Stock Market Crash – The Pain is NOT YET OVER

Yesterday’s stock market crash is the beginning of series of crashes as we observed in 2008. Once the FEAR grips the market then Stock Market Crash is inevitable. There is 360-degree selling. The market has convincingly broken the psychological level of 7000. There was simply NO attempt of recovery. From quite long, i am cautioning readers of this blog to EXIT the Market. Some brave hearts are still hopeful. Current P/E levels are 18.75 and it is still expensive considering the poor corporate results. The FII’s are emptying their bucket and they are in a quite hurry to do so. The inflows to mutual funds have dried up. The next round of SELLING will be triggered by the redemption pressure on Mutual Funds. The market is following a pattern and is behaving as per my expectations.

It is quite unfortunate that even after today’s Stock Market Crash, analysts are suggesting retail investors to buy. Some of my readers wrote to me why i am so critical of Stock Market Analysts. The answer is very simple, analysts are misleading the retail investors. I agree future is always bright but please ask them, at least, two reasons to invest in the market. The answer will be a blank face. In my post on 18th Jan 2016 i cautioned and predicted about Danger of Panic Selling. Unfortunately, we have entered the phase of panic selling. It is followed by more frequent news headlines of the stock market crash in coming days. Though i have already shared all the key reasons for current pain in the market in my previous posts. This post will discuss some of the indicators pointing, why the pain is not yet over despite stock market crash.

Stock Market Crash – The Pain is NOT YET OVER

1. Gold: The sharp rebound of GOLD is the first signal that pain is not yet over but it is the beginning. Personally, i was not expecting such a sharp rebound. The spot price of Gold touched $ 1250 in international markets. The returns from GOLD in last 30 days is whooping 15%. Gold is considered to be SAFE HEAVEN. A rebound in Gold implies that investors are pulling money from equity and parking in GOLD. This is confirmed by the stock market crash. In past, similar trends point that we are entering into painful territory.

2. Banking Stocks: Banking is the backbone of any economy. It is not only about Indian Banking System. The banking system of European countries is also under stress. Some experts are expecting a collapse in banking system similar to Lehman brother crisis. The Germany’s Largest bank Deutsche Bank is showing a sign of distress after 15% collapse. In India, Banking stocks are leading the stock market crash. In my post dated Sep 28, 2015 i cautioned the readers, should i invest in Banking Stocks?. As of today, Indian Banking Stocks have corrected on an average 50% in last one year. It is painful to see ICICI Bank below Rs 200, Axis Bank below Rs 400 and SBI at around Rs 150. The worst is not over for banking stocks.

The NPA’s are worsening and banks have cautioned that Q4 will be worse than Q3. The analysts are not factoring in FRESH NPA’s that will be added. Everyone is worried about existing NPA’s but what about fresh NPA’s that will be added in Q4. I need not add more.

3. Eight-year itch: The recent Stock Market Crash is part of eight-year itch that market undergoes every 8 years. Look at the pattern from 1992 Harshad Mehta scam. The next collapse was in 2000 due to dotcom bubble. After that Lehman brothers crisis caused doom in 2008. We have again entered into an eight-year itch in 2016. This time, it will be china :). If you check the previous data. The eight-year itch causes 50% correction in the stock market. This time, we started from 9000 and 50% correction means full stop at 4500. I don’t want to comment and only time will tell.

4. Pre-Budget Rally: It seems, this time, the stock market crash will wash away pre-budget rally. Quite surprisingly, there are no signs of a pre-budget rally. There can be two reasons either the global factors are weighing too heavily or hopes are not too high from the budget. Whatever may be the reason, missing pre-budget rally is not a good sign for the stock market. After sharp corrections, there will be a technical bounce back but investors should be concerned about the pre-budget rally.

5. The fresh fund flows dried up: Till now mutual fund inflow was supporting the market. As per recent reports, the fresh funds have dried up. Daily DII trading activity shows that mutual funds are finding difficult to support the market. In the absence of any major trigger and continuous FII selling, the next phase is redemption pressure on mutual funds. The investors who have invested through SIP or lump sum through mutual fund route will become restless. The SIP returns are already negative. With redemption pressure, fund houses will be forced to sell. It will lead to another round of Stock Market Crash.

Basically above mentioned five points are the pointers that more pain is in store. The investor should keep a watch on factors as i shared in my post, Investment in 2016.

 Words of Wisdom: As and when the market breaks a crucial level, investors think that this is the bottom. It may or may not be true. As i shared in my post, 5 hidden secrets of successful investors that investor should control the fear of missing the train. Rather, you should ask what are the three reasons/triggers to invest in stock market. Trust me, the day you know the answer that day will be the right time to enter the stock market.

The next trigger for the market will be the budget. The big investors are adopting a wait and watch policy. Though analysts are hopeful that budget will turn the tide. As an investor, i am always cautious of the fact that if macroeconomic indicator will not support then the budget rally will be short lived. At regular intervals, you may find technical bounce back but it may not be the start of an upward trend.

I remember during last week of January, the market bounced back continuously for few days. All my friends and readers started asking me Is the pain over? My answer was NO. They told me that this time i am wrong and unfortunately, i was RIGHT. The best strategy is to hold CASH & Wait for the right time. The right time will definitely come. Investors who will lose patience will lose money and others will MAKE Money.

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