Since the beginning of the bear market since late 2007, the BSE index SENSEX has been falling with small breathers of trading in a range sometimes and still smaller bump up which did not sustain. Most mini rallies the stock market has witnessed have quickly dissipated in the face of bear hammering.
In the last couple of trading sessions the Indian stock market is yet again making another attempt at a rally. This rally has come at the back of remarks from bank CEOs and economic data that has led investors to believe they'd gotten too pessimistic.
The BSE is following global cues as the Dow Jones industrial average rallied for four straight days from nearly 12-year lows, and gained 597 points, or 9 percent — its best week since November. That followed a two-and-a-half month drop in the Dow of nearly 25 percent
According to Tobias Levkovich, chief U.S. equity strategist for Citigroup "People have been worried that we're heading into this abyss ‘but’ there are signs that that's not the case, and there is some floor somewhere — that we may have overreacted."
The question top most on the mind of stock market investors is that if the worst really over?
There's no formula to find out if this latest rally will sustain. But market analysts are watching closely for signs that the worst might be behind us, and they say some good signs are starting to pop up.
"There are little subtle things that have happened that are good — good enough to see that market is trying to establish a near-term bottom," said John Kosar, market technician and president of Asbury Research in Chicago. "But it's way, way, way too premature to try to make an argument that this is 'The Bottom.' "
So what are the signs a prudent investor would look for to find out if the stock markets have bottomed out and what would indicate that there might be more down side yet?
FIVE SIGNS INDICATING THAT STOCK MARKET MAY HAVE BOTTOMED OUT:
1.Spurt in volumes:
According to stock market experts the two signs of a bottom are the entrance of big institutional investors like FII’s and Mutual Funds, because they hold stocks for the long-term and high trading volumes during rallies. The current rally has both these elements.
FII’s, Pension funds, mutual funds, and insurance funds began snapping up bargain stocks last week after sitting out on the side lines for quite sometime. The volumes on the BSE and NSE have picked up and the volumes on New York Stock Exchange were about 7 to 8 billion shares which are similar to those when stocks plummeted earlier.
2.Things could have been worse:
Indian public sector banks are in fine shape and the retail segment is picking up. Interest sensitive sectors like real estate and autos will pick up as banks cut interest rates following RBI’s lead.
Even the U.S. economy, although in a bad shape, is not the same as the Great Depression of 1930’s. Unemployment in the US is at 8.1 percent, and expected to rise above 10 percent, but that's nowhere near the 25 percent level experienced in the 1930s. And today, when people are fired, they can collect unemployment.
3. Safe Banks
Unlike the US Indian banks were not affected badly because of government policies. Even the private sector banks have held up with marginal losses. Banking sector is the back bone of credit flow for industry.
The current rally in global stock markets began when three U.S. banks said they've actually been profitable so far this year. They're also borrowing less from the Federal Reserve now. Bank borrowing from the Fed fell to $19.6 billion last week — the lowest level since Lehman Brothers collapsed in September.
4. Stable commodity market:
Although it seems weird but stock investors should be happy that |
