Every time the market bounces back from over sold zone, the Bulls waste no time in claiming that the bad news is over. But let me assure you there are no ‘V’ shaped recoveries in this kind of a global economy. Yes, any pull back is positive and good for the trading community. But, ignoring the complete picture & believing that bottom has formed is a big mistake.

EquityPandit.com will tell you some facts which may prove that we had not made bottom yet.

Fact-1: In general market should have made bottom four-five month ago when economy was bottomed. Recently as per the IMF & World Bank projection year 2009 would be the bad year for the world economy and bad news will continue to come. So how we can say that market made it’s bottom?

Fact-2: It’s the election season. Some trading community firmly believes that the market will head no where till we are done with the elections. Now, that’s almost three months from here. The argument on this theory is that even if the market heads no where, there will be a lot of volatility. Maybe, the current pull back is just that. So, if you’re a trader sitting on the edge you have surely missed a strong pull back. The short conclusion to this theory therefore is even if the market remains around the same levels, volatility could make you rich or poor, depending on whether you’re on the right or wrong side. So election can be proven as bottomed trigger for the market.

Fact-3: Worst is over. This line is the mouth piece of India Inc. the next quarter will be better, the worse is over, demand is picking up, do not see any pricing pressure, working at near full capacity, raising capital to meet expansion plans etc. The question to ponder on is at what point of time India Inc. has not stopped to be bullish. Sell-side analysts and your friendly neighborhood brokers are quick to capitalize on this theory. India Inc. talks about business confidence. But, that’s different from consumer confidence. These are tough times and any turnaround has to begun from the consumer. And the Indian consumer is not optimist at this point of time. The US Consumer Confidence Index is a leading indicator on this front and its at its lowest level. Signs of recovery if any, will be first witnessed through this lead indicator.

So there are enough reasons to believe that none of the above three theories have a high probability, at this point in time. Visibility is poor and the US and world economy is in a big mess. One simple instance can be found in the US budget pages. If you analyze the fine print, it is clear that even Obama does not expect a recovery before 2011. So our advice is to short on every rally.

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