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With Pakistan PTA in the limelight for most part of September, smalls cap stocks are back in action after remaining silent for a long time at the Karachi bourse. While the rising interest in PPTA is understandable in light of the acquisition of its majority shares by KP Chemical Corporation, a subsidiary of the South Korean conglomerate LOTTE, the sharp jump in trading volume of other small caps, is rather queer.
Just look at the table. The increase in turnover of some of these stocks is simply phenomenal - actually topping the rise in trading volume of the broader market itself, in some cases.
Historically, every time low tier scrips like these start rallying up, it basically signals the end of a bullish spell. Yet nobody seems to worry.
The benchmark Karachi Stock Exchange has soared 989 points in September so far. The biggest monthly rise since March this year comes on the back of a 635-point push in just the last five trading sessions. This reminds one of an age old adage that often comes to life in equity markets: the higher you go the further you fall.
The last time KSE-100 rose so sharply was in the first week of April when it jumped about 775 points to 7635 level on April 7. This was followed by a 295 point drop on April 8 - leading up an edgy slide which bottomed at 6872 points by mid June.
One of the general rules of thumb when studying charts is to create an analogy between rising prices and a hill: asset prices will climb as long as the curve is not too steep for an automobile to drive up the hill, according to Nazish Lutfi - a seasoned market player and currently the CEO of Institute of Securities Management and Research.
Going by that assessment, the market may offer further upside. Chartists believe that, although, Friday's breather might have a follow through in the beginning of this week, given overbought conditions - but the downside may be limited to 9400~9500 points. The view on the floor is still bullish, with eyes set on 10,200~10,400 points - albeit with a hiccup near the psychological level of 10k. But after that many fear, lies a sharp slide.



==================================
Average turnover (mn)
==================================
Aug-09 Sep
(to date)
==================================
NICL 0.12 1.09
MYBL 0.22 1.2
NIB 2.28 6
BOSI 1.01 2.03
PPTA 8.6 16.6
D.S INDUSTRIES 0.58 1.1
FCCL 2.75 4.2
JSCL 8 12
AHSL 8.2 11.45
==================================

All information and data used are from reliable source(s) and subjected to extensive research after diligent and reasonable efforts to determine the soundness of the source(s). This analysis is not for the benefit of or discredit to any person, scrip or tradable instrument. The content(s) of this analysis shall not be construed as an advice or recommendation to trade. No relationship of client will be created between Business Recorder and user of this information. Professional advice must be taken by the reader before making investment/trading decisions. BR disclaims any liability for investment(s) made or liability accrued on basis of this analysis. The content(s) including all opinion(s), statement(s) and information are subject to change without prior notice and/or intimation.
Copyright Business Recorder, 2009

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