It’s punting like this that the investment guru Warren Buffet warns about. Just a few weeks ago all hell had broken lose at the Karachi Stock Exchange (KSE) when the bears steamed in full throttle - culminating into one of the most memorable index falls last Monday.
About ten days before that fall this column had cautioned about the market’s axing behaviour. Citing Qasim Anwar, technical analyst and equities broker at AKD Securities, we highlighted that the market would likely “dive below 30,000 points by May” (See KSE’s steep fall published March 29, 2015).
That fall, however, came much sooner than expected – and in our view - exhibiting a kind of irrational pessimism supposedly on account of foreign selling, SECP’s aggressive stance against malpractices in the equity market and what not. Turns out investors had forgotten about all those good things about the market such as good fundamentals, cheap valuations and a decent dividend yield. Isn’t investor sentiment a funny thing!
Funnier is how the market has bounced back up. After lopping away 2873 points in five days ending March 30, the index has recovered 2645 points in the five days after. And now the word on Chundrigar is that everything is hunky dory. In fact the market pulse reads: aggressively bullish. But that’s not how sustainable relief rallies look like, regardless of whether the fundamentals are intact, the valuations are sweet and foreign inflows have resumed.
It’s too early to make a call on the market’s direction right now. But remember this: it takes time with the wounded hand because it likes to heal. You don’t chop away 3000 points in five days and heal the same in five days after. In other words, the market may have corrected and also bounced back in terms of index points, but in terms of the time that such movements ought to take, much remains wanting.
History has shown that usually when the markets exhibit such volatility on week basis it’s the bears that have the last laugh. It may be too early to make a call right now, but best keep you guards on, for this so-called relief rally can be expected to exhaust 31800 to 32200 at the most and eventually prune prices before it starts consolidating.