KSE: a top in the making

After nine straight weeks of gains, the benchmark index KSE finally tapered off last week. Although, the decline was meagre - just 0.81 percent or 101 points - it came amid a 26 percent rise in turnover that rose to an average 196 million last week from 155 million in the week before.
Does this reflect that selling forces have started to dominate the market? The answer to that may not be a resounding yes, but it isn exactly an outside probability.
In the bulls camp, attractive valuations, regional discount and earnings growth are the oft-touted reasons to join the bandwagon - reasons that are reportedly attracting a swarm of foreign investments to KSE counters.
Aside from these, hopes that the margin trading system would finally be launched next month, after the assurance given by President Zardari, coupled with the optimism that the central bank would leave the discount rate unchanged when it meets on January 29, have been key bull drivers.
In the bears camp, which has been losing for quite some time, the reasons don appear to be quite strong, or that they seem to have been discounted, according to some market participants.
For some odd reason, the market has discounted the fears of inflation getting hysterical if the government doesn put its house in order; it has also discounted falling LSM output, damp private credit supply, and of course the politics that is increasingly reigning over economic rationale.
From a technical standpoint, the momentum is waning as the key blue chips have already risen to what technical analysts call profit-booking levels. The weekly charts reflect that after nine straight weeks of continuous rise, the market will need more than just a 100-point correction seen last week.
And the KSE-100s key resistance range of 12,687~13,272 provides just the right reason to do that - especially considering that the golden factor of uy-on-rumour, sell-on-fact will be setting in, if and when the central bank maintains the status quo and when the MTS system is announced.
Any further rise in the market will be nothing but an excessive inflation of the bubble. With shares of OGDC - that has nearly 25 percent of weight in 100-index - cornered by foreign investors, the KSE bubble might appear to be made of steel.
But here is the thing: while cornering an asset - like commodities or financial securities - is tempting, sometime it only leads to tears. Anybody who disagrees should quickly google the history of billionaire Hunt brothers who went bankrupt cornering the silver market three decades ago. Beware of the time when OGDC cracks.