Let's analyze two scenarios:
- This is a real bounce and the bottom is in! Oh my god!!! Did we miss the bottom? - No need to panic and absolutely NO reason to chase the bounce. If we indeed miss the bottom then no worries, BUT WHY? Cause market is still below MA(100) and that signal is our ultimate confirmation. So if we miss initial rally no harm, it is better than getting trapped, Isn't it?
- Just another bounce - No worries as we followed our signals and stayed away, hence no harm.
What should we do in meantime?
- Identify low risk opportunities
- Best potential candidates when market turns around
- Understand risk and reward
There are many ways you can do this, we will list few below but watch out for future blog post in weeks to come as we will explain few strategies on how to identify low risk candidates.
- Identify candidates which have gained 100% in last 12 months
- Find stocks which have held their levels well during this market decline via relative strength
- Pick right blue chip companies from Nifty 50 or BSE Index
What does it mean for our Investments for now?
- Mutual Funds - If still invested in equities then time to hold onto this roller coaster ride, exiting now will be very expensive and painful. No need to rush to start SIP unless we get positive trend reversal sign. If in cash/ FDs/ liquid funds then it is wise to stay on sidelines.
- Stocks - ONLY invest in strong patterns with good earnings guidance and DO NOT forget to have STOP LIMIT on open positions. When market is in correction, it will drag everything down with it. Check out our trade size calculator to manage your risk along with potential buy candidates watch list.
Market remains bearish, stay away.