The bull wave ended last week as the bulls who built-up positions since the Sensex hit a low of 3163 points at end-January this year were forced to liquidate their positions. No doubt they had booked profits from time to time. But the accumulation of stocks never seriously stopped. In recent weeks, especially, speculators had gone on an overdrive and built-up long positions. They were seriously disappointed when the FIIs did not enter as expected and Sensex failed to move towards the 5000-mark. This forced them to finally square up their positions, asthere was a limit to which one can bear high badla charges, week after week. In any case, when the software bubble burst it ended the bull phase forcing them to square up, even at a loss.

The software attraction had only added to the misery. Many of these speculators in the last two weeks had made voluminous entries at high prices.

Greed and opportunity made them underestimate the risks. And, when the markets started reacting earlier than expected, the only way out was to liquidate positions in speculative blue chips and hang on to software stocks.

This explains to some extent the slide in prices of even blue chips like Bajaj Auto, HPCL, MTNL, BHEL and the like.

But at the same time this slip has created opportunities in these speculatives. Having absorbed the losses by forced liquidation, it is time to recoup some of the loss as these scrips recover from what appears to be an over reaction for just a week. You too can and should join in this race and make whatever gains possible. But, do remembersome basic background dynamics before you enter the battlefield on Monday. The market might recover. But no earth-shaking changes have actually taken place to impart a big push to the Sensex, especially beyond the 4280 level!

Let us take count.

The political threat from the Jayalalitha-Hegde skirmish has died down. While that has eliminated the downside risk, it does not help to give an upward push. The credit policy is now out, but has not provided thelollipops the market was expecting. Also, nothing has been done to facilitate high badla financing, nor higher investments by banks in equities. A higher quantum of money flow into the system would have indirectly helped the stock market. Money would have flown into investments and also badla rates would have cooled down.

But the RBI governor has not done you any favour and has other sound reasons for his own conservative stand.

In reality, this conservative approach would indeed do good for the long term health of the stock market and the commonaverage investor. Earlier, even the finance minister too had opted for a conservative and cautious approach rather than an adventurous.

He decided not to succumb to industry's pressure for higher government spending at the risk of fiscal and exchange rate risk. A higher exchange rate risk will make even the FIIs hesitant in making investments here.All this is fine, I hear you say, but players in stock market always look for ways that will boost stock prices. Yes, high badla financing at lower costs would have helped keeping stock prices up until the budget. But that is not good enough reason for Jalan to open the money tap more liberally. Jalan has other concerns to examine seriously.

He simply is not willing to take any unwarranted risk with higher money supply, which in turn will fuel inflation. And pray, where exactly is the need for increasing money supply when the figures show that the industry has really not been starved for funds. On the other hand, he has reduced bank rates and in turn thelending rates. He has also promised to increase money supply, if and when needed. The investor cannot complain. If industry does not grow it is not for want of money supply. I for one do not believe that higher money supply would induce any businessmen to invest. The lack of offtake of available credit in the immediate past proves the point. But I do empathise with the stock players. More money floating around would have found its way to buy stocks and to finance badla! But is that what we really need? The stock player may as well be reasonable. It is one thing to put money to productive use. Quite another to use it to inflate asset prices.

Much of the trouble with the South-east Asian economies was that excess money went to increase the price of assets. Not into productive engines.

In India the speculative lobby wants money to be chasing stocks instead of real estate. Surely it will help the local speculator and the FIIs, but at the cost of the not so proficient common investor. In fact, the latterwill pay the price for the speculators profit.But if the economy is to be revved up there are other levers to play upon than money supply. And as the economy picks up, in turn it will push stock prices up. Some economists argue for the strategy of flooding the economy with money to kick-start the economy. The investor might think that this would help generate demand and help companies and stock markets. This argument ignores the risk entailed of rising inflation and making life for the millions of poor unbearable.

Economic strategies are important and they decide the fate of nations and stock markets. But let us not forget that we have only recently undergone a large dose of experiment with Chidambaram. It is time now not to be taking further risks, but to take stock, conserve and consolidate. And if you think we need to take some risks to push for higher growth and therefore be adventurous, take a look at what extreme experimentation did to Japan.

Coming back to the investor's need, what he badly needsis a reliable and stable equity market, where he can invest his savings. The lowering of bank rates makes this need even more urgent. But what he needs is certainly not volatility. Because it is always the speculators who gets the better of him in such markets. On the other hand, a market where money supply induced volatility is kept to the minimum, the investor feels confident and comes back.

Thus having come to terms with the credit policy, do pick up selective blue scrips which have moved down. Some of these stocks were mentioned in my last week's column. But buy only if you get it cheap. And sell before the index reaches up to the resistance level. Log in early on Monday. And oh yes, do keep your stop loss.