The market is displaying all the classic signs of a post sell-off syndrome. A v-shaped relief rally, spikes in volatility, retest of lower levels, low trading volumes and aversion to mid- and small-caps. This is exactly what you would have expected to see. These patterns call for a different tactical approach on part of investors.
In a market that has clearly not stabilised yet, traders should either refrain from trading or cut down their trade sizes drastically. Equally, if they have to trade they should be extremely nimble and book small gains whenever they get them. This is not the time to be greedy. Compulsive traders should avoid positional trades and trade with narrow stop losses so that they can minimise losses if the market turns against them, which is quite likely. This market could indeed be a trader's graveyard with the Nifty gyrating wildly between a big band of, say, 4,500-5,400. It is not easy to trade mid-caps either: many stock futures that started the day 8 per cent up ended between 6 and 8 per cent down. Very tough to gauge and catch these swings, they happen so fast.
For investors with cash, this is a good time. However, they should be in no hurry. Someone who bought in the early half of Thursday would be regretting it as by the second half many stocks were trading 10 per cent below their morning peaks. In these conditions, one should try and time the market a bit. While large-cap names should outperform in the foreseeable future, investors looking beyond the next few months must look at some high-quality mid-caps from the stock futures segment where the erosion has been undeservedly large. They may not recover immediately but poor technicals have driven them to deep value zones. There is an opportunity there if one can be patient. It is going to be an interesting few days ahead with global market volatility, meetings next week for the US Fed and RBI loaded with expectations and the prospect of a substantial amount of locked-up funds returning to the hands of institutional investors. All the ingredients of a potboiler.
Executive Editor, CNBC-TV18