Has the stock market bottomed out?

By Odhiambo OchollaAfter a long and brutal bear market, investors naturally wonder with each bear market rally, whether we have reached a stock market bottom yet. Many analysts do not believe you can tell when the stock market has bottomed. Yet you still see many predictions that the market has bottomed out. Identifying whether we have reached a bottom in the stock market is important to investors who want to beat the market. It is also important to know whether we have reached a bottom in the stock market, so you can reduce your risk of entering to soon. At the start of last year, the NSE 20 - share index was at a healthy level of 5,167. By the end of April this year, it had fallen by 2,320 points. There is every indication that the recent market volatility will be ending anytime soon. By the end of last year the index was at 3,521.This raises the question, has the current stock market bottomed yet? tough timesAs of April this year, the 20-Share Index had flattened and sluggishly turning up. This tells us the current rally is a stock market bottoming up. With a recent rebound in the stock market and profits reporting from commercial banks many are starting to believe that this stock market rally will turn into a raging bull market. I am optimistic that we did indeed put in a "bottom" on March but recovering close to 30 per cent in one year is too much too fast. With the economy slowing down, we could still see some tough times ahead. If you have delusions of the 20-Share Index returning to 6,000 points any time soon, then you are out of touch with the market. The volatility isn’t over and monthly returns are not guaranteed. For investors this means they need to enjoy the current rally for as long as it lasts. However, they should also be ready to increase their exposure to long positions, since the stock market has bottomed out. Calling the bottom of the stock market is a game played by many investors. Investors do not want to be left out, once the bear market is over and the stock market bottom is in place. But it’s important to note that nobody rings a bell at the bottom of a bear market but there are plenty of indicators investors can monitor in the hope of predicting when a bottom might occur. Are We There Yet?The levels reached by the indicators at the bottom of past bear market are commonly used as signposts for current bear markets. Unfortunately, history does not always repeat the same way. There is always a great deal of interest in when the stock market might bottom. Many investors with a trading approach look for the best time to commit money to the market. However, the average investor should be wary of such market timing. Studies have shown they are better off buying and holding the stocks portfolio aligned with the index and rebalancing at intervals. A record slumpOf course, if the average investor can start investing or rebalancing in the depths of a bear market, this should enhance long-run returns. The next bull market rally has begun and there are bargains in every counter at the NSE following a record slump in stocks prices.Investors have to be careful not to miss the opportunity but with all the negative news — global financial crisis, slow economic growth, high inflation rates, food crisis and wrangle in the coalition government there is a tendency to hold back. Institutional and retail investors should be looking for companies that are cash-rich, have low debt and higher dividend yields, or those that can invest for future growth, yet have cash left to pay shareholders. But still investors are advised that they are going to see a lot of bouncing off the bottom because there’s a tremendous amount of uncertainty in the market. But I have a feeling we are at the bottom and now building a base for the next bull market. But let me quickly point out that no one can call the bottom in the stock market. No one has managed to do it. But it’s important for investors to think long-term. The writer works with Sterling Investment Bank.charlesocholla@yahoo.com

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