The market continued to advance last week and posted its sixth all-time high on Wednesday at 6,091.18 on total value turnover of P8.54 billion and volume of 2.28 billion shares.
On Thursday, the market settled lower by 72.61 points, or 1.19 percent, at 6,018.57. This happened when total value turnover hit P23.20 billion on a total volume of 2.15 billion shares.
By the end of trading on Friday, however, the market recovered with a gain of 33.18 points, or 0.55 percent, at 6,051.75 on total value turnover of P9.43 billion and volume of 2.91 billion shares.
What was remarkable in the market performance was its record of establishing six all-time highs in just two weeks of trading into the year. It hit these records in just eight days of trading.
Also noticeable was the market’s inability to break away from the 6,000 hurdle mark, a level considered easy to surpass if current market fundamentals are as good as everyone thinks they are.
With the market’s advance being broken on Thursday, too, market hounds started to wonder whether something is in the offing.
While the market is on an apparent upswing, some are starting to suspect that its course is about to change. It is felt that the market has gone high enough to cause a selloff that might, in turn, cause selling sentiments that can bring down the market. Or, the market may have actually reached the equilibrium point of its current upward trend that it should be heading down sooner than we expect.
Others believe otherwise. For them, the fall of the market on Thursday is normal given its present situation. It could be momentarily experiencing what is called a “pullback” that, at worse, could develop into a healthy correction—a condition also said to be necessary for the market to break out from 6,000.
Taking into mind the foretold nature of the “Year of the Water Snake,” particularly for 2013, the market could be difficult to anticipate. Thus, “quick maneuvers are going to be needed in order to overcome unexpected obstacles” this year.
The market situation is quite tricky. Total market transactions on the first week of January—which consisted of only three trading days—amounted to P19.47 billion on a total volume of 6.2 billion shares, or an average daily transaction of P6.49 billion and 2.07 billion shares.
On the first day of trading on Jan. 2, the market registered an advance equivalent to 48.26 points, or 0.83 percent. This was an all-time high for the market and the first of such record high for the year. At this point, the market was at 5,860.99.
The following day, Jan. 3, the market rose by another 73.06 points, or 1.25 percent, to hit a new record high of 5,934.05.
On Jan. 4, the market continued to move higher. It added 37.40 points, or 0.63 percent, as the market settled for the weekend at 5,971.45. This was another record high.
Last Monday, the market gained 73.48 points, or 1.23 percent, establishing another record high at 6,044.91. This was followed by an advance of 3.99 points, or 0.07 percent, on Tuesday, lifting the market to another all-time high of 6,048.90.
The market pushed on with a bigger gain on Wednesday, hitting another record high in the process. It closed at 6,091.18, 42.28 points, or 0.7 percent, higher.
The market, perch at this height, started to appear to be “overbought.” Most stock prices seem high. This lead market bears to overcome market bulls. Profit-taking ensued, sending the market index 72.61 points, or 1.19 percent, lower as it closed for the day at 6,018.57.
The market closed higher last Friday at 6,051.75 with a net gain of 33.18 points, or 0.55 percent.
Its retreat last Thursday was the first since it started advancing on Jan. 2. The market’s loss is significant. It is almost equivalent to the market’s highest daily gain. This makes the market situation really tricky.
Some technical definitions
There are several technical concepts involved in the current market situation, the first of which is the concept of a market pullback. As described by most references, a “pullback” is a “falling back of a stock’s price or of the market, in general, from its peak.” It is a “slight pause” from the market’s upward movement.
The “pullback” usually happens after a big increase. As such, it is seen as an opportunity to buy. Care, however, must be exercised. A “pullback” can also turn into a definite trend reversal rather than just a “slight pause” in the upward trend.
Like the “pullback,” a “correction” is a reverse movement from the stock prices’ or market’s upward trend. This is precipitated by profit-taking or the general tendency to sell after the price of the stock or the market has made significant gains.
It is also temporary but imaginably more prolonged than a “pullback.” This is because, for a reversal movement to be considered a “correction,” the negative movement involved is usually a loss of at least 10 percent.
One sign, according to some observers, “when the market is showing a trend of closing lower, a correction (is) at hand.” A “correction” is like a “pullback” that it can be “a precursor to a bear market or recession,” for—as expressed in a time tested market adage—“any point of the market can always be a turning point.”
The actual change in the stock prices’ or market’s direction—upwards or downwards—is called a “reversal.” Some authors make it sound easy to spot a “reversal.”
According to them, “reversals undergo a recognizable change in the price structure” since an uptrend consists of “a series of higher highs and higher lows” and a downtrend “to a series of lower highs and lower lows.” A change, according to this definition, is a “reversal.”
Strictly speaking, a reversal can also be a market “correction,” a “rally” which is basically “a period of sustained increases” of a stock’s price or market level resulting from the inflow of a large amount of money. It “can happen during a bull or bear market.” Accordingly, “a rally will generally follow a period of flat or declining prices.”
Computing how high the market has travelled since the start of the year, it has already posted a total gain of 239.02 points, or 4.11 percent, in just two weeks of trading. Transposing it into an annual basis, this is equivalent to no less than 106.86 percent.
In this light, it appears to me that the market’s retreat last Thursday was a simple “pullback,” considering how fast it has been advancing and how high it has moved up since last year. A “pullback,” however, can always transform into a “correction” or nasty “reversal of trend.”
To prepare for any of these eventualities, it is wise to use the “pullbacks” as your chance to review carefully your stock picks. A bad stock pick can plummet even further than the overall market in a correction or reversal, while a good stock pick can perform better despite the correction or reversal.