Getting dizzy at the top?

Yesterdays early trade at the Karachi Stock Exchange saw what was arguably one of the most volatile moves in recent memory.
Within minutes the KSE-100 hit what techies love to call the higher high. A new intra-day record of 21,712 points was reached - surpassing its last intra-day record of 21,621 hit on May 23. But within minutes the market fell flat to its opening levels to eventually close the day with a decline of 60 points.
Such volatile moves often herald bad news. Recall the
number of crises the market has seen since the still unforgettable March 2005 crash. Volatility and sharp rises that leave a lot of gaps in the market seem to be trademarks of a crisis under construction.
Increasing number of foreign portfolio investments also point to the same concerns. Historically, foreign investors have been found making a late entry in the market.
By the time foreigners get in, the market has already risen substantially; and when they come in, the market rises even more amid all the hype of foreign buying. And then, everything tanks. Specifics and exceptions aside, this has been the case in general over the last seven or eight years.
And the same is happening these days. In January 2012, the KSE-100 started rising after nearly five months of broad consolidation. From that point to March 2013, the index gained nearly 60 percent, with net foreign portfolio inflow of about $196 million. However, April 2013 to-date the index has risen 19 percent with net foreign inflow of about $297 million.
The rise of small caps is yet another leading indicator of the market. When the market starts taking big leaps, with volumes led by small caps, eyebrows should be raised.
Then again, this is the age of transition for Pakistan - at least thats how many perceive. The whole
ew beginning saga, the democratic consolidation, and the hopes pinned on business friendly PML-N government, may mean that all such historical indicators amount to nothing.
No wonder, some players expect further upside to about 24,000 points by December 2013, before the KSE-100 even thinks about undergoing any major corrective or consolidation phase. In a relatively shorter timeframe, however, things may be dictated by the markets historical post-election trend.
The post-election graph shows that KSE-100s movement on the days 9-11 (boxed region in the graph) after the election foretells the indexs movement after the range-bound behaviour ends between days 32-36 (see circled region). Going by this, the index may follow the 2008-pattern and go back to square one to about 19,900 points by the end of July.
Highs may be exciting and fun states; higher highs are even better. But getting too high is usually followed by a dizzying hangover.