discounted rate cut up to 50 basis points and any cut not more than this is going to disappoint the markets.

 

Overall, though markets may continue to be volatile, 2008 is likely to see sensex touching 25000.