Monday, May 18, 2009

Markets are predictable

I was not surprised by the 2000 K surge in the Sensex, as I believe the markets to be fairly easy to predict. Here’s why I think so:-

  • Long term is the easiest – it follows a simple cyclical approach.
  • Short terms is also not too hard– markets can be predicted to be fairly unpredictable in a short terms..! Short term trend is a mix of fundamentals and positioning by large market operators. The shorter the period the more the influence of market players and more the unexpected swings.
  • In a inflexion point (like now) when a bottom or a top is being formed , the markets are at their dangerous best and with sudden very large swings either ways. These are pretty much a play between large operators, especially in Indian context as of now. Expect more of these swings over the next few months.

Does that mean I took a wrong call in expecting the markets to fall in the near term. The 2000 point rally on the Sensex sure makes it look like so. Here’s my stand on the markets :-

  • No change in my long term stand.
    • Stock market to hit the bottom in March’09 to Aug’09 period and immediately start on a path to recovery.
    • Worst news on the economic front – Globally and from India – is yet to come – and will come in during April ’09 to Sept ’09 period. Very initial stages of economic recovery in Oct’09 to March’10 period. However, the recovery will move along very slowly during 2010
    • Sensex likely to go up to 40000 (min 25000) by Sept 2013 and 80000 (min 45000) by 2016.
  • Short term stand
    • I am still expecting a large correction in the next 2-3 months, as I continue to believe that there are quite a few aspects in global economy that has not yet been factored in. 
    • However as mentioned in my previous posts, short term will be characterized by wide swings and will continue to remain very volatile.
    • The inflexion points are typically the playing ground for the large operators and a tussle between the bulls and bears among them. And these period are ‘dangerous waters’ for small time retail players.
    • I am more likely to be wrong on the short term trend than the long term. We’ll come to know only by the last quarter of the year if my short term call was right or wrong

So what should an investor do.

Long term investors: Should continue to buy. From a 8 years kind of a time frame, this is a great time to accumulate. Accumulation should be continued till around 40000 levels over the coming years, before taking a pause.

Short term investor : I have never offered any suggestion from a short term point of view and don’t plan to start now. Short term investing is only for the high risk profile and needs a huge amount of market tracking.

I have 80% of my capital allocated to long term investing and 20% to short term (trading / options etc). I am ready to lose the 20%  on a high risk bet , but not ready to lose a single  rupee of the long term capital.