Ever since the beginning of time Investment professionals have been trying to answer the questionduring periods of uncertainty ‘Are we in a PULLBACK or is this the end of the up-trend?’ It is a question that I ask my self today in the Sri Lankan equity market.
Before we dig into some analysis, I want investors to know that there is only one certainty in the market and that is uncertainty. The more a trader accepts the fact that you can’t predict markets and more so that you don’t need to know the future to be profitable,the better your trading will become.
State of the market
The Sri Lankan equity markets are only UP 8.5% year to date (YTD) with the help of several heavy weights such as JKH, COMB and LLUB etc.;have all benefitted frompositiveinflows. However the current 6% pull back we are currently facing has been a cause for concern especially given the fact that we have witnessed an outflow of LKR 1 billion over the last few days. As foreign activity has contributed vastly towards the total turnover this year we should pay attention to these flows going forward.
The key technical levels for the All Share Price Index (ASPI) are between 5900 and 6300.In the coming month I will be taking a step back and observing howthe S&P SL20 heavy weights and the ASPI, trade around the levels mentioned.Over the last year previous consolidations in the market have lasted an average of 3 months and have witnessed a maximum drawdown of 10%. Therefore there is a possibility that the present situation could also last for a similar period of time and we would only get some much needed clarity on the markets by August. A 10% pull back could take us down towards 5900, which is a key support level for the index. However if we break below this level I would have to reevaluate the market and my portfolio.
S&P SL 20 analysis…
Part of my analysis includes observing the key support levels of each of the stocks on the table provided below and as long as the stocks can hold above these key support levels I would stay moderately bullish on this market while it takes time to decide on the direction. Furthermore, I would also want to see if the counters that performed the best YTD continue to stay strong or if we will witness some mean reversion in the market. (Mean reversion is when the original leaders of the market start to pullback and stagnate and the laggards start to see improvement by playing catch up to the original leaders).Remember I am not trying to predict what will happen but I will respond to the changes in conditions. Ultimately price pays and do not let anyone tell you otherwise. The market will tell me if I am right or wrong but right now it’s telling me to take some time off and move to the sidelines.
"Every once in a while you must go to cash, take a break, take a vacation. Don’t try to play the market all the time. It can’t be done"- Jessie Livermore
Markets Never Lie (Pvt) Ltd is a private trading consultancy which manages discretionary portfolios and provides advice to investors on local and global markets. The founder, Stefan Juriansz partners with the Island and Investors.lk to help provide investors with unbiased advice and encourages investors to contact him regarding their investments. Email:Stefan@marketsneverlie.com
source - www.island.lk
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