Markets- Pullback or deeper correction ?

Should I buy now or wait for markets to fall further? Should I exit now or hope for a pullback?

This is the constant chatter in our heads after every correction. When markets are going up, we never bother to look at our risk. We tend to get aggressive with our investments whereas in times of corrections we feel crippled by fear! It is difficult to eliminate emotions from investing but if we are aware of our emotions, it results in better decision making. This also means that investing without a method/philosophy will add to your confusions and will result in unexpected losses in your trading and investing.

Coming back to the question – Is the market ready for a pullback ?

If I look at short term, the trend is certainly down and till we get beyond 4900+ levels, any upmove will not impress the bulls. If that happens we might see resumption of the short term uptrend. Otherwise the markets will either stay sideways or will correct all the way down to 4550 and even 4350.

Talking of sectors- Telecom continues its downward journey at a faster pace. I won’t be surprised to see even lower levels in next 3-6 months before these stocks show some signs of bottoming out. There might be some sharp rallies but these might be short lived and investors will use these rallies to exit.

Metals have also undergone sharp reversals though the long term trend is still intact. This might result in some buying at lower levels by investors.

Pharma and FMCG are two sectors that are still showing a lot of resilience and might continue to outperform in the short to medium term.

Banking sector has also undergone sharp reversals and we might see many stocks not resuming their uptrend even after the correction is over.Therefore, it is necessary to be cautious about your picks.

Mid caps and small caps shall correct much more sharply in this phase. Some of the stocks have gone on real turnarounds while others have gone on pure speculation. It is important to identify this difference and book your profits in the speculative holdings. Such stocks can easily go back to Feb-March levels. Examples of such stocks are Suzlon,Unitech and RCOM. At the same time, one can find many stocks that have actually moved up based on real performance and are likely to be good bets in the long term.

We have lost 7-8 weeks of gains in a single week! Having proper risk management is therefore critical for a trader’s survival in such markets.

The future direction of markets in next few weeks shall solely depend on how much money is put into Indian markets by the foreigners. That will also decide if these markets remain a momentum play or turn into a value play!