The Indian markets have been under a lot of pressure in the recent past few weeks. Markets are down approximately 300 points in the last 3 weeks. This can be attributed to a combination off reasons. Of all the market talks the most commonly heard talk on the street is the US Federal reserve with drawing the monetary stimulus earlier than expected. This has not only affected our markets but all the Asian and other emerging markets. Japan is theoretically back into bear market territory with a 20% cut on the Nikkei. All this talk about federal reserve withdrawing the stimulus, has led to a weakening of all the emerging market currencies which really hasn’t helped India’s cause, considering India runs a huge twin account deficit.
With all the things looking gloomy we are back to the same question – “What should one do now ?” Well it’s not that simple this time. The last time when I wrote, we were knocking at the doors of 6300. And if any one of you did go short you should have booked profits at 5750 levels, which is approximately 400 points or 6.5% on the index on the back of 100 points or 2% stop loss that we had kept. Coming back to what one should do now-
For the traders – one can initiate long positions with any down tick with a stop loss at 5680-5650 on closing basis, for targets closer to 5950-5980. Or for the high risk traders one can go short on Monday if the markets open gap down 20-30 points with a strict stop loss at 5825. Disclosure I’m long with the above mentioned stop loss but from lower levels and not 5800.
For investors – the pullback which I talked about in my last post might have come, so one can start nibbling in but don’t be shocked if we see 5550 – 5580 levels. But you should not be too worried as the risk reward is extremely favorable with a 2% risk on the down side you could get unlimited upside. But keep in mind if markets go below that 5500 on the Nifty spot just hold back and cut your longs.
My argument for going long at this point is that most of the bad news, if not all of it is already in the price. And if there is a surprise in store from the RBI or the government or may be any other global reason, we might get a 150-200 points rally. We might not see a recovery all the way back to 6200, but 5950-6000 levels could well be tested. I say this because every time the markets have decided to come down they have done that in a cyclical fashion rather than just falling off a cliff.