5. Fresh money waiting

Most stock investors are talking about how they've moved into cash as the markets tumbled. Certainly, the financial crisis proved that stock experts and analysts aren't all smart. But it's usually a good time to buy when most people are saying they've cashed out. The reason for this is that masses are usually wrong about stock markets. They bail out too late and they reinvest too late.

FIVE SIGNS OF GLOOM

1. Credit crunch:

The U.S. banks may not be wiped out, but they're still in a bad shape. Same goes for the complicated credit markets. JPMorgan analyst Thomas J. Lee noted that the markets for securities backed by residential and commercial mortgages have recently deteriorated to their worst levels since Lehman Brothers' bankruptcy.

The market needs a plan for these "toxic assets" — either by selling them to private investors, or allowing banks to mark them differently. A failure by the government to deliver such a plan sparked a sell-off last month, and if investors don't get one soon, the market could be in for another tumble. Analysts aren't ruling out a Dow drop to 5,000, or an S&P decline to 500. This would have serious implications for the Indian stock markets also.

2. Small up moves:

The graph of falling economy is never in a straight line. The recent spate of better-than-expected retail sales data could be an aberration. The coming months might show that there is more pain left in the economy as businesses falter and fail.

Sandeep Dahiya, a finance professor, said he wants to see three months of sustained increases in the Conference Board's consumer confidence index. It is currently at the lowest levels since the gauge started in the 1960s.

To really know that we are out of the woods we need sustained up move in production and consumption for at least three consecutive months. Until that happens we can not be sure that things have turned for the better.

3. Short covering rally:

Most experts believe that main reason for the current rally is short covering by bears as the stock markets were in over sold zone.

It's difficult to differentiate between short-covering and regular buying. In the US floor traders last week estimated that between 50 percent and 60 percent of Tuesday's 379-point jump in the Dow was due to short-covering. And a rally driven by short-covering can disappear quickly when any bad news flows in.

Short covering could be the main reason for the current rally in Indian stock and in that case this rally will fizzle out soon.

4. Political uncertainty:

The general elections in India are around the corner and no one can predict the out come. Stock markets would not mind a UPA or NDA government. The policies of the BJP and Congress are not much different on the economic front. A clear victory for either of the parties would trigger a rally across the board.

It is the third front which includes the communists that can spook the Indian stock markets. Although none of the forecasters believe that the third front will be able to muster up the numbers to form a government still the fear of the unknown is always there.

The Stock market fears something wildly unexpected could happen. The Sept. 11, 2001 terrorist attacks threw a wrench in the market's recovery following the bursting of the technology bubble. And an unintended consequence of addressing the Great Depression with protectionism in the 1930s was global trade war, which hampered the U.S. market's recovery.

5. The Satyam spook:

Even if you did not hold any Satyam or Maytas stocks you are still a victim of the fraud to some extent. The confidence of the Indian investors has been rattled. When companies of the stature of Satyam can swindle investors who can you trust?

Retail investors who have been burnt badly in the current meltdown will think twice before investing their hard earned money in the stock market. It will take some time for their confidence to return.