Market Outlook-Sep 2014

So it turned out to be a healthy bout of profit booking with the FOMC meeting not sparking immediate fears of rate tightening. FIIs were net sellers on Tuesday and Wednesday with DIIs doing some buying. Initial report suggests that today's sharp upward movement was triggered by significant amount of FII buying with the uncertainty over US tightening over for now. Just goes about to show how much we are linked to International money flows.

I am kind of ambivalent to this development because I don't see any stocks available at bargain basement price to invest in freshly.  A deep correction would have helped in that regard. To take advantage  of such a deep correction one should be sitting on substantial amount of cash which I am not. It is about 6% of my total portfolio value which is just not enough. I am not anticipating a sustainable rally that remind us of the bull market prior to 2008 just yet. The reasons for which will be explained in another essay that I am planning to write pretty soon. So if I don't have any stocks to invest in and don't anticipate a sustainable rally (i.e >20% from the current levels), the natural course of action is to see how it plays out by sitting on the sidelines and build my cash level to at least 20% of my portfolio value. If the market continue its upward trend then some of the stocks that I hold  should reach their respective price triggers for profit booking.

Even though I am a value investor I have been trying to bring some technical elements into my strategy in an indirect fashion. One should always keep a target % of your portfolio value in cash/FD at all times. This will help you in taking opportunities when a sudden market crash occurs as well as acting as a natural re-balancing strategy. I haven't arrived at a target % just yet, but I think 15% would be enough for now. When you don't find much value in the market it will naturally increase and vice-versa.