WILL THE MARKET CORRECT....WHEN AND HOW MUCH ?!

A MILLION DOLLAR QUESTION......HAS THE MARKET TOPPED OUT?? AND IS IT THE TIME TO EXIT?

The memory of January 2008 is still fresh in our minds. The markets corrected and it was fast and brutal.Towards the end, the midcaps and small caps will hitting upper circuits everyday. Pardon me, I do no remember the exact date, but there was a day when more than a thousand stocks opened in an upper freeze!!

People have formed a strong opinion that history is repeating itself and its time to exit the markets. Well,I would like to differ on that.

I do agree that we are trading at a PE Multiple of 23x times the Sensex Earnings. But the Quarter III results are upon us and looking at the advance tax numbers, I am not expecting any disappointments on that front! If we deliver an outstanding set of numbers ( which I am expecting we will ) the Sensex EPS forecasted for FY011 and FY012 gets revised and so does the Sensex target for this year. 

Also, the midcaps and small caps had been beaten to death in the bear rally and they are making up for it. One need not read too much into such action. A little research will tell you that midcaps and small caps yet have a lot of value left, fundamentally.

The large caps retraced their fall and so are the midcaps and smallcaps. Nothing unusal.

Attached below is a Nifty Chart showing how many times in the past when we have broken out of important levels, we did test those levels only once and that represented a great buying opportunity.The red arrows representing the re-test of those levels.

Watch out for a weekly close near to 5300 on the nifty and we are good to go! Any fall near to 5100-5150 should be used as a buying opportunity.The corresponding levels on the Sensex are 17000-17300.

Have a great trading day and watchout for some trading buys around 10 am on the blog.

Regards,

Rahul T.