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Friday, December 25, 2020

KSE100 Week 52-2020: Dedicated to the Father of the Nation

Let us pay rich tributes to the father of the nation, Late Muhammad Ali Jinnah (25 December 1876 – 11 September 1948) on the occasion of his birthday. His ideals of patience, foresightedness, and standing firm in the face of adversity carry deep lessons for all stock traders. 

"Failure is a word unknown to me."

Muhammad Ali Jinnah

KSE100 took a corrective dive at the start of the week but successfully honored its previous resistance of 43000 +/- 300 as support. However, weekly closing observed a loss of -324 index points or -0.74%  - which failed to impress.  We carry forward our previous week's stance of 44700 - 45500 +/- 300 with a pivot zone at 43800 +/- 100 as the next upside target. A strong pivotal rejection may drop the index down to support or two. One shall keep their composure in trading and do not panic react to market volatility. Dip remains a buying opportunity if the right target is hunted! 

Weekly capitalization data once again demonstrated the feared divergence signal of 8000+ billion/PKR saturation point. Not only the intraday capitalization failed to cross the 8000+ billion/PKR mark again but the weekly average also closed lower by negative -35.52 billion/PKR. It may have been caused by short-term profit booking due to domestic and international holidays or shorter trading week. We shall not consider it business as usual and remain cautious on profits. If the situation remains regressive during the week ahead, this could signal a strong correction wave. On the bright side, sustaining a weekly closing average above 8000+ billion/PKR would be an event worth celebrating! 

Events that may influence the equity markets are MTB and PIB auction on 30-Dec. 

Happy trading and share your thoughts in the comments below. 

Saturday, December 19, 2020

KSE100: Week-51 - Hope For The Best & Prepare For The Worst!

 KSE100 met our benchmark of sustaining a weekly close above the critical level of 43300 +/- 300, breaking out of the pre-COVID19 high. The rally has been a significant accomplishment and honoring 43000 +/-300 as support opens the gateway to 44700-45500 +/-300. Weekly closing observed a net gain of +1270 points or +2.99%. We may expect a soft correction ahead, as it happens after surpassing any critical resistance and any upside is conditional to honoring previous resistance as support while a dip is a buying opportunity. One must be ready for a move on both sides to avoid getting caught by surprise. We can expect the bears to remain in hibernation during the winter (hint: late Feb to mid-March) but a hungry one can be found roaming around occasionally.  Bear hunters take the trophy home! 

Market capitalization surpassed the critical level exceeding the 8000+ billion/PKR benchmark on a DoD basis, while the weekly average demonstrated a net gain of +221.14 billion/PKR. We advise a word of caution here as this has typically been an exhaustion point of money flow. On a positive note, a break from here will see a new all-time high. This is literally the make or break point as we have referred to in so many previous updates. 

Events that may impact the equities market are MTB auction on 30-Dec. 

Happy trading and leave a comment below with your thoughts on this update. 

Thursday, December 17, 2020

Part-I: Spotting Bogus Gurus - The Obvious Signs!

Stock trading is indeed a  messy business - no denying that fact, and it's entirely a game of probabilities. No technical indicator, theory, or expert can guarantee 100% success. But prudent trading practices, rational decision making, process-oriented approach with a mix of patience and risk management can make it a very profitable activity that can generate consistent returns. 

In this multipart series, we will highlight the typical behaviors of bogus market experts. Feel free to post your suggestions in the comment section and provide us with tell-tale signs of bogus gurus to be covered in the next update.  

  1. Day trading - of all trading strategies, day trading happens to be the riskiest with the least rewarding potential. Trending markets may create an opportunity to make a quick buck. In a professional sense, day trading never makes enough gains to justify its risk.  From Warren Buffet to Jeff Bezos, no billionaire ever made it big from day trade. While it may look good in theory to multiply gains rapidly by taking advantage of daily highs and lows. In practice, an intraday move of the stock is random with poor predictablity. 
  2. Social media - a successful trader needs a lot of time, energy, and focus to do their work. While some social media presence and showing off success are rational, it cannot be an obsession. Stock traders are judged on their failures, not on their success. Everyone can have enough success ratio to stay in net profit, but the frequency of failures determines the sustainability of that success. For someone to be on every possible social media outlet and spam it like a full-time business is a hint of having too much spare time and too little to do. 
  3. Paid consultancy - successful traders do not depend on upfront fees, they get paid on their results. To have a guaranteed revenue regardless of a client benefit in an investment deal borderlines on unethical practice. 
  4. YouTube -  often seen begging their audience to subscribe to their YouTube channels in hopes of creating advertising revenue. Those who cannot make it in trading resort to advertisement laden YT channel and selling books. A good product sells itself, it does not need begging! EDIT: Jan.08.2021: There is a similar infestation of gurus peddling their advertising-laden Andriod Apps which is another way to generate revenue. Sometimes these Apps are not listed on official stores and peddled through file sharing links. Which makes them risky and can compromise your data privacy. 
  5. Course gurus - relatively a new phenomenon that has popped up in the age of social media learning. Courses are often marketed with an overload of marketing jargon promising quick returns and expertise parallel to no other.  Stock trading is a long term process needing commitment, practice, and real capital.  Trading strategy has to be tailored around individual personality and psychology while individual temperament carries a strong influence. There is no shortcut to knowledge or success. A short course may get a person started, it will never make them a professional. It may be a good idea to learn from a professional but a successful trader should make enough from their own trading and do not need to sell courses. 
  6. Lower time-frames - the lower the time higher the volatility and the higher volatility makes it difficult to predict. A difficult to predict trade is difficult to profit from. Inducement into risky trades is not worth it even if it causes no capital loss because it freezes valuable capital into non-performing trades. Experts always determine markets on a closing basis which is an established industry standard. Again, an intra-day move is typically random. 
  7. Stop-Loss - while rational risk management is a good practice and stop-loss will get you out of a messy situation. Its application is limited and cannot be a cure-all for all situations. The same applies to position sizing. Diversity is necessary for prudent risk management but it actually comes down to trading practice, experience, and opportunity. These experts dubbed "stop-loss gurus" specialize in offering reckless trade with stops and then taking credit for hitting their stops. Hitting a stop in loss is not a matter of pride, rather it's a failure. 
  8. Penny stocks - no self-respecting expert wants to go into this territory. Penny stocks happen to be a non-performer over a long period of time and come with a huge downside risk. Getting lucky in them has the same probability as gambling. Trading in fundamentally poor stocks or those with little strategic value is simply a waste of time and money. 
  9. Chasing breakouts - literally expecting too much out of too little. This is a greedy approach to trade with a random success ratio. Breakouts always have a risk of failure or even collapse. Greed kills!
  10. Tip-Chor - there is a special salute of disrespect for this breed of gurus. Such that not a word in an English dictionary exists for them. They are present in every instant messaging avenue, often with multiple or false identities, and simply help themselves with other's work to make an "honest" living. Sometimes they do not even have a trading account of their own! 

Monday, December 14, 2020

KSE100: Week 50-2020 - A Hatrick of Wins!

 KSE100 closed another week in the positive territory, making it a continuous three weeks winning streak. The week closed with net positive gains of +263 points or +0.62%. A meager gain as compared to the earlier two weeks and a possible signal of bulls exhaustion. 

Market capitalization demonstrated gains across the entire week but net weekly average gain remains a fraction of the previous week although no aggressive profit booking was observed during the last trading session. Looking at the historical chart, gains are being tapered off as they reach their critical level of 8000+ billion/PKR. This validates our previous stance that the market will have to demonstrate its ability at attracting fresh inflows to break through the 43000 +/- 300 barrier and reach a new high. 

Events that may influence the equities market are PIB & MTB auctions on 16-Dec and 30-Dec. Ijara Sukuk auction on 17-Dec. 

Happy trading and if you found this analysis helpful then please comment below!

Saturday, December 5, 2020

KSE100: Week 49-2020 Closing Notes - Pessimistic Cycle Breaks!

KSE100 finally gives a break out of it range bound cycle, takes a solid support from 40700 +/- 200 and finally closes above 41900 +/- 200 meeting our breakout benchmark! Weekly gains stood at +1400 points or +3.43%. Now all the green grass belongs to the bulls while the bears are gone into their winter hibernation. For the curious mind, real bears go into hibernation during winter. (source-1). Looking forward to the week ahead, we expect the rally to keep going forward with some see-saw behavior expected due to exchange of hand within sectors. The hurdle at 43000+/- 300 remains in place. A sustainable break from here would probably create a new high somewhere in the range of 44300-44700. We are not blindly optimistic given the fundamental barriers explained below. 

Perhaps there is nothing more jaw dropping about the out going week other than the whopping capitalization gains over a short span of five trading sessions. Weekly average gains clocked in at +232.60 billion/PKR. But thou shalt not exercise greed! Computation of capitalization data also demonstrates that it is approaching its exhaustion range which falls approximately at 8000 billion/PKR. A value which has been a strong rejection point twice in the past. To create a new high, index must also break this exhaustion barrier and attract higher inflows.

Events which may influence the capital markets are PIB auction on  09, 16, 30 Dec. MTB auction on 16, 30 Dec. State Bank of Pakistan has set itself an ambitious target to raise 4.155 trillion/PKR debt in next three months by auction (source-2). Given the large amount of money and short time span, this could seriously hamper money flow into equities. We urge to exercise caution!