How Much Bull Can You Take?

Last week was another good one for the stock markets; KSE-100 index gained about 500 points. The bulls ran rampant. The trend which started mid-January continued. The index gained more than 1, 000 points overall straight away, without any correction. The index, which started rising mid-January, is now above 11, 500 points. TNA, people: Total Non-stop Action.

Ever been to Spain? More particularly, ever saw the Running of the Bulls, the Spanish festival, where the beasts are let free wild? They go wild running in the streets. People run after and in front of them. The bulls bang and smother any thing and any one in their way. People climb gates and walls to save themselves, yet there are countless injuries, some fatal. But, whatever strength and power the bulls display, there is a time when they get tired. This is precisely the goal of making them run. This is when civilized people hit the bull with sharp and pointed weapons, to let the blood flow and further tire the animals, but not before infuriating them. The continuous blood loss fells the bull to the ground. The bull is finally put down in a most barbaric fashion, dragged by a cart in the stadium, and the carcass is fed upon royally. Pure entertainment.

I’m inspired. I think the same bull is now in KSE. It’s fast and furious, and it’s running rampant, breaking and leaving behind every psychological barrier. We didn’t see any sign of correction for two weeks. The index came from 10, 400 is now above 11, 500.

There were corrections in individual scrips, however. PTCL closed Rs. 1.25 down on Thursday. PPL was in the negative zone Thursday and Friday morning but closed on positive notes at the end of the week. Banking sector remained positive all the way, MCB crossing Rs. 300. There was selling but the price bounced back to cross Rs. 310, making a high of about Rs. 312 in regular market and Rs. 313 in futures.

The reasons being, as I have mentioned in previous articles, is basically foreign investment and buoyant results of the companies. There is excess liquidity is in the market. Banks’ reserves are increasing. Many MNCs are coming to Pakistan. A news item of particular notice boosted the market on Friday, that being Nestle intending to set up the world’s largest milk plant in Karachi. GoP is adamant in providing all facilities and laxity to foreign investors, such as tax leniencies announced in Gwadar and facilities in the Automobile Industry Development Plan (ADIP).

Last week there were only three days for trading on account of Moharram, but market performance was phenomenal. When the bull is in, everything jumps for the balconies and fences and over walls. One important thing last week was the volume, overall and individually. We saw volumes of above 50 million shares in OGDC alone in one day and on Friday, a volume of about 76 million shares.

One point which I would like to make here, which proves my view mentioned in previous articles, is that OGDC is slow. Previously when such huge volumes were generated, OGDC used to gain more than Rs. 5. Now, in spite of trading volumes above 50 million, it hardly gains Rs. 2.5. Availability of 20 million more shares has slowed down trading. After all, when the market is bearish, the additional 20 million shares will by all means be sold. So selling will be faster than before.

Seeing the market, I see a correction headed this way in the coming week, considering there have been individual corrections. The market awaits an overall correction, but nothing too big (maybe). However, I don’t see it coming any time soon. So what’s so special about that, you might ask? Well, instead of a crash, the bullish trend should prevail in which the market would go through a phase of profit-taking. I think market will go down late on Tuesday or Wednesday. The sooner it is, the better. MCB should initiate the phase. Why? Firstly, it is at an overall high at around Rs. 310. Buying in this scrip can be risky and costly. Secondly, it has not shown any major selling at any point and has gained Rs. 50 non-stop, without a correction. This means, whenever the correction does come, it’ll permeate the sector. The ripple effects will be felt in Dera Ghazi Khan Cement (DGKC), Nishat Mills Limited (NML), Nishat Chunian Limited (NCL) and Adamjee Insurance Company Limited (AICL). These companies all happen to be a part of Nishat/Mansha group. You see what I mean?

Oil sector will also react. It might be a correction week coming ahead. Another possibility is that correction might be sudden and quick as we have witnessed in the past as well. Proceed with caution.

With the index so high and rising without a breather, it doesn’t take too much of a smart man to see that profit-taking is due. It will be healthy if it comes this week. People were expecting it on Friday but MNCs has other ideas, as mentioned earlier here. I expect a correction of about 200 points in the coming week. Traders and investors should take advantage of the prices. Post-correction, the market leader will be the oil sector; the cement and fertilizer sectors will still run the good run in a comfortable cushion, just like pragmatic and watchful marathon runners. I think one should remain cautious as far as buying is concerned, and keep an eye out for these ones. Short selling might not be a good idea.