More bad days ahead.

As I see the index charts, there appears to be more downside for the market and 7,000 in the Nifty and 23,000 in the Sensex looks to be a near-term bottom where there can be some respite. But, before it goes there, I expect

a short term rally, which one can take advantage of. I say this because,some front line stocks, like L&T is not reacting to the broader market correction since mid-January 2016 and is getting good support at Rs.1100 on

better price-volume action. The Q3 results were also better than what the market expected. With the index hitting a 21-month low today, I expect the market to make a sharp rally to 7,400 (and may be 7500) in the Nifty. I, therefore, feel that in the present state of the market, one can take a buy call on L&T @ about Rs.1100-1110 for an immediate target price of Rs.1200,which is a key resistance area in the short term. I am suggesting a short

term position from a trading perspective as it is too early to say that the worst for the market is over. However, companies like L&T can be bought from a long term perspective also. In my view/reading of the market, the bottom is yet to be put in place and my expectation is that the bottom for the market will come in about 3-4 months when the Nifty goes down to say, 6500. Moreover, the bottom for the market is more likely to be a "U"

shaped bottom (i.e. where the index moves in a narrow band, which can take a few months or may be a year to complete) and not a "V" shaped bottom formation. The world economy is undergoing a structural change and can be long in running, with a likely impact on our external trade.

All said & done, the objective should *not* be to catch the top or bottom of the market, as no one can precisely predict that, but to enter the market when the valuation looks attractive. At the moment, the valuation, measured as per the P/E ratio, is placed at or below the long term average at 17 and this, by itself, is a fairly good entry point.

*An important point*:

1) avoid banks (particularly PSU banks) and metals (except Coal India), as there appears to be more pain in the horizon; and

2) stick to companies with domestic consumption story.