Sensex retraces to 61.8% level from its all time peak and closed below 10000 after 28 months! What next?

The ferocity with which all global markets have fallen during last week and in October surprised and shattered the investor's confidence very severely. Stocks have reached such levels which were never imagined by even the hard core bear in a such a short span of time, all this happened while commodities are cooling like crude touched 68$. The correlation that is being drawn by some experts that funds from equities have found their way into commodities also is proved to be wrong in this mayhem, as equities, commodities, currencies everything is seeking lower levels, fearing the 'Global recession'. The short term measures or instant solutions sought by regulators and government in US have compounded the crisis, which is quite deep and serious, and has spread to Europe and other economies too, gradually. However, one need to understand that life does not stop here and markets will not become 'zero' the index stocks will not become 'zero', and these cycles of ups and downs are common in markets, businesses, even for that matter lives of individuals.

The irrational exhuberance is observed in strong bull markets like one which ended with bursting of 'Reliance Power' IPO in January in 2008 for our markets, and the unreasonable pessimism shall come to halt very soon too. Brave hearts who stayed or increased cash levels can pick of quality index heavy weights, which have domestic market share, from now on to build portfolios, however, no one has any iota of doubt right now that we are into a prolonged bear market, which might take one year to three years from now, before we seek new "high". The illiot wave theory and Dow theory etc., indicate the levels where reversals can happen, based on past historic analysis to near perfection, but base building has to happen before the next bull market begins which will be be much stronger than what we witnessed in the last 4 years, as Indian economy is going to make strong strides to post double digit growth in the coming years, where investments would follow once the political situation, regulatory mechanism are in place. RBI's Credit Policy on 24th October'2008, which will reveal the mind of New Governor Dr.Subbarao, will be watched for clues on monetary situation, currency and inflows strategies, apart from how the indian banking will be geared to be insulated from the perils being faced abroad etc.,

Senex touched a low of 9911.31 on friday, the 61.8% retracement from all time peak being 9914.20 indicates completion of correction, and markets should now move in a band to build base. However, Nifty's corresponding level 61.8% is currently placed at 3006.67, shall be the last support or hope for reversal of bearish trend and some relief rally that can be expected, as markets entered oversold territory on all indicators. Absence of buyers rather than selling is depressing the markets more than anything, and calmness should return before 'Diwali' but we will be in tradeable markets only, or one should have long term horizon of at least 2 years to get good returns. Volatility will be high, as the bears will press for sales at every rally, since bulls have completely vanished for now.

Nifty has firmly settled in 3000 to 3500 band, as observed last week, and this range should hold this week and for some time now, thus, any weakness should be used as a buying opportunity for intraday trading.

Range for the Nifty: Nifty might trade in the range of 3000 to 3200 today.

Strategy for the Day: Buy 3000 calls on weakness and hold for 2 days or till derivavtives settlement with suitable stoploss as per the risk perception of the trader/investor.