KSE-100 Index: Reaction From Critical Resistance Resulting In A Formation Which Indicates A Top

The Keystone for July 16, 2010

First support 10,016 points, second support 9,907 points; First resistance 10,150 points, second resistance 10,217 points

Analysis and Overview:

The index opened positive and after initially touching its day's high took, to a downtrend to close in the red. Volumes declined by 24.38% and stood at 91.70 mln. The index reacted from its critical resistance of 10,260 points which is 50% retracement from the index's all-time high of 15,739 points and its post-floor low of 4,782 points. Moreover the formation created in the process is an Engulfing Bearish formation which in an uptrend is a strong bearish formation and indicates a top.

The Stochastic Oscillator on the daily chart has now generated a sell signal in the overbought region, while the RSI has shown weakness while failing to sustain above the resistance trendline above which it had given a breakout on 14th. This adds credence to the view that the index has created a top and is likely to take to a downtrend.

The first support is at 10,016 points and the second support is at 9,907 points. The first resistance is at 10,150 points and the second resistance is at 10,217 points.