Where is the stock market headed?

So if you follow markets with a dream in your eyes, are your dreams going to come true in near future? Are markets really headed for the heights it achieved before this crash?

Well if you listen to all the stock advisers and the panel analysts then you will gather that by July 2010, markets will breach 25,000. :-)

But looking at the present earning rate of companies and their income statements, you can realize that most of the companies whose stock is trading at all time high are not really delivering on terra firma. Their profits are down, revenues have taken a hit and there is no real growth expected in the next 2-3 quarters. Then how come the stocks are at an all time high? P/E ratios have crossed 1000 mark for a few stocks. 1000, a P/E ratio of 1000 means that if the share of the company is available at 1000 bucks, it earns a profit of just 1. Normally a P/E between 5-20 is considered ok depending on the industry and the growth rate of business but 1000 P/E means you can go short on these companies with your eyes closed and your monitors on. Sooner or later, these companies are going to lose momentum and fall back sharply. Nothing and i repeat nothing can support such high P/E levels.

Beware of the stock tips that you recieve from your relatives, friends and TV analysts. Either the person providing the advice is not smart enough to understand the dynamics of market and is acting on tips himself or he has a hidden agenda involved.

Take a back seat, enquire about the fundamentals of the company, study the business model and then invest your hard earned money.