Sunday, May 3, 2015

2 months of decline -Time to Buy?

The markets have declined straight for 2 months now. We have corrected about 10 pc from the top in the Nifty and in many individual stocks even more than that to about 20-25 %. Is it now a time to buy?

1. The attached image speaks a thousand words. Very rarely since 2008, the markets have declined for 3 consecutive months. And even when they have declined the fall in the third month has been very marginal. we cannot catch the exact top or bottom and now may be a good time to buy.

2. The 7950-8050 zone is a cluster of support zone in technical parlance. If we breach this we are staring at 7500.

3. The FIIs were net sellers for the last few days and that contributed to the lack of support for the markets.

4. The US fed maintained status quo on rate hikes. This means the party will continue for sometime more.

5. The fuel prices were hiked over the weekend and all the excise rate hikes, there is no talk of rollback. The rate at which this Government is progressing, the political climate may soon turn to be hostile for reforms. It is the next 1 year or never for rolling out reforms.

6. The markets may rally from here, but it may only be a relief rally of 500-600 points. The market is becoming a scalper's markets unlike from August 2013 to Feb 2015, a period of 18 months in which it only went up straight in 1 direction.

A good way to play this kind of market is part book profits and lower the cost of acquisition. In this way, you do not lose if the markets fall nor miss out if it rises further.

Example: If you buy a share A worth about Rs 100. It moves to Rs 110 and you sell half the quantity. Your cost price for the remaining shares becomes 90. Now, if the markets fall, then your revised cost price is less than at the price at which you bought. So you can absorb 4-5 % fall in market terms and still have same price. Which means if you bought at 8181 and markets went up to 8500 and then fall. Your revised cost price would be equivalent to levels bought at 7950-8000.

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