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Buy the Dips

posted by Nishit_Vadhavkar on Tuesday, February 21st, 2012

The markets posted one more positive week. They have rallied about more than 1000 points from the bottom on the back of a ferocious rally fueled by FII inflows. How does one play it now?

1. Such a fierce rally cannot get overturned in a day or a week. This rally should continue for some time to come.

2. The factors which can derail this rally are:

a. Greece imploding immediately (Looks unlikely at the moment)
b. Congress fares poorly in UP (Can be a possibility if Maharashtra elections are a trend)
c. Poor Budget (Looks unlikely. I expect a decent budget this time. This again is dependent on UP results.)

3. This rally can be a bear market rally extending up to 5900-6000 or the start of a new bull run. So, how does one play it.

4. Identify about 10 stocks which one wants to remain invested in the next 5-7 years irrespective of where the market goes. Once, one identifies the stocks and keeps tracking them, trade in and out of them when one feels that stock has given decent returns and keep the ones made free of cost or cost of acquisition at very low levels.

Example: IDFC trading at Rs 140, if goes to Rs 180 then sell out half so remaining become priced at rs 100. 100 is a very good price for IDFC and one keep holding for the long term.

5. The above strategy is good for bear market rallies.In a bull market, one must keep holding the stocks.

6. As long as the stock is of good quality, any of the 3 options which can take place need not worry a long term investor. If it goes up, lower the cost of acquisition by selling a few. If it goes down, one can average them out and if the price remains the same, wait and watch.

7. Coming back to the markets, my preferred view, is a small correction max to 5200-5300, then a strong March leading to final blast all the way upto 5900-6000 and then a final leg down in the markets.

8. The markets have generally corrected in the first quarter. If not then, then they have corrected significantly in the month of May.This has been borne out in May 2004, May 2006

Nishit Vadhavkar

posted by Nishit_Vadhavkar on Tuesday, February 21st, 2012

Sir,

How good is the correlation with historical precedents in the markets? You posted that if markets dont correct in the first quarter then May usually is a bad month.

Is it a good idea to keep looking at the previous events in trying to look at the future course of markets or should one follow what the price is trying to tell us?

regards
hitesh.

posted by hitesh27 Tuesday, February 21st, 2012

Hitesh, one should always follow price and nothing else. All the best

posted by martymenza Sunday, April 29th, 2012

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