KSE-100 Index: Reaction From Resistance Trendline And 30-DMA Results In Bearish Formation

The Keystone for June 23, 2010

First support 9,616 points, second support 9,511 points; First resistance 9,739 points, second resistance 9,815 points

Analysis and Overview:

The index opened on a positive note however after touching its day's high, took to a downtrend to close marginally above the open. Volumes improved by 33.36% and stood at 89.38 mln. The index reacted from its resistance trendline as well as 30-DMA in the process creating a "Shooting Star" formation which is bearish and is indicative of a top. Moreover this formation was created with higher volumes, which could be classified as a distribution when compared to the previous candlestick, which in itself is a spinning top. Additionally, back-testing of data suggests that such a range-bound movement around the 200-DMA usually is a precursor to a downtrend.

The Stochastic Oscillator on the daily chart has now generated a sell signal in the overbought region, while the RSI on the daily chart has started to stall around its resistance level. Moreover, the 30-DMA maintains its downtrend and is on the verge of cutting the 200-DMA from above which would be bearish.

The first support is at 9,616 points and the second support is at 9,511 points. The first resistance is at 9,739 points and the second resistance is at 9,815 points.