May 15 (Bloomberg) -- The Pakistan stock market is “extremely overbought” and may drop before resuming this year’s rally after the benchmark gauge’s relative strength index rose to the highest in the world, according to JS Global Capital Ltd. The index dropped for the first time in 11 days.
The measure may decline as much as 4.7 percent from yesterday’s close to 19,500-19,950, JS Global Capital technical analyst Raheel Ashraf said by phone from Karachi today. The index closed at a record yesterday, pushing valuations to 7.3 times forecast 12-month earnings, the highest level since June 2011. The measure’s 14-day relative strength index, a gauge of price momentum, climbed as high as 89.4 earlier today, the highest among 72 equity gauges tracked by Bloomberg worldwide.
“The market should correct 500 to 1,000 points so that indicators normalize before rallying again,” Ashraf said. “Momentum is very positive and volumes are high as well. The next target is 21,000 points.”
The index lost 0.6 percent to 20,350.31 at 1:36 p.m. local time, reversing a 0.8 percent advance. It has jumped 20 percent this year, heading for a second annual gain.
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