What is a bear market?

What is a Bear Market? This question is crazy after we have seen our market almost double in three months. Well, Russia is having one, right now. Bloomberg.com reports that Russian stocks have fallen 20% from their highs, starting a bear market, the first one among important indices since March 2009.

With a high made at 4700 approx in the Nifty, we will also have a bear move if the Nifty trades below 4700 – 940 = 3760. I think it may trade below this level, but I would not call it a bear market, just as I do not think that we are in a bull market – it is an uptrend.

I am looking at 4200 as the dividing line for a dip or a deep correction. My charts suggest a lot of support around this level. If the Nifty breaks below this support, I have to accept that much lower levels are possible.

For me, the actionable ideas that emerge from this analysis are:
Below 4200,
I will not plan any investment buying. Buying is no longer on dips. Buy on panic declines ( a little) and after signs of a base (will take time).
Long only Swing trades should be avoided since momentum is no longer in favor of bulls.
Sell Calls on rallies in Nifty , actively traded stocks.
Day trades can be on both sides, avoiding selling after one down day, avoiding buying after one up day.

Now we know it: The Boom that we saw was not the result of intelligent policy making – It was –Good Luck . This is what probability is about. Sometimes it works against you, sometimes in your favor. The boom was a set of circumstances that worked in our favor. If you want to find more, read the link.

Quick market review

As I wait for my CNBC interview to begin, here are some thoughts on the markets.

At 4200 in the Nifty, there is considerable support. That support showed up on Thursday and Friday. There is a buying opportunity for swing traders with a stop below 4200. If the Nifty moves below 4200 (does not have to close below it) exit all long positions.

Once you take the view that the uptrend resumes, you shouldbe looking to buy on dips. We have to remember that this is a mature uptrend. It started from 2500 and touched 4700 in just three months. Therefore, the possibility of a failure are high. Breaking below the 4200 level defines a failed rally for me.

Mr Obama – Game Changer ?

Major changes are taking place in the USA and Europe. They are likely to affect our markets significantly. I do not know if Indian business media is paying attention to these changes.
In the USA, President Obama has called for greater regulation over the hedge fund business. The funds will have to deleverage. They will be required to maintain higher capital for derivatives. The funds will come under the control of an existing or newly created regulator.
In Europe, the European Parliament is debating much stiffer control over hedge funds. Current leverage is likely to become history. More ‘real’ capital will be required to maintain a derivatives position.

What this means for us is the fact the FII’s will be required to arrange more capital to invest the same amount of money. This will affect emerging markets more mainly becuse these markets are volatile and respond quickly, either way – up and down.

In India, the growth of local insuance companies and domestic financial institutions will replace at least some of the hot money inflows that may not come. But, all of this so called liquidity may be affected by the new regulations.

My Notes: This is all for the good. In the long term, unregulated financial institutions should be unacceptable. Just see how these greedy, immoral people brought the entire world on the brink of disaster. If the froth and bubble goes out of the market, so much the better.