Signs Of A Correction

The first impression that you might receive upon reading the title of this post would be that the writer is trying to suggest that the Indian markets are headed or heading towards a correction. A dip in the indices which have for the last six months or so stayed positively in the green are now going down into the red zone. Let me categorically say that I am not suggesting that a correction is imminent or anything like that. However based on the movement of the markets during the past few trading sessions, there is evidence to suggest that we might be moving towards a correction in the medium term.

For a bargain hunter, this period is critical. You might not have bought into this market because like many you may be convinced that fundamentally this mini Bull Run is a case of rampant buying. More of a short term technical thing than a longer fundamental one. The general consensus seems to be the same in this direction as far as investors go.

Fact or otherwise, this current market rally is breaking down. Fundamentally there is a feeling that beyond a point, it is not sustainable.

For the past few sessions we have seen a down trend. Yesterday was a big day because a combo of factors- the RBI credit policy, global weakness and some disappointing earnings numbers took a heavy toll on the Sensex and the Nifty.

The Sensex falling by 300+ points when it is over 16,000 is not a big shock. The Nifty on the other hand tanked over a hundred points yesterday. That is the more critical move. Today the Nifty closed a further 20 points down leaving the Nifty to close very near the 4800 level. Mutual Funds have definitely turned huge net sellers over the past two days.

If a correction is on the way in the near term then these are the first steps towards it. Unlike previous market corrections, one can’t entirely be sure that it will happen too quickly. This rally is probably not going to ‘crumble’ so to say. We might see a few days where stocks will rally, then correct, rally then correct and so forth. Only if the overall trend remains bearish then can we say categorically that yes this is indeed a correction.

As an investor you should get chances to pick bargain stocks to hold over a long term period. One strategy that you could use would be to deploy your resources every time the market significantly consolidates instead of overall trying to catch the market bottom. This way you will be able to create decent value and over a period of time be able to average out your investments.

Because a correction around this time is likely to be a drawn out one-price wise and time wise unless of course some big event casts it’s shadow and spooks the market leading to a tremendous fall.

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