CAL Securities: A Bull in the Wings - Selective Contrarian Buying Opportunities

The short term technical picture of the ASI clearly shows a market that is trending down and it would not be unreasonable to see 5900-5950 levels being tested. However, we have seen of the 4th wave (of a typical five wave) downward leg and therefore we feel the market is close to a short term bottom at 5950 levels. Sentiment is extremely poor and even though the market is oversold, it is of no use to recommend selling at these levels as the time for liquidation and profit taking is well past due as the market has dropped almost 600 points from its peak of 6528 in May 2013.The likely worst case scenario for wave 5 on this decline would be around 5900 levels. The technical configuration remains negative as long as prices remain below the resistance and prior pivot high of 6165 (reached on 2nd July 2013). A trend line dating from the December 2012 low of 5327 could provide support at 6000 levels. In addition to 6000 being a psychologically important level, we also have a major pivot high of 5895 from January 2013 providing support.

The key point is that the evidence (i.e. oversold technical measures, wave analysis, and extreme bearish sentiment) suggests that the market is ripe for an upward reversal. The market is in the latter stages of this decline and we recommend looking at stocks such as JKH (LKR 240), TJL (LKR 12.4) and GLAS (LKR 6.3) as potential short term buying opportunities.


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