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Marketwatch: Amber or red?

india Updated: Jun 14, 2007 01:56 IST
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After the terrific runs of April and May, the market seems to have gone limp in June. Not that there has been any major selloff yet, but the zing is missing. The market appears fatigued and heavy. The same can be said of most global markets, including the US. Most investors can't tell if the lights have changed from green to red already or they are still amber.

If this is indeed a larger corrective pullback to the rally that started post the February selloff, the billion dollar question is: how deep could it be this time?

The corrections in the last one year have been manic affairs. They have been sharp, vicious, panic inducing but shortlived. None of them have started with a gentle softening of prices. They have all been good, proper selloffs. Each time though, the market has managed to climb back to new highs within a fairly short period of time.

This one, if we are indeed in the midst of a corrective cycle, has been more of a grind. At least so far. There's been no one sided plunge in stock prices. Its more of a consolidation phase with a downward bias. Whether this will lead to a deeper cut is difficult to say but the possibility cannot be ruled out.

The recent nervousness on midcaps perhaps reflects this uncertainty. Every midcap investor is aware of the perils of a sharp selloff and the resultant damage it could unleash on market capitalisations. A move to profit preservation in this space is visible already.

I think we will know in the next fortnight or so whether we will get away with this range-bound drift this time or have to deal with a bigger selloff globally. Despite some edginess, globally markets seem resilient thus far.

While thats a good sign it's no guarantee that a February-style correction cannot happen. We are in low-visibility zone now. It's tough to say though whether it's daylight waiting to break on the horizon or dark nightfall on the other side.