It is widely believed that the Markets set a price level AFTER factoring in all possible news and events. This price level reflects the Market’s view of what the future is likely to be. The almost universal concern right now for the Markets globally is the growing financial crises in the world.

Almost everyone in the financial markets has been looking at the US Government’s efforts to pass the Bailout Package for the crisis ridden financial industry. On 29 September, when the bill was blocked, the US market fell by 777 points, the highest ever it has fallen in point terms in one day! After 3 days of hectic renegotiating, the modified bill was passed on 4 October, but the widely followed US Market index, the Dow Jones Industrial Average still fell by 157 points to 10,325, the lowest level for the year 2008.

Which brings us to a moot question: “IF the Bailout Package was something that was going to resolve (or at least help in a significant way) the problems in the financial universe, then why did the Market NOT go up, after all it should be good news no?”

Market Wisdom would suggest that the Markets do NOT think the Bailout Package and all the other current circumstances are likely to improve in the near future, hence the lack of cheer when the US Bailout package was finally passed.

Now, there are conflicting views by major “experts” (who were the ones who were part of problem in the first place!) who are now not sure whether this will be enough to stop the bleeding. While some institutions have said that this will restore confidence in the markets, others don’t agree and the International Monetary Fund (IMF) recently said that now the US is almost certain to have a recession. And to almost prove the point, the US economy lost 159,000 jobs in September 2008, the worst figure in five and a half years.

So, is there worse to come?

Warren Buffet pulled another rabbit out of his hat when he bought GE Shares on very favourable terms. A week before he had bought Goldman Sachs shares for extremely low prices. Now some say that when a person like Warren Buffet puts his money on the table, then the worst is either already over or we are not very far from it. Mr. Buffet of course is a very smart man and he is certainly much better placed than many others put together to judge what’s going on and perhaps indeed, the worstbut it still does not answer our question, is there worse to come?

Well, worse or not for US markets, it certainly looks like there is worse to come for the Indian markets. We are not at the bottom of a very important level of 3, 800 on the Nifty and as you can see from the chart below, the “force” or tendency of the chart seems to be that it wants to go down.

If the 3,800 levels break down decisively, then we could see the Indian markets go down to around 3,550, then 3,200 and finally perhaps around 3,000 on the Nifty. Going below that 3,000 level is right now difficult to imagine but should it appear likely, we will review the situation and look at the data points and circumstances.

For now here is what you should consider doing:

1. If you are having a SIP, continue with it and reap the benefits of buying lower and lower.
2. If you are a person looking a putting in fresh money into the markets, hold on and enjoy your holidays. Wait for the markets to settle down.
3. If you are trader, consider shorting the market if it breaks 3,777.
4. If you are long term investor (i.e. more than 3-5 year horizon, put in some money, hold any existing positions and forget about the markets!

As we enter the last quarter of the year and winter will be here in a couple of months. It will be time to enjoy hot coffee and pakoras and just as you have to wait for the earth to turn for the winter to go, wait for the Markets to settle down then take the next shot when the next bull market starts.