Tuesday, September 30, 2008

NSE: How long will the bear be with us? How long is a piece of string?

Earlier in the month, I said I thought that the bearish conditions won't last another month. I did put caveats because of inflation and the Coop IPO. Both are still with us. Furthermore, I am thinking that whether its sentiment or actual funds, the NSE movement is not as oblivious to Western markets as I had always thought. For these reasons, I therefore think the situation will remain for a spell.

However as investors, the playing field remains roughly the same except for:

  • Traders: If you rely on the NSE for a living, have a look at what happened to day traders during and after the dotcom burst. Many had to get real jobs. Stock trading in a buoyant market is easy because you can use fundamentals or even charting to predict the next set of events. In a bear market, you need a lot more nous to pick out rallying pts. Not to mention funding. And of course shorting and front-running are only allowed in the NSE if you work for a broker.
  • Fundamentalists: Past performance should be used as a guide to future performance, but this is a gilt-edged opportunity to buy some stocks that look fundamentally good, but have taken a dip due to the bear season. Typically, I use 1 yr low as a buying pt or failing that, a price lower than the one I bought initial holding at. Also, buying in portions may work well if the bear season is prolonged.
  • Market abusers: Crown Berg and East Africa Portland are rarely traded. The waiver of 10% price change during corporate announcements is therefore an opportunity for a dealer to put in a ridiculously low price ; course panic so that you sell thinking the end is nigh. He (the dealer) then holds onto his share portion for 6 months during which the price will have gone back to normal. Stellar was grateful for a CEO job and won’t say boo.
  • Shorters and front-runners: I suspect Equity was partly a victim of someone short-selling. And it won’t be the last. Any mini-rallies such as the one last week will be used as opportunities to front-run if you put in a “best market price” order.

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