Every investor must be asking himself this after what has happened globally and locally this week. The US has rebounded around a potentially pivotal bailout and indices like the Hang Seng, Straits Times, FTSE and Sensex have bounced with some vigour. The search for a bottom is on.
The jury, of course, is still out. Expectedly, as there is a lot of potentially distressing economic news that lies ahead.
Globally and locally. The first of the negative GDP numbers have yet not hit the stands in the US and major earnings slippages have not started getting reported. Commodities have pulled back, but it maybe too early to write an obituary.
Closer home, the inflation-interest rate saga has not played out fully and the real slowdown in GDP or earnings have not become apparent. Of course, stock prices have changed significantly and to that extent much of the expected bad news may have been priced in. The point about bottoms is that they never coincide with the news flow.
Markets generally move two steps ahead of events. Like they peak before the news flow actually turns bad, and they bottom out too well before the news flow starts improving.
The question then is whether this is just one of those smart looking intermediate rallies that characterise bear markets or is it the start of a bottoming out process that will eventually take us to new peaks. Wish I knew the answer.
Comparisons with May 2006 are inevitable as that was the last brutal fall for the market. The Sensex took five months then to reclaim all its lost ground, while mid-caps took nearly a year. Many mid-caps actually never made it back to their old highs.
The big blue chips led from the front then: HDFC, Infosys, Bharti, RCom and ICICI. It seems to have started in similar fashion this time too.
Yet these are early days, let us not get carried away. We do not need a V-shaped recovery, we just need to arrest the momentum on the downside and hold a reasonable range so that investors can stop panicking and focus on selecting stocks.
It is perfectly fine if the Sensex forms a base between 16,000 and 18,000 over the next few months. For the moment, the Nifty looks all set to climb to the first hurdle of 5,000-odd, aided by a general global recovery. One hopes that the next bout of bad news from the US takes a while and gives some breathing space to this rally.
(Udayan Mukherjee is an Executive Editor, CNBC-TV18)