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Sunday, March 28, 2021

KSE100 Week 12-2021: Bears Get Shot!

KSE100 closed a second consecutive week in red, making a weekly loss of -1220.68 points or -2.68%. Our important benchmark of 45500 +/- 300 was finally crossed and honored as support which sends out a strong signal of bulls returns. Looking forward, the index is expected to see a triple top at 47000 +/- 300, and a breakout from here would lead to a double top formation at its all-time high of 53000 +/- 300. On the downside, support remains valid at 44700 - 43000 +/- 300. We expect a few more hiccups ahead, but overall stability has started to emerge. Last week's update blew the horn to mark the start of bear hunting season and there appear very reliable sharpshooters in the league! Plenty of trophies await them.  To better understand this update, please review previous updates from the last few weeks. 

[Edit: Correction has been made to incorrectly report index figures]

Market capitalization recovered quickly after a drop below 8000+ Bn/PKR for two consecutive weeks earlier and closed the week with an average gain of +68.35 Bn/PKR - roughly half of the previous week's gains. During the week SBP auctioned off treasuries worth 1,549.71 Bn/PKR without making a significant dent into the equities market as three short-term liquidity injections overlapped with the auctions and sparing the bourse from a 10-Mar style meltdown. With two forces acting on it in opposite direction, the bourse rather remained indecisive throughout the week - in accordance with newton's laws of motion. 

To recap in layman's terms, SBP conducted treasuries auction on 10-Mar & 24-Mar whereas liquidity injections were conducted on 19-Mar, 25-Mar, and 26-Mar respectively creating a net inflow of +584.13 Bn/PKR. We do not have a reliable mechanism to clearly understand the impact of these money market operations but plotting them against index performance can help us analyze with reasonable covariance. Advancements in data analytics may unlock better understanding. 

Happy trading and if you enjoyed reading this update, please let us know in the comments section below. Like and share with your friends!

Saturday, March 20, 2021

KSE100 Week 11-2021: Bear Hunting Starts!

KSE100 gained +620.32 points or +1.38% WoW basis - significant appreciation as compared to one of the worst weekly performances earlier. However, it failed to cross its pivotal resistance and the divergence signal remains active with a bearish trend prevailing. But we predict a better performance ahead and expect the current cycle to end by May-2021. Our stance has been consistent per se previous update. The index must sustain above its major resistance of 45500 +/-300 to initiate a breakout (omitting the target of pivotal resistance at 45100+/- 100 because it is spaced too close to major resistance). On the downside, major support at 43K and floor at 40K are still exposed. All supports and resistance are indicated on the chart below. For better understanding, please read the updates from the last few weeks.

Weekly average capitalization observed a gain of +120.13 billion but remains below the critical benchmark of 8000+ billion/PKR by a narrow margin. On our capitalization chart, the linear trend line has been replaced with an exponential trend line as we believe it reflects the market better. The trend is gradually crossing over its long-term horizontal resistance which reinforces our opinion that bulls will eventually emerge victorious in the long battle. 

In the financial markets, SBP released its monetary policy on 19-March keeping the interest rates unchanged at 7%. Whereas long-term interest rates continue to show appreciation. We believe a mid-term correction in policy rates may be due sometimes in the future once the COVID-19 clouds begin to disperse and a sudden jolt of consumer demand starts to overheat the economy. 

Events that may impact the equities market are MTB auction on 24-Mar and is of particular interest for being the largest auction of the quarter with a rounded off-target of 1050 billion/PKR. The last auction on 10-Mar with a rounded off-target of 700 billion/PKR sent larger than expected shockwaves across the stock exchange. A short-term liquidity injection conducted by SBP OMO of 7 days on 19-Mar may dampen the shockwave. We have an interesting week to watch ahead with a lot of conflicting factors pulling in opposite directions!

If you enjoyed reading this update, please let us know in the comments section and share it with your friends. Your efforts will contribute towards further improvements in the future. 

Saturday, March 13, 2021

KSE100 Week 10-2021: Bears Blitzkrieg!!!

One of the worst post-COVID19 performances of the markets with obliteration of -2,049.27 points or -4.47%. The free fall breached all supports and fell as low as 43000 +/-300 - pre-COVID19 resistance acting as support. Although we had assigned a low probability of KSE100 breaking below its major support of 43800 +/- 300, the risk was always on cards and warned appropriately. Although losses were pared on the last trading day when the index made a sharp recovery of +1008 points to close at resistance (previous support), the trend is already wearing out. We suspect the market may go through a reset cycle which may lead to a fall as low as 40K shall the momentum remains in decline. On the positive side, sustaining above its major pivot zone of 45100 +/-100 may signal a fresh accumulation cycle towards a new high. Looking forward, the strategy shall be to book profits on strength or wait and see approach. Please read the last few week's updates to establish a better understanding of this posting. 

One of the highest weekly declines was observed with a net loss of -338.22 PKR/Billion from weekly average capitalization. It appears that the 8000+ billion/PKR mark is really a tough line for bulls to cross. This is the third time major rejection has been observed at this level. 

Part of this spectacular capitalization loss was driven by treasury auction (Auction Result: SBP Sells T-Bills worth Rs.715.46 Billion) which observed a resurgent interest by investors due to rising bond yields. Multi-year Pakistani bonds are reflecting a bullish trend due to an aggressive borrowing target of 4.92 trillion until May-2021 (Govt plans Rs4.92trln domestic borrowing in three months). This paints a depressing picture for equities at least until May-2021. The outlook will be further destabilized when/if short-term yield also begins to rise sharply. A 10% P.A (or greater) risk-free fixed return in the short term makes the equities market very unattractive. We can only keep our fingers crossed and watch the markets take their course. Below is a chart demonstrating bond yields of different tenors. [EDIT] For the week ahead major financial markets event is MPC announcement by SBP (SBP to announce Monetary Policy on March 19).

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Saturday, March 6, 2021

KSE100 09-2021: The Belly Dancing Index!

Weekly closing observed a net loss of -27.67 points or -0.06% with the index movement swinging sideways like a belly dancer. The spillover effect of political noise kept the investors confused throughout the week. The index has breached its first support multiple times but rebounded from its pivotal support which makes for a frustrating range-bound movement. With just a week shy of mid-March, we had accurately predicted the onset and behavior of the correction cycle. Currently, the index is afloat below its pivotal resistance of 46100 +/- 100 with a declining momentum and a bearish divergence signal. Major support levels remain intact at 45500 - 44700 +/- 300 and floor at 43800 +/- 300 with a low probability of the situation going that worst.   

On the international front, oil has rallied to record high for the first time post-COVID19. OPEC has treaded cautiously to roll over their production cuts rather than boost production. Whereas, the Biden administration remains committed to green energy by slashing American oil production. The combined impact of these events makes a bullish case for oil therefore OEP sector is likely to remain in the spotlight. 

Looking forward, we advise you to get ready for bear hunting as their head are about to emerge from their hibernation caves, and don't be distracted by the belly dancers! We are on track as planned (refer to the previous few week's updates for better clarity).

Weekly average capitalization fell by -38.39 billion/PKR despite the spectacular rally observed on the last trading day. However, the drop is significantly less when compared to the previous week, demonstrating investor confidence in keeping the inflows strong. The sixty weeks trailing capitalization shows a gradual crossing of the linear trend line over the long-term horizontal resistance of 8000 billion/PKR. This signals a strong probability of the next bull breakout if it is honored as support.

Events that may influence the equity markets are the MTB auction on 10-Mar and Ijara Sukuk auction on 11-Mar, 2021.

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