Nifty Analysis – What should Investors & Traders do?

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Nifty continues to struggle Technically and it seems quite likely at this stage that Nifty will touch the bottom of the channel which we had posted. Price correction in the Index should stabilize soon and a relief rally should kick in some time next week. At this stage, no more than 10% should be allocated in the market as volatility and correction is going to continue for some time.

Markets are broadly divided into two halves; one with beaten down earnings and other with richly priced earnings. The sectors which are beaten down are trading close to 7-8 times forward earnings, whereas sectors which are richly priced are trading close to 25-28 time forward earnings. Given the way global markets are poised, there is high degree of probability that sectors with higher valuations begin to correct or at least consolidate for many more quarters to come. What this would do is either make the broader market index rally between a trading range or could make the index correct more, both price wise and time wise. In either case it will be difficult for money to be made.

So, what should Investors and traders do ahead? Well, to profit in this environment through trading, one has to be extremely nimble. If one is not a nimble trader, then its better to invest slowly in such an environment. One must keep in mind that markets have not yet stabilized and have not indicated a base being formed. Hence whatever commitment one makes in the market, should be kept small to start with. Economically, we do expect conditions to significantly improve and hence we remain positive on markets. However, since price is indicating otherwise, we are refraining from committing any fresh money as of now. As and when price begins to stabilize, we will commence buying.

Markets can be wrong longer than one can be solvent and this quote by Keynes should be kept in mind while attempting trades and investments in current market scenario.

NIFTY Range - Towards Lower End of Channel