What KSE bulls can and can do

You have been tried, you have been weighed and measured and you have been found much wanting, so whispered the bears slyly into the ears of KSE bulls on Friday last.
Having discarded the idea of hitting 10,000 points some fifteen days ago, the benchmark index KSE dropped to 8872 points on November 2, from intraday high of 9978 hit on October 16.
Yet, the lure of relatively lower October inflation, the likelihood that IMF review will go smooth and that FODP pledges will translate into a flow of funds enabled the index to test 9300 once again on November 5, as investors hoped these events would allow central bank cut rates further.
Then came the much unexpected selling by foreign investors who sold equities worth $1.8 million on Friday - pushing the index below 9000 points yet again, in a session marked by a turnover of just 75 million shares.
Interestingly, however, foreign investors remain net buyers with an inflow of $35 million in the quarter to date. In contrast, local investors have been selling profusely where domestic fund managers have sold about $14.7 million of equities since October, while individuals have ploughed out $11.5 million from the market.
Unless, one assumes that foreign investors are smarter than the average bear and know something which the rest of local investors do not know, it is safe to attribute their venture into Pakistani market to the idea that they have ample amount of cheap government-funded money and are scouting the earth for attractive values. Knowing that historically, local investors have proven themselves smarter than their foreign counterparts owing to better information, it is most likely the latter case.
With all positive economic developments widely expected by now, the market has priced-in the factors; hence no reason to move forward. What is not priced-in fully are the randomly occurring blasts and forms of attacks seen in the last few weeks. That and growing political bickering is keeping the market dicey.Although, continued foreign investment might enable the index to push for it again; but it will likely be limited to 9200~9400 given the technical resistance around those points. Besides, foreign investments will likely pause in the weeks to come on account of pre-Christmas holiday profit taking that typically starts gradually from the third week of November. So, if the KSE bulls are still interested in reaching 10400~10,800 points in early 2010, they seem to have little choice but to retrace and consolidate between 8400~8700 points (100 DMA ~8400) before gathering momentum to make their final move.