The price action in our indices during August 2011 and steep fall in all most all index stocks, touching new 13 months lows, due to relentless selling by FIIs and Hedge Funds, made equity investments highly risky, and the question being asked by everyone is whether a bottom is found around recent lows....4720 on Nifty??
The answer is both yes and no. Technically, most of the analysts following Dow Theory, expected Nifty to take support in the region of 4700 to 4800, where mulyi year long term support emerges, for the long term bull market began in 2002, after a ten year bear market from 1991 to 2001. The level of 4650 to 4750 offers good support zone, which is also a fibonacci retracement level of entire up move of larger bull market from 2002 too. Now the mute question is whether this support holds in the next down move, whenever it happens, owing the almost confirmed US recession, and the turmoil of debt markets in Europe, where developed markets are bleeding continuously?
My reading is short term trend is down, medium trend is sideways where as long term trend is up until 4720 holds. 4650 to 4750 range will be re-tested before this diwali, andour markets might rally to 5300, or even much higher levels, before the next major down move happens. Only a rider shall be, any external shocks like, collapse of Eurozone, due to break up of Euro as nation after nation are landing in to debt crisis in Europe, and the contagion effect on US can have their rub off effect on all markets globally, including our markets too, as it would change the equation of inflows, currency valuation, etc.,
What an investor in indian equities is supposed to do in these uncertain times?? Invest in beaten down stocks / sectors..Invest in Mutual Funds...Invest in Gold..Go for Bank Fixed Dposits.. The answer is not simple and straight for every one. It all depends on the risk profile of each individual and the long term goals.
Let me take up one by one..Equities...Invest in Index heavy weights..preferably PSU stocks,with good fundamentals, as the businesses will continue irrespective of the state of economy, and any trouble to their finances, receives the Government support. Identify the next bull market leaders and start building a portfolio for substantial returns.. will discuss about individual stocks separately.
Mutual Funds performance depends on stocks they hold, and fund manager's skill but can give returns only in Bull Markets. Some sectoral funds have performed in bear markets and bear phases of Bull markets too.
Invest in Gold even at current price because, there is going to be a crisis of international medium of exchange if US dollar looses its shine. Gold has risen very steeply from last diwali to this diwali from 20K to 30K as predicted by some analyst, during last year diwali time, which I was not believing. The current price is quite high, and one gets a doubt, whether it would fall from here along with other commodities and markets? According to an analysis, Gold has not performed in the last 20 years, and now entered multy year bull market, would continue to post new highs, with intermittant corrections, as Governments also started accumulating Gold Reserves in huge way, in the recent times. Recent peak of $1918 once taken out it will be into an unchartered territory..shall quickly cross $2000 and in due course might touch $3000 too, as all great investors like Tim Rogers, Marc Fabers, are all bullish on this Yellow Metal. Therefore, I stongly recommed investing in Gold ETFs in SIP mode for averaging the price from now on, for the coming few years, to reap in good returns.
Bank Deposits of PSU Banks are offering 9.5% taxable return which does not beat the inflation also hovering around the same level, but if one is risk averse, this is best instrument, as capital is secured, and interest rate cycle shall peak with another maximum two more hikes of interest rates by RBI.
Finally on Nifty, indices will be volatile during September as events unfold on 15th (advance tax payments) 16th RBI's policy statement, 22nd and 23rd FOMC meet and statement on QE etc.,
It is a traders market only..not yet investors market in short to medium term.
Strategy for the Month: Buy 5000 Straddle of September Series, and exit on profits,
Happy Trading!
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