Hello! at last a post after 4 long months. There must be lots of questions going in your mind about my where about, why wasn’t i active in the bull run, did you miss it? and etc etc. My answer was always simple, i tend to stay back and enjoy the bull ride and like other people making money. Bull run like this tend to be positive for everyone, no matter how bad your investment decision was. The thing which matters for me is the bear run. Bears take away the seasonal traders and fill them with the new ones.

I like to guide people about the hard time which can lie ahead. Giving call on bulls is easy but warning people about bear market when the market is touching 14K is hard.

Now lets come to the point, 14K WOW! 4 long years we had to wait. but we have finally kissed it and maybe will kiss it once more. Cements rocked this bull run, after dismal 2011, 2012 seems to be the year of cements, and katchra items nonetheless.

The bull run really started after breaking above 12202 and confirmation came close above 12768. The target is 14200 if we consider the low to be 10760. We have almost achieved the target in a quick motion, with little correction.

Seasonal portfolio is in full swing with the index hovering around 11762 on nov 1 and closing at 13875 today, 18% increase. Look back at the post about Buy Nov 1, Sell April 20. If you people remember i didn’t initiated any positions on nov 1 and recommended against it. Guess what i was wrong. Even though we made a low of 10760 after that but the theory still holds. April 20 is approaching and if the theory is true we should be selling out stocks.

One thing to note is divergence between KSE 30 index and KSE 100 index. KSE 100 index is at new highs but KSE 30 has still not made a new high.

KSE 30 Index

KSE 100 Index

Lastly, divergance between RSI and and the KSE 100 is evident.

Divergence leads to correction.

All points towards corrective cycle to come. When and how, i don’t know. My job is to present my views on the market.

Good luck trading stocks and always remember to cut your losses.

Traders who are eternal optimists get absolutely killed because they have a habit of staying in long after the trade has turned into a loser. – Dan Zanger

1 Year passed in a snap. It’s always hard to digest that 365 days have passed. Time is flying, year seems months, month seems weeks, and week seems days. My first post in 2011 was about the over thinking and projection for 2011 and Alhamdulillah the planning payed off. Here is what i had to say

My motto for 2011 is to be safe and be careful in the stock market. But that doesn’t mean i won’t be trading or investing in the stock market, i will just be on my toes and do thorough research and studies before committing myself to a script. I will also be diversifying my investment across different investment avenues to safe guard my self against any adverse effect of economic and political instability. My investment will be divided into gold ( if gold takes support at 1330, other wise will wait ), WOW 30% increase for me  , property ( buying a residential plot with intention of selling it after constructing a house ), Handsome profits in hand, investing capital in a running business (Yes i do have some safe options), seems like this will become my main business, and finally depositing some money in Shari’a compliant savings account, I Never did that 

Blue lines are my thoughts after one year. I was out of stock market in early 2011 and i still am sitting on cash, waiting for the right time to enter. Stocks in 2011 were most volatile i have seen. There was no sense of direction. One days markets close at breakout level next day it slumped. It was nerve wrecking market and most traders were losing their self confidence during this year. It was like slowly bleeding to death. For me it was tense because i was not invested and whenever i found an opportunity my stops were hit. In the end looking back the whole year i think i was few of the lucky ones who didn’t loose in 2011 and didn’t really gained anything.

So where to from here, look at the graph

 I am still of the same that we will be moving towards 2010 trading range, but before that there are multiple supports and pull backs will be seen. In the end all i have to say is this ” I will do what the charts will tell me to do ”

So what will happen in 2012? hmmmmmm difficult question and equally difficult to answer. I think 2012 will be year of reversal. When and how? I have no idea. Let’s just wait.

Those who cannot change their minds cannot change anything. – George Bernard Shaw

My last post highlighted what should happen after markets closed above 12K after a long time. This is what i wrote

After taking out the resistance at 11400 it was expected KSE-100 to test the 200 DMA and it did, but it has taken out the 200 DMA with volumes and with excitement. I wasn’t expecting this but i’ll do what the market tells me to do. Volumes have risen to 7 months high and whenever volumes have risen the index has usually reversed. Let’s see what happens this time.

Read the whole article @ http://tradingkse.com/?p=488

And the index did reversed, falling 8% from the high which was made on that same day. During this 8% fall many shares have entered one year lows and few index heavy weights are fighting the trend. There are two possible scenarios now, one is head and shoulder pattern in the making which if completed can take the index towards 10500 levels which is a support zone.

The second scenario is reversal from right here towards the 200 DMA.

The  support zone (Blue dotted line) also illustrates very strong support area going back 18 months. This area also acted as reversal point  last time the index was trying to find a support.

Even though we are below all major moving averages, which is bearish, but support area ahead will act and fight hard for further price deterioration.

Investing in these conditions is always difficult and i always try to avoid these markets and have successfully avoided these dreadful falls starting early this year. Though i also missed the rallies but was able to sleep at night knowing i am out of the way of a freight train.

For me 10500 and 200 DMA holds the key, till then its volatility which could suck the blood out of investors. But investing around these levels, keeping in view individual stock charts, is worth it. Of course, with stop loss.

Seasonal portfolio starting from November will come into play so stay tuned for my next post about my seasonal portfolio and scripts which i will invest in till April. Read my last years post about seasonal portfolios.

1. Buy Nov 1 Sell April 20

2. Nov 1 April 20 A Model Portfolio

3. Seasonal Portfolio Redeemed

Events can move from the impossible to the inevitable without ever stopping at the probable. – Alexis de Tocqueville

Same graph but with different timeline.

1. First graph shows 12000-12300 has acted as historical resistance, once broken it has acted as support. We are once again in the same region. Expect volatile market behavior to continue. Even if the resistance is taken out we will face further hindrance at  12600-12800.

2. After taking out the resistance at 11400 it was expected KSE-100 to test the 200 DMA and it did, but it has taken out the 200 DMA with volumes and with excitement. I wasn’t expecting this but i’ll do what the market tells me to do. Volumes have risen to 7 months high and whenever volumes have risen the index has usually reversed. Let’s see what happens this time.

3. I will re iterate what i have been saying ” Trade with small profits in the mind, and book your profits whenever you get a chance, AND THEN START OVER”

A successful trader must identify his fantasies, and get rid of them. – Alexander Elder

The following view was presented by Mr. Rehan of Foundation Securities. Interesting observation and commentary.

Benchmarking is what determines the performance of dimensions such as time and price. For chartists, trends over the long-term are determined by the widely accepted 40-week moving average (simple/exponential/weighted are matters of preference). This average clearly defines the medium-long term trends in motion. Looking at the chart above it can be clearly understood that the KSE100 has undergone only three bearish trends for the data available since 1994. Taking a step further and not just relying on a single indicator we have plotted the RSI (14). Therefore, a relationship has to be established between the two indicators mentioned. What we have come to deduce is that while declines are a natural phenomena of markets not all weakness’ are classified as bear trends (benchmarking the 40-wma). The confirmation of a bear trend is determined by two features:

1. Trading below the 40-wma

2.Weekly RSI moving below the 40 mark.

Thus, until and unless the RSI does not move below its 40 mark a bear trend does not unfold below the key average. Any reactions on the downside with weekly RSI levels holding above 40 signal corrections and resumption of the underlying bull trend. The next stage is to gauge when the trend resumes. This signal is received when weekly RSI levels start moving above the 60 mark. This move signals the bull trend gaining momentum. The current level of the key average is around 11382 and the weekly RSI at 55.75. The trend remains in motion.

I don’t believe in hard core predictions. Still, thinking about potential targets technical analysis suggest is very important. Predicting in technical analysis is not about being right. It’s like a road map you look at. If price action supports your analysis, you stick to what your analysis implies. If price action doesn’t confirm what you think should happen, you adapt. That means you re-assess the new situation and you devise a new road map or plan of actions.

When the price does not confirm to you assumptions it means the price violated the validity point. When you enter a trade your job is to define a stop loss level. Ideally your stop loss should be placed below your validity point. In simple terms ” When price breaches a certain predefined level the reason why you entered the trade is not valid anymore. That is where you exit the trade.

Looking at this chart tells me to be extremely cautious. Are we going into a bear market? I don’t know, in fact no one does. But odds are very high. As a technical trader that’s all i am interested in Price would need to move up much higher in order to invalidate the bear market scenario.

Looking at this chart, we can see a bearish pennant or maybe flag is in the making. First take a look at definition of bearish pennant or flag.

Bearish Pennant is a sharp, strong volume decline on a negative fundamental development, several days of narrowing price consolidation on much weaker volume followed by a second, sharp decline to new lows on strong volume.

The technical target for a bearish pennant pattern is derived by subtracting the height flag pole from the eventual breakout level at point

Pennants look very much like symmetrical triangles. But pennants are typically smaller in size (volatility) and duration. Volume generally contracts during the pause with an increase on the breakout.

Sharp Move: To be considered a continuation pattern, there should be evidence of a prior trend. Flags and pennants require evidence of a sharp advance or decline on heavy volume. These moves usually occur on heavy volume and can contain gaps. This move usually represents the first leg of a significant advance or decline and the flag/pennant is merely a pause. Flagpole: The flagpole is the distance from the first resistance or support break to the high or low of the flag/pennant. The sharp advance (or decline) that forms the flagpole should break a trend line or resistance/support level. A line extending up from this break to the high of the flag/pennant forms the flagpole. Flag: A flag is a small rectangle pattern that slopes against the previous trend. If the previous move was up, then the flag would slope down. If the move was down, then the flag would slope up. Because flags are usually too short in duration to actually have reaction highs and lows, the price action just needs to be contained within two parallel trend lines. Pennant: A pennant is a small symmetrical triangle that begins wide and converges as the pattern matures (like a cone). The slope is usually neutral. Sometimes there will not be specific reaction highs and lows from which to draw the trend lines and the price action should just be contained within the converging trend lines. Duration: Flags and pennants are short-term patterns that can last from 1 to 12 weeks. Ideally, these patterns will form between 1 and 4 weeks. Once a flag becomes more than 12 weeks old, it would be classified as a rectangle. A pennant more than 12 weeks old would turn into a symmetrical triangle. The reliability of patterns that fall between 8 and 12 weeks is debatable. Break: For a bullish flag or pennant, a break above resistance signals that the previous advance has resumed. For a bearish flag or pennant, a break below support signals that the previous decline has resumed. Volume: Volume should be heavy during the advance or decline that forms the flagpole. Heavy volume provides legitimacy for the sudden and sharp move that creates the flagpole. An expansion of volume on the resistance (support) break lends credence to the validity of the formation and the likelihood of continuation. Targets: The length of the flagpole can be applied to the resistance break or support break of the flag/pennant to estimate the advance or decline.

The pole has been made. Pennant is in the making, volumes have shrunk, volatility is high, thus i am cautious. Anything above 11438 will warrant another look at the charts. From 12100 to 11032 gives us a range of 1068 points and break of 11K should target 9964. This potential target falls in last years trading range. My last post emphasized a target within that range and we have came to the same conclusion again. 10500 can be the support but might live for short term. But hey, anything between last years trading range is fine with me, be it 10730 or 9370. As long as the charts are telling me to invest i will other wise cash is king.

The best piece of advice i can give is to stay in cash until the markets validate or invalidate your assumptions. Wait for confirmation of  a new trend. Once confirmed, you start building positions aligning yourself with that new prevailing primary trend. If  this technical mess intensifies, this will be huge and there will be plenty of time to profit from that new big trend.

Remember,

There is absolutely no need to rush things. Stay calm and focused. 

GOOD LUCK!