Corporates say that things are on track! The bankers say that developments already planned will go through uninterrupted! The advisors say nothing to worry as it is just a temporary phenomenon! Investors say the markets have already fallen drastically and they cannot fall further! The crude oil trades 15% lower than all time highs! But inflation continues to remain above 11% at 11.98%. The interest rates are going up, making borrowing money more costly. This means anything which earlier I would have gone out and bought on an easy monthly EMI is now going to cost me more. May be there are chances that I may not go ahead with this idea in today’s situation. Considering the above facts the question that’s knocking my door is—Where are we heading? Whom are we trying to fool? Is this something which can ensure that an investor sits on hope which this time defies the 100-year-old history of the stock markets. Let’s understand the situation in a simple real life example and the reason that we are doing this is that technical analysis had already informed us about these things six months back. Another logical thing: whenever somebody tries to defy logic he is immediately corrected. There is saying in English, “The bigger you are the harder you fall.” When corporates start making money they feel that they have now started to defy logic and then you start seeing M&As like Tata–JLR or Mahindra–Kinetic happening and there are thousands of such deals which we have seen in the last 10 years. All the companies who bought JLR till now have gone through though times. Are Tatas going to rewrite history in an era of economical vehicles?” Let me remind you about the 1999-2000 era when the tech stocks were booming. During that period, there were software companies who were on the same modus operandi, acquiring global companies. The best example of them all–Silverline–Seranova deal. Silverline was ranked among top 5 software companies in India at that time. Needless to say this deal made sure that Silverline went from riches to rags. There are many more examples like these. So if this happened in 2000 with technology companies, then why it will not happen again! The symptoms are all there but we are not ready to believe it just because of one reason: hope. We do a lot of wishful thinking with the idea that we may make money out of lost propositions. It is like taking a pain killer tab when you have pain in your heart. Is the pain killer going to help? No. As an investor, it is an individual’s responsibility to ensure that you protect your hard earned money. Even if you fail to grow this hard earned money for a small period it’s completely alright. But, mind you, if you loose this hard earned money, then there cannot be anything bad than this. One needs to understand that in the stock markets “the big fish eat the small fish”—which is the law of nature. So can one defy it? One can prolong the law of nature but cannot defy it. An investor is always loaded with a lot of views and free advices. We live in a democracy where everybody has a right to speech. But as an individual it is my duty to understand what is right and what is wrong. Technical charts indicated some 6 months back that the things are turning bad and we have already seen the markets fall by approx 35% to 40%. At current levels there is no fresh selling coming in with the crude prices also cooling off. This should help the markets correct. This no where indicates that a bull rally is going to happen. So if an investor is feeling that this is a start of rally, then he is trying to fool himself. Learn not only from earlier mistakes but also from others mistakes. Be an ‘opportunist’ Technically, the markets are making lower tops and lower bottoms for the last seven months, right from January 2008. As the markets started falling in January 2008 the indices made a bottom in mid-March 2008, from where there was an upward correction which made the Sensex make a lower top in the month of May 2008 @ 17735 and Nifty @ 5298. In the month of April 2008, when the markets were moving upwards people started feeling that this was again the start of a rally and thought that they were again heading for all time highs. Before people could enjoy this move, the markets cracked again to make a lower bottom in July 2008, with the Sensex making a low @ 12514 and Nifty @ 3790. Now in the last one month, we have seen the markets moving up from these lows. Does this anywhere signal that it is a start of the rally? No, it does not. This is just a corrective move and the Sensex is expected to move to resistance levels @ 15333 – 15789 and Nifty is expected to move up to 4679–4740 levels. Tomorrow, even if the Nifty manages to rally up to 5000 levels, then also it will not symbolize that the rally has started. The reason for this is that the Nifty still would remain in a downward trend. We have already seen that for making money in all kinds of markets one needs to be an “opportunist”. During this corrective period, if we come across some good opportunity in form of a stock, we should not ignore it. Make the most of all the opportunities. This also does not mean that one should expect an opportunity every day or may be every week. The best strategy to be followed during this period is to wait for an opportunity, which may be there once in a month. Be an opportunist to be a winner in the stock markets.Stock recommendations1) JSW CMP: 797.90 Buy for Momentum Stop Loss – 760 Target – 950 2) Rolta India CMP: 324.40 Buy for Delivery Stop Loss – 310 Target – 452 3) Rel Comm (Lot Size = 350) CMP: 436.00 Strategy To Enter Trade: Buy a covered put option Buy a August 440 strike price put option @ 33.30 Sell a August 420 strike price put option @ 25.25 Investment = 33.30 – 25.25 = 8.05 Max Risk (In value) = Rs 2,817.50 (8.05 * 350) Returns expected (In Premium) = 11.95 Returns expected (In Value) = Rs.4182.50 Minimum margin requirement = Rs 2,9400 (considering 20% margin) Strategy to square off trade: Square off the trade (both the options) when the spot price closes below 420.