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Market Rider

The new highs


The market is unstoppable. After a slight pullback the other week— the first this year— it resumed its rally with a weekly gain of 191.50 points, equivalent to 2.88 percent, from the previous week as it closed last Friday at 6,833.77.

This market close is 1.44 points away from the new all-time high posted on Wednesday at 6,835.21. It is also 26.02 points lower than the new all-time session high of 6,859.79 posted last Friday, too. This performance of the market appears to have been motivated by developments on Wall Street last week, pointing to more signs of the improving state of the U.S. economy.

Tempting but dreadful

The market’s new highs can be described as tempting but dreadful, or dreadful but tempting. Either way, both ideas connote big danger but possibly great reward for those who would dare to tread on it.

Entering a position on Trans-Asia Oil and Development Corp. (TA) before the rights offering of the company in November to raise funds for its expansion was one example. Its shares then traded in small volume at P1.08 to P1.20 per share. The offer price was P1.00 per share with the rights issue offered at one for every two shares held.

TA’s stock price adjusted to the impact of the rights issue that it, thereafter, traded lower.  This went on all the way up to the end of December.

A day after the market opened this for the year on Jan. 3—and after rumors that a group of market makers took a significant position in the rights issue—TA’s stock price started to trade higher and the volume got bigger.

A good number of those who came in at that point then sold out in the next 20 days when the share price of TA hit P1.45 or thereabout.  The profit of almost 30 percent was more than anybody would have imagined to have in such a short period considering how stock prices, in general, have performed in the past.

The sell-off culminated on Jan. 29 when new—and obviously more daring—hands seemed to have absorbed the day’s extraordinary volume of 130.83 million shares.  This led to another price run-up that drove up the market price of TA in the next week or so to P1.88 per share.

Those who held on and sold at this price would have realized a gain of about 65 percent.  And those who may have bought at P1.40 to P1.45 would have realized as much as 30 percent, which was just as much as what was realized by those who took advantage of the rights offering and sold at the first sell-off at P1.45 per share.

On Feb. 5, the transaction volume started to fall that in the following week, the share price of TA fell  by 7 percent to P1.75 a piece.

On Feb. 18, the volume of transaction again rose dramatically that TA’s share price traded higher toward P2.00 per share.  In between minor sell-offs and change of hands from weaker (shorter term) to stronger hands (longer term), the share price of TA reached P2.11 per share by the end of February.

As of last Friday, the share price of TA had hit the 52-week high of P2.72 and closed for the week at P2.59 per share.

Since January, the price of TA has gone up by as much as 127.19 percent.  TA’s price climb last week, however, was almost 90 degrees.

Bottom line spin

TA stocks prices had a parallel and similarly colorful run as that of the market, in general.  The market has risen too fast and too high in so short a time.  In barely nine weeks of trading since the start of the year, it has chalked up a total of 1,021.04 points that, as of last Friday, it was less than 9 percent away from the 12-month performance forecast of 7,500 for 2013.

This is made possible by the seemingly unimaginable feat of the market of being able to absorb big sell-offs and post new highs at the same time.

Like in TA’s rise to stardom, despite technical indicators suggesting that TA shares are overbought, the market managed to continue with its extraordinary advance.

One obvious reason is the presence of more buying money in the market.  This has created the dramatic situation where more money is now chasing lesser volume of shares of stocks available for sale.

In last week’s trading, the volume amounted to only 13.77 billion shares compared to the previous week of 17.18 billion shares.  More than that, value turnover was bigger at P73.13 billion compared to P58.23 billion the week before.

Factoring the impact of the total foreign buying transactions for the week—being 50 percent more than selling—the market rose by another 191.5 points equivalent to 2.88 percent from the previous week’s level.

The market continued to trade on first line stocks, plucking them at their already technically overbought levels while posting new record highs.

Thus, like in the case of TA, despite its steep share price climb over the same short period of time, it continues to trade actively as its present valuation remains attractive given the potential earnings it stands to earn based on disclosed expansion activities.

How do we, therefore, manage the present situation?  Do we jump into a buying spree or take it easy?  We are now at new highs not seen before the last bull run in 2007.

Some argue that the current market run is a sucker’s rally that the obvious answer is to take a more defensive approach.  “Some speed bumps” are just around the corner, so they say.

One defensive stance is lightening up one’s exposure in the market now.  It could prove prudent as the bulk of corporate earnings reports for last year are yet to come out. A disappointing report will surely create a pullback.

In the face of making a mistake, the strategy I’d pick is to sell stocks like TA and the rest of those that had made sharp gains. At the same time, be on the lookout for bargain stocks that has been covered by the dust of the current market scramble, for I still believe that any downturn the market will make now is only a technical pullback or correction considering the brightening economic landscape here and abroad.

New PSEi

If you missed this news, the bourse’s benchmark index has a new composition.  It took effect yesterday, March 11.

Bloomberry Resorts Corp. (BLOOM) is replacing SM Development Corp. (SMDC) in the roster of 30 most liquid and highly capitalized stocks of the bourse.  This comes as a result of the review of trading activities from January to December 2012, which is in line with the exchange’s policy to “offer independent and transparent benchmark indices that investors can use as tool for measuring the market’s performance.”

The last change in the PSEi’s indices was made on Sept. 20, 2012.

(The writer is a licensed stockbroker of Eagle Equities Inc.  You may reach Market Rider at marketrider@inquirer.com.ph , densomera@msn.com or at www.kapitaltek.com)

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Tags: Business , column , den somera , Stock Market

  • OFW_Investor

    That’s TA the stock being described in colorful detail, what about the business?

  • carlcid

    Timing is everything. Given the byzantine ways of corporate governance in the Philippines, where minority shareholders are just taken for granted, if not taken for fools, investing in stocks is like betting on a crap game. Insider trading is generally the rule, not the crime that it should be. And majority shareholders, who control management, keep their cards extremely close to their chests. Transparency means nothing in the Philippine corporate world. And fundamentals are ignored in favor of pie in the sky. It’s wild and woolly in the Philippines, when it comes to the stock market. Just like it was in the old West. Winning is the only thing that matters, and nobody cares how it’s done. Until Philippine corporations learn how to take care of minority stockholders and how to be more transparent about their dealings, anybody’s guess is as good as another’s, unless you’ve got inside information. So the only rule right now is to follow the wheel of fortune and roll your bets while you’ve got a hot hand! 

  • http://www.facebook.com/katipunan Andres Bonifacio

    As I said in his previous column…JUST BUY BUY BUY and BUY the DIPS! Trust me, you wont regret it! :-)

    • http://pulse.yahoo.com/_JEMNLLYAP5EA7SM3A6QUOGV62Q Chris

      but how will you know it hit the bottom already?

  • investor888

    With the Current Market liquidity & continued Foreign buying in anticipation of a Credit upgrade to investment grade this year, we would hardly experience a big correction. Any correction or weakness will be a good time to accumulate in the way foreign investors behave most of the time at net buying when Market goes down 

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