What is in store for next week?

The answer could come from the class of investors who play in the market. But let us trace an overall perspective, which is common to everyone. There is no doubt that the market has risen briskly from its recent bottom.

Especially so in the software stocks. This rise has taken its driver from the Nasdaq Composite, which made consistent gains for two to three days. There has also been a feedback on the US employment scenario. Unemployment rate has edged up, giving the first indication that the interest hike is having an impact. After all the US economy could have a soft-landing.

The next round of interest hike expected around 28 June now in all probability will be postponed. That, however, does not mean that the fear over the implication of the next round of interest hike has vanished. It is just that the hike could be postponed to the last two quarters. But this time around the hike could be 100 basis points. So whoesoever is peering into the future of the Sensex will have to take this into account. But investors have corrupted themselves into the extremely short outlook, that has characterised market behaviour of late. Investors have great difficulty in being rational or even have a medium term perspective. They also conveniently forget that economic causes take a lead time before they are reflected into effects.

Capital market usually discount the future, today. But when it comes to cause and effect scenarios like economic changes, the market has neither the patience nor sufficient exposure to build this effect into their investment strategies.

If the interest hike of the order of 100 basis points comes through, surely it will have an impact on the US stock markets. Let us not forget that there have been successive rate hikes in the last 18 months. This cannot go without its impact on the economy.

While Allan vbGreenspan's aim to slow down the economy, one cannot rule out the possibility that he has overreached himself - done more than what was needed. If later is the case, then the high interest rate could end up in a hard landing for the US economy with its implications on the stock markets and investors confidence.

But all these does not not bother our traders, who enjoy playing the game for the day, the moment. So what do you do? Sure, join in the game and make money, while the going is good.

But you could end up losing your hard earned money by getting into stocks now at higher prices. Doing that entails a risk of a different kind, which you could well contemplate and avoid. Am I playing the bull in the china shop?

No, I am serious.The most common problem investors face is associated with investing during the middle of a bull rise. You need to figure out how high the market will move and how much money you will make. At the same time, you have a nagging fear, whether the market will continue to move up. This fear is for real and needs to be mulled over. For should the market react downwards after you have bought, you will be caught in a trap. Then comes the usual drama of you having to wait until the market moves up atleast to the level, where you purchased.

Now with the scenario that I have described earlier, you need to figure out what is the likely picture towards August and further down to December. Who does bother that long, you ask? Sure go ahead, but remember seriously that you are going in for the very short term with all its attendant risk. The risk potential is higher than the reward.

If you are getting into the market remind yourself that you are in for the very short term, and ask yourself, how high the Sensex go. In as much as the closing this Friday has been strong, may be the market will continue to move up next week. Select non-infotech stocks have caught up with the momentum. But in all your enthusiasm and getting heated up, do not forget this. The stock market are now moving up, not because anything fundamental has changed. Yes the monsoon is ther for sure and the US news, we discussed earlier in addition. But has not that positve impact already discounted.

The truth of the matter is that whether it is infotech stocks or the stocks of the other kind, liquidity is what is driving the market now. It is driving once again beyond rational drivers. Liquidity could be coming from Mutual funds from their recent collections. Also some high networth individuals could be sitting on cash. Even the FIIs could be bringing in new cash, as I believe the flow into mutual funds have intensified of late in the US.

But in a market that is driven by liquidity, the volatility risks are high. All the more reason you should think twice before entering at higher levels. And now let me take you to another track. Markets all over the globe have given returns on an average of around 20-23 per cent in a year. If that is the pattern, it would make great sense for whoesoever that got in at the recent bottom to book profits now. And that logic holds good even for mutual funds in India. If one has to recoup the erosion in net asset value during the last downturn, the right way would have been to re-enter with new funds at the bottom. Or re-enter even by churning your portfolio. And if you did that in an active fund management style, there is all the more reason for you to book profits now.

Not for making new entries.

Around 40 per cent rise from the recent bottom should prompt many to collect profit now rather than waiting for incremental gains. Sure some of the software stocks have room to move up further. But why not re-enter after a reaction? And again, weigh the risk-return balance now. If reaction sets in strongly you will lose upto 35 per cent of the gain that came in. It could be even fifty per cent. It is time you decide what is your risk/return appetite. On the upside Sensex could move up another 200 points. On the downside, you could lose upto 400 points. A bird in hand is worth two in the bush.