Today, I was surprised to find the markets down so much.

But, I can draw similarities with the 2006 market correction.

I had closely followed the may 2006 fall and it looks very similar. At that time also, small caps and mid caps had the biggest fall.

So, what should be the strategy this time:-

1) As soon as the stocks started to recover, large caps saw sharp recovery. Mid caps and small caps remained weak for a large time. This means that new investment should be in large caps only.

2) The stock which led the rally i.e. Reliance fell down sharply and recovered strongly as well. This time this can be the case with State Bank of India. If this is true SBI should be a great buy at these levels. I will buy its shares tomorrow.

3) When the carnage ended markets recovered new highs in 2 months. This means that we should see new highs by February 2011 or March'11.

I am really seeing a lot of similarity with the 2006 May fall which I can't mention in words and therefore I have decided to adopt this strategy.

Please reply if I am correct or are the markets expected to show a fall of more than 1000 points on the Nifty from these levels.

Alchemist waiting for your reply.