KSE-100 Index: Technical outlook

Summary (KSE-100 Index: 11761)

The panic of 2008 got terminated in the early 2009 and we saw the beginning of a new uptrend, which is currently in force. However, recent events (failure swing around 12500 in July 2011 and its subsequent decline below 11000 support) are suggesting that a lot is dependant on the KSE-100 Index’s ability to maintain its prices above 11000 support and if we survive this scare, expect a high in the range of 12500 to 14500 otherwise a sharp down move with a possible bottom in the range of 9500-9000. 

Trading Strategy

As the KSE-100 Index is trading above its near term support, we advice a buy on weakness strategy with a closing stoploss at 10760. In case of a breach of 10760 on the downside on closing basis, wait for the market to bottom out in the range 9500-9000. Since short selling is prohibited or practically not possible in the market due to lack of depth in the futures market, I am refraining from advising the short trades on the down move.

Detailed analysis

As of now, the KSE-100 Index is showing a positive trend but appearances of certain fissures on the chart are making us a bit of circumspect of its ability to maintain this uptrend in the next couple of months.

The first and foremost is the failure swing (the inability to go beyond its previous high), which Index exhibited around 12500 in July 2011. Since then, we have seen some sideways movement followed by a sharp decline in which the Index fell below its major support at 11000 to bottom out at 10760 in August 2011. Currently, the Index, in its damage control mode has gone above the 11000 support but a clearance of 12500 on the upside with volumes will disperse the dark clouds hovering above the horizon and we may see the KSE-100 Index maintaining its uptrend. However, till then we remain a bit cautious.

Secondly, the recent breach of 11000 support on the downside have created certain question marks on the survival of this uptrend. Though the Index, after a dip below 11000, has recovered and is trading well above this support but we believe a lot is dependant on its ability to maintain this price level in the next couple of months. In case of failure, expect sharp downtick with a near term bottom in the range of 9500-9000. However, if the Index survives this support, then the expectation of downward move will diminish and we see the Index either moving in a sideways range of 12500-11000 or may go beyond 12500 to test 14500.

The article was written on 02/10/2011.