Bull rallies in bear markets ! What to do now?-Be and Make

These all the bear market’s bull rallies and most of them due to the short covering/news driven etc., we will see these bull rallies (more than 2%) very often in the bear markets also. This is very interesting to know/study this case that investors will confuse by these bull rallies that we reached the bottom? From here bull market re-starts? Worst is over?

But the answer in my view is that “Not of course” as per my experience these rallies really hurt the small investors hugely, based on these rallies most of the investors’ starts thinking that our bull market resumed but actually they will see a price correction consistently.

Bear markets can be classified in two terms broadly one is time based correction (sustains more than 18 months) and the other one is value based correction (slips nearly 50% from its peak). We are almost reached the value based correction at this point of time but we are just 9 months old that’s key point we should have to consider.
In the bull markets 93-94, 96-97, 99-2000 our markets raised (more than 2%) 49,16,45 times respectively and in the bear markets 94-96,97-98,2000-01 our markets raised (more than 2%) 28,35,47 times. This clearly indicates that we will see these sharp bounces/bull rallies in the bear markets also.

Of course we can get some cues from the history but I will not rely on them for evaluate as ideal examples because we should evaluate the current conditions (like micro and macros) then only we can come to the right decision.

So, our micro and macro picture is not good. Still we are trading at high price multiples when compared to the global emerging markets,
We are facing the so many problems right now like
1. Global financial crisis
2. Huge liquidity crunch
3. Huge unwinding by FIIs
4. We are at high inflation levels
5. We are at higher interest rate levels
6. Recent cuts in GDP growth rates
7. Poor IIP numbers
8. Margins shrinking in Q1FY09 and will slip further in Q2
9. Still our nifty trading at 18 PE
10. We are in election year
11. Huge current fiscal deficit due to various subsidies
12. First cue that DIIs (MFs) are net sellers in the recent month

So and so many, all will indicate us that ‘we are not out of wounds’ and ‘worst is behind us’. BE CAUTIOUS.

With thanks
Be and make