June 05, 2023 (MLN): The following is an outlook for the financial markets based on technical analysis (historical quantitative data).

KSE100

Recommendation

Neutral, no clear trend based on quantitative data. However, In the upcoming month, we have several high-impact news events, mainly including the announcement of the budget on June 09, the monetary policy committee on June 12, and subsequent developments regarding the IMF loan tranche.

These events are likely to have a significant impact on the KSE100 index.

The KSE100 has been trading within a narrow range for the past 12 months, with this range also being a major high volume node (HVN).

From a technical perspective, the price action can be expected to transition from its current range-bound state and establish a trend.

This transition is anticipated due to the prolonged duration of the range and the probability of a breakout, which could result in a substantial expansion.

The fundamental factors, such as the upcoming budget and IMF loan tranche, further support the expectation of increased price action in the underlying index.

Key levels to note are the major HVN at approximately 41,200 and the volume weighted average price (VWAP) at 41,000.

The KSE100 has been trading around the major HVN for an extended period, indicating its readiness to break out of the range.

Once this breakout occurs, the subsequent expansion is likely to be significant. Trading based on technical analysis involves probabilistic approaches, where certain scenarios can be anticipated.

Current range = 39,800 – 43,200, breakout (acceptance) outside these range levels will open scenarios for trading:

1. Breakout of the range: If the KSE100 breaks out of the range, the next point of control (POC) is around 45,000. This level serves as a long-term upside target, as evident from the thin and one-sided price action surrounding it. A breakout at this point would suggest a swing to the upside.

2. Breakdown of the range: A break to the downside could be highly impactful, considering the limited trading activity below the current HVN. The next point of control (POC) would be around 35,000, representing a long-term downside target. Similar to the upside scenario, thin and one-sided price action surrounding this level suggests the potential for a deeper swing to the downside if a breakout occurs.

3. Sideways action continues: In the event that the KSE100 fails to break out of the range, regardless of the direction, it would indicate a prolonged period of sideways action, which may serve as a cautionary sign.

Gold (XAU/USD)

Recommendation

Sell in the short term with the first target at around $1900 which is also the EMA200, and the second potential target of $1860, with a stop loss at $1991.61 (SMA50).

The first cause for concern in international spot gold was the inability to breach all-time high (ATH) as it witnessed a quick sharp sell-off as soon as it breached the 2022 ATH level.

Additionally, gold was not able to hold above the key range (green box) as shown in the weekly timeframe chart above.

After breaking below the green box, gold retested it this week from below and got rejected, which was another warning sign of weakness in the price action.

Gold price fell from $1984 to the current price of $1948 over the past week, forming a bearish candle with a long top on the weekly chart.

Looking at the current Bollinger Bands chart, we can see that gold is trading below its support level (2 standard deviations).

However, gold’s key support level is currently at $1935, which could be put to the test in the coming days.

A break in this support level could signal a further drop in the price of gold towards the $1840s, perhaps over the next week or two.

It is critical for gold to reclaim and stay above the $1960-1965 range for the potential upward momentum to continue.

A breakout of this level would give investors some relief. However, based on gold’s weekly developments, resistance in $1985 looks particularly strong and difficult to break through.

WTI – Crude Oil

Recommendation

Sell around $76 with a target of $68.46 (Fibonacci retracement 0.786), and the second target at $64.36 (Fibonacci retracement 1) with a stop loss at $79.42 (EMA200)

Caution – Advisable to wait for other factors to play out as Oscillators are signaling towards a buy stance as of right now, translating to an overall Neutral stance.

Dollar Strength Index (DXY)

Recommendation

Strong buy with a target price of 105.25 (Fibonacci extension 2.618) and a second target of 106.87 (Fibonacci extension 3.618)

Technical terms used

Moving average (MA): A calculation that takes the arithmetic mean of a given set of prices over a specific number of days in the past.

Exponential moving average (EMA): A weighted average that gives greater importance to the price of a stock in more recent days, making it an indicator that is more responsive to new information.

Volume weighted average price (VWAP) It is just a moving average but puts Volume into the calculation.

Point of control (POC): It is the price level at which the greatest number of contracts are traded during a given trading period.

Relative strength index (RSI): It compares a security’s strength on days when prices go up to its strength on days when prices go down.

High Volume Node (HVN): It refers to the price at which the largest amount of volume occurred

Disclaimer: The opinions in this article are the author’s and do not necessarily represent the views of Mettis Link News (MLN).

Copyright Mettis Link News

Posted on: 2023-06-05T10:58:57+05:00