KSE-100 Index Trend Score

KSE-100 Index Trend Score

Momentum is back as the Index climbed 150 points to end the day at 14911.97. Leadership came from Oil & Gas sector stocks while banking stocks were in the negative territory. 

Today, after a soft opening, we expect the Index to maintain the uptrend and challenge its psychological resistance at 15000. Major support is at 14700.

On the last trading day, the swing trading performed poorly mainly due to the fact that majority of the stock (17 out of 27) were in the sell mode and the market shot up. Hopefully, this will be corrected today as the 17 out of 27 scrips are showing buy ratings. We recommend investors to build positions in the stocks with buy ratings on the dips.

KSE-100 Index Trend Score

The KSE-100 Index lost 1.53 points to close the day at 14672. We maintain our positive stance on the market in general and expect it to move beyond 14700 level very soon. Major support is at 14500 level. Buy on dips in stocks with a positive Trend Score. See the table for details.

KSE-100 Index Trend Score

The Index fell 54 points to close the day below 14700. Though the long term trend remains up, however, the Index’s inability to gain velocity beyond 14700 levels is indicating that investor demand may emerge at a bit lower level. Hope of a decisive break above 14700 will remain alive as long as the KSE-100 Index maintain its prices above 14500 support level.

PTC, though in buy mode, is one of the weak stock as the Trend Score table is showing a big drop in the score due to worsening moving average setup. Yesterday, the stock entered into a medium term sell mode as the 2 weeks moving average fell below 12 weeks.

The chart is showing probable emergence of a failure swing pattern and the pattern will be confirmed once the stock falls below Rs 13.50 level. However, till that happens, hope of a reversal in prices are very much alive provided PTC clears Rs 15.50 resistance in the next couple of days. 

KSE-100 Index Trend Score

 

Profit booking shaved the gains of the Index as it fell 65 points from its intraday high to end the day at 14730 levels, up 13.81 points. Trading volumes were around its weekly average levels.

The Index’s ability to sustain prices above 14700 levels is indicative of its strength. However, further follow through action is required for this breakout level to qualify as successful. 

KSE-100 Index Trend Score

The Index scaled the peak of 14706 on closing basis amid falling volumes. Technically speaking, for a sustainable upward breakout, volume must be in sync with the price. Though the volume was higher than its weekly average but was way below compared to when the Index was at the same level way back in early May 2012. This lack of volume can be attributed to the holy month of Ramazan.

Keeping that in mind, for a sustainable breakout, the Index must maintain its price level above 14700 at least for the next few days. Failure to do so will result in either a sideways price action or a fall below 14500 level. Keep a close watch on price action.

KSE-100 Index Trend Score

Thank God it moved albeit modestly. We maintain our positive view on the market and expect it to move further high. Gains above 14630(minor resistance) will open the way for the Index to test 14700. Major support lies at 14500.

KSE-100 Index Trend Score

Lack of velocity is indicative of a lull before the storm. Fasten your seat belts for a fast directional move on either side. We maintain our positive stance on the Index and recommend investors to adopt a buy on dips strategy with a strict stop loss at 14450 level.

KSE-100 Index Trend Score

KSE-100 Index

Last: 14526.41, down 26.87 points

The Index is maintaining uptrend amid falling momentum ratings due to stalled prices. We maintain our positive view but lack of velocity is a point of concern. 

MCB is the only overbought stock among our Pakistani universe. As shown on the chart the uptrend has stalled. We like the stock mainly due to its high Trend Score at “17”, however, the risk of a breakdown will increase greatly if MCB fails to move higher in the next couple of days or it goes below Rs 185.00 support.

KSE-100 Index Trend Score

KSE-100 Index (Last: 14553.29, down 11.39 points)

 
The Index is looking positive on all three counts (short, medium and long term) and we expect it to test 14700. However, the lack of velocity on the upside is creating a bit of uncertainty. If the Index fails to make headway soon, the chances of testing or falling below 14500 support will increase. Let’s hope for the best.

LOTPTA (Last: Rs 7.45, down Rs 0.04)

The stock is showing consistent downtrend and there are no signs of turnaround as yet. Unless the moving average setup indicates otherwise, we expect this downward trend to continue. The counter trend rallies are the best time to sell (see the chart for details).

  

KSE-100 Index Trend Score

KSE-100 Index (Last: 14564.68, up 52.61 points)

The Index is likely to move higher today, after registering gains yesterday. Major support remains at 14500 while 14700 is the resistance.

OGDC is ready for an upward breakout. The stock is showing consolidation in the range of 150-172 for the past six months and we believe time is ripe for the stock to muster strength and breach this level on the upside to target historic highs in the region of Rs 180-200 area. Near term support is placed at Rs 167. We recommend buying the stock on weakness. 

KSE-100 Index Trend Score

KSE-100 Index (Last: 14512.07, down 15.18 points)

The Index ended the day in red for the fourth day in a row. Modest losses (84 points in four trading days) coupled with low velocity on the downside is indicating the strength of the uptrend. Yesterday’s price action was also supportive to bulls in general as the Index dipped below 14500 before ending the day above the support level.

We expect gains in the short term and our target level is 14700. Our top picks for the day are AICL, DGKC, JSCL, MCB, NBP and OGDC. We recommend buying in these stocks. The ideal buying price should be below yesterday’s closing price and a protective stoploss must be placed at 2% below the purchase price.

KSE-100 Index Trend Score

KSE-100 Index (Last: 14527.25, down 37.23 points)

It was a typical profit booking day at Karachi Stock Exchange as investors booking profits in ICI, JSCL and HBL. The Index fell 37 points to close the day at 14527. We maintain our positive stance on the market and expect it to move higher from current levels. Major support is at 14500. Major resistance is at 14700.

Out of 27 stocks we cover, 22 are in the buy mode while 7 are in the sell mode. A few of the stocks are better placed compared to others. These stocks are AHCL, FFC, HUBC, MCB and PTC. We recommend buying the above mentioned stocks. We advice sell on rise in PSO, ENGRO and LOTPTA.

Pakistan State Oil (PSO)

PSO (Rs 242.74, down Rs 0.75)

Let your money works elsewhere. PSO is a dud for now.

Though the moving average setup is indicating a sulking downward trend in PSO but a close inspection of prices will reveal that the stock is showing no trend at all.

Since September 2011, the stock is moving in a trading range of 230-265 with occasional spikes above and below the range. Due to which we have seen two long term buy signals fizzling out. Since the job of any trend following system like “Trend Score” is to find the trend and when the stock shows no trend for an extended period, who is to be blamed for the loss?

Keeping that in mind, passive long only investors are advised to stay away from the stock while short term traders should follow a sell on rise strategy till moving average setup indicates a buy signal. Major support levels are Rs 230 and Rs 220. Major resistance prices are Rs 260 and Rs 270.

KSE-100 Index Trend Score

KSE-100 Index (Last: 14564.48, down 3.73 points)

The Index fell 4 points to close the day at 14564.48. Though modest, it was the second negative close in a row. Expect uptrend to continue in the near term. The Index is enjoying good buying support around 14500 while major resistance is placed around 11650-11700 zone. Maintain longs.

Trading Strategy: Buy on dips in stocks with positive Trend Score and sell on rise in stocks with negative Trend Score. Keep a close watch on the "Trend Score Change" column to get the idea which way the Trend Score is heading (Its getting better or worse).

ENGRO Chemicals

ENGRO (Last: Rs 101.26, down Rs 0.93)

Avoid for passive long only investors. Sell on rise for traders.

ENGRO is making lower tops since early 2008 and recently it has started underperforming the KSE-100 Index. At this moment, the stock is showing downtrend on all three counts (short, medium and long term basis) as the two weeks moving average is trading below both 12 weeks and 52 weeks moving average. We have seen some choppy trading pattern in the recent past mainly due to the flat price action exhibited by the stock for the past six months.

In our view, for a sustainable rise, the stock must clear its major resistance zone at 115-120 level. As the moving average setup is indicating, ENGRO will resume its long term uptrend only after clearing the 115-120 resistance level.

Long term investors should avoid this stock till it declares either a long term uptrend signal or sells off to recent lows. However, for short term traders, the stock is a sell on rise till it clears Rs 120 hump. Major support prices are Rs 95, Rs 85 and Rs 70.

KSE-100 Index Trend Score

KSE-100 Index (Last: 14568.21, down 28.38 points)

Profit booking pulled the Index modestly down. The trend remains up and we expect gains in the near term. Target resistance is at 14700 levels while near term supports are at 14500 and 14300. Moving average setup is bullish but RSI is overbought. No signs of a reversal as yet. Keep it up. 

Practical Investing

Investment in equity market is all about stock selection. People spent a lot of time finding the best stock at the best possible price without knowing the fact what makes a certain stock a good investment. Any stock, at given point in time, can be a good or bad investment depending on the market environment. From the hindsight, we can say that the safest stocks one can find at the Karachi Stock Exchange are Fauji Fertilizer Company (FFC) and Hub Power Company (HUBC). Both companies are backed by strong groups, financially sound and are recession proof. However, the stock price charts shown below exhibit wild swings divergent to the actual financial performance of the company during certain periods (see circles on the charts). Therefore, it proves the point that financial performance (fundamentals) alone does not guarantee positive return on investment and overall market environment (sentiment or investor perception) does affect the price.

Fauji Fertilizer Company

Hub Power Company

Does that means, investment in stocks is a bad idea or is this loser’s game? The answer is NO. However, there are certain pre-requisites. For example, to become a doctor, one needs to study every part of the human body to understand its working. To become a successful investor, one needs to have proper knowledge of fundamental and technical analysis because both are necessary to understand the working of stock market and interestingly both disciplines are intertwined.

Hardcore technical analysts may not like my idea of joining both disciplines together but, I firmly believe, fundamental analysis provides basis for the prices to move and technical analysis catches those swings. Price alone cannot move unless there are reasons for it. One may not bother to find or agree with the rational of price move but it is wrong to assume that it went up because RSI was oversold or it crossed a certain average. Price, for the sake of breakout, cannot move from one place to another. Events create swings.

Though price fluctuates daily, fundamentals do not change so often and so are long term trends. A case in point is The Resource Group (TRG) and Muslim Commercial Bank (MCB). The fundamentals of TRG are weak so is the long term trend. The fundamentals of MCB are good and price is showing a consistent uptrend (see charts). See the behavior of price and 52 weeks moving average. In fact, technical analysis is the shadow of fundamental analysis. Technical analysts should be grateful to fellow fundamental analysts who provide fodder to the price swings. God forbid, if all the fundamental analysts go on strike or resign en masse what will happen to the technical analysts?

Muslim Commercial Bank

The Resource Group

In my view, to become a successful investor, one needs to study the general market environment (politics, economic factors such as inflation, interest rates etc) and form a list of stocks after taking into account fundamental factors such as product of the company and it’s positioning in the market, pricing power, management integrity, profitability trends, dividend history and ratios such as ROE etc. One must use long term trend detecting tools such as weekly bar charts and 52 weeks moving average to understand the dominant trend and use the short term indicators such as 14 day RSI and MACD to spot entry and exit points within the broad trending framework.

Using one method alone as the basis of investment is a fallacy and best avoided. I understand this issue is debatable and you can share your opinion at this email address: ravikaml@gmail.com

The article was written on 4th January 2012.

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.