Catching a falling knife

Finally, Indian stock markets did correct themselves- unfortunately the correction is looking more and more like a reversal every day. The first sign appeared when the expected “correction” did not halt at 16000. Not only that, sensex has already made three successive lower lows after the peak. So technically we are certainly in a major downtrend rather than a correction.Sensex has already breached previous top near 15700. naturally now the question is where are we headed?

If you exited as suggested in previous blog, you have done wonderfully well catching almost a peak. What if you are still holding on to your losses? The first thing to do would be acceept that we have missed the peak now and it is wise to exit immidiatedly than to lose more money.

The question today is not weather the sensex will fall further, but the question is how far it will fall? Although many are betting on 15000 support, I would say that the first strong support remains at 14500-14000 reagion. Looks like the last two days rally is just a correction to the fall and should be used as exit option rather than to fool ourselves that the worst is over.

Given that that the valuations are looking much more reasonable today that few weeks back, I would tend to take 135000 as a good buying opportunity. But if that breaks than the focus shifts first to 12500 minor support and then to, well, 9000. That’s as pessimistic as it goes. I would personally buy at 14000, then at 12500 and then sell like hell and run for life! After all we are trying to catch a falling knife. Of course some people will always play russion roullette and enjoy rich returns if they turn out to be lucky. But that doesn’t make it a reasonable risk to take.