Best Cure for Hiccups?

Posted on 02.12.07 by Tanveer Sultan @ 2:49 pm    

“No matter how strong a bull may be, there is a time when it gets tired”, I said in my article “How Much Bull Can you Take”. My sentence reflected the market situation last week. (Behold, for my next trick I shall make Chirac disappear!) I mentioned that the bullish trend would continue and it is going to be a week of correction. It wasn’t exactly a correction of the magnitude I’m still expecting but it was definitely a hiccup that required more than a glass of water to abate. Though on the day market was a bit rough and the index showed fluctuation of about 175 points, Tuesday ended with a positive note. Correction, nevertheless, it was, in principle.

It should be noticed that when the bullish drive was strong it broke all psychological barriers, moving up 1,200 points non-stop. It is not necessary that the market should close in a negative zone. Keep in mind that the market went up to the point where people started selling and thought it was time for them to book profits. In essence and theory, this is what a correction is all about, the market adjusting for and reflecting a change in attitude. People might have some arguments on the word. I respect their opinion. Instead of using “correction”, let’s say “profit taking”, if you would.

Tuesday’s trend resulted in Wednesday being a bit slow. People were careful while trading. The Index closed on a positive note on Thursday. It was good to see the bull running through the market again. This drive continued on Friday as well. Index crossed all barriers and closed near 12,000 points in the first session. As predicted in my article, the correction was sudden indeed.

In the second session, index moved up and was steady; it even crossed 12,000 points, making a high of 12,009 points. In the last half hour the market took a turn and shares were being sold in big lots. Suddenly, the market started falling very fast. The Index, which was more than 150 points plus, closed at 22 points minus. PTCL was the pick of the day and the bullish trend was basically due to the scrip’s performance. Others did not show any significant movement.

MCB after reaching the Rs. 320 mark lost more than Rs. 9, bringing everything around it down with it. PTCL was the one to show strength and swim against the current and closed above Rs.61, with an overall gain of Rs. 2.

When we talk of FDIs, we should not forget the purpose. Foreign investment is positive for the economy in the following ways:

- Forex increase.
- The pace of economic activities improve.
- New jobs are created.
- GoP gets more and more taxes, etc.

The fact that the foreign investor is here to gain profit yet is not a resident of the country throws some doubt in my young, fragile mind that he would leave once his target is achieved, or bail out at the slightest hint of trouble. Also keep in mind that the stock exchange - any exchange - is a very, dynamic (and not in a good way) short term and material trade market; things change very rapidly. One minute you’re making a down payment on a mansion, the other you’re faced with the possibility of borrowing further to out your numb skull kid through college, growing a beard and praying that he turn into a stalwart for the family. Foreign investments were made in the market but eventually it will also be retrieved with profits. On the other hand foreign investment is done through big brokers and institutions, so when a foreigner with big investments pulls out his money, the brokers and institutions also take advantage and sell their shares, hence, leaving behind individual investors and mutual funds. Who is the victim? General Public, along with its troops.

The Index gained 140 points last week. It crossed 12,000 points and came down, breaking the 11,900 mark. In my opinion, in the coming week the market would continue its undulations, but the bullish trend would prevail. It is going to be a week of daily traders who buy shares on the lower end and sell when they achieve small targets, making profits quickly. The market may move towards 12,000 points again. However, I see a resistance level at 12,010. In my view one should not make big investments. Speculators specially should be careful and not take any heavy positions. Small positions with a small target for a small time, is not a bad idea. Be careful, as a negative drift could occur.