Are we still in a bull market?
Last week, the market made an impressive performance as it ended a scary eight-week losing streak. It bounced back on Friday when it closed at 7,131.91, an increase of 220 points or 3.19 percent.
Notwithstanding this significant gain, the market still remained to be about 98.66 points or 1.36 percent below the year’s beginning index of 7,230.91.
Since the market has yet to bounce back and recover lost ground since it peaked, the question now is: Are we still in a bull market?
Performance
At the start of the Chinese Ghost Month on Aug. 14, the market immediately tumbled and ended with a daily loss of 31.36, or 0.43 percent, at 7,408.44. On account of the seasonal event, this was taken as a normal outcome.
Add to this, however, the unfolding worldwide market weakness, the next 10 trading days saw an almost vertical fall with a loss of 617.33 points or 8.33 percent, settling at 6,791.01 on Aug. 24.
Surprisingly, total value turnover was not small compared to the market’s normal level of transactions early in the year when it was on the advance.
A plausible explanation was that there were enough investors still confident in the market’s future. However, since there were more sellers desperate to sell than there were buyers wanting to buy, the market ended becoming a buyers’ market.
Looking at it from another angle, the market’s slide had also been largely influenced by foreign investors’ selling activities. They have been net sellers all these times, while their market participation remained high at more than 50 percent of transactions.
Measured against the market’s level at the start of the year, the market’s total loss by Aug. 24 would be 439.56 points only. It was indeed big, but not substantial enough to scare investors out of the market.
This may explain why four trading days later on Aug. 28, the market bounced back and rose to 7,098.81, a gain of 307.80 points or 4.53 percent.
The rise, however, seemed to be too fast and too much at the market’s current volume and value turnover that the market on September 9 dropped to 6,926.82 and slipped further down to 6,911.30 on September 11.
In summary, the market has already logged a total 528.33 points when it gained 220.53 points last week.
Bottom line spin
A 20-percent drop from a market’s peak is a common technical definition of a bear market. This signals or represents a permanent change in the market’s status and direction.
A 10-percent drop from a peak, on the other hand, is called a correction. It’s generally temporary and relatively short in duration. It is also considered an interruption that may allow adjustments in overvaluations of the market. However, this interruption can also lead to a more severe and longer downturn.
At the beginning level of 7,230.57 in January, the market peaked on April 10 at 8,136.97. It wiped out its gains and closed at 6,791.01 on Aug. 24.
The fall consisted of a loss of 1,345.96 points or 16.54 percent. This was more than the 10 percent described above to characterize a market correction.
The 10-percent correction from the market’s peak would have been at 7,323.27, which is more or less equivalent to the market’s closing index of Aug. 18 at 7,333.45.
The market tried to bounce back in the next 15 trading days. The effort brought the market back to 7,131.91. At this point, the market was already 1,005.87 points or 12.36 percent below the market’s highest peak for the year.
Having gained previous losses, the answer to the question is that we are still in a bull market. The market is strong enough that it will continue to recover and rise.
Looking closer at the trend of the market’s daily advances last week, however, an opposing opinion was also offered over: We are no longer in a bull market. The market is, at best, headed towards a consolidation.
Come to think of it, the market was able to bounce back to 7,069.18 on Monday, with a daily net gain of 157.80 points or 2.28 percent. This was followed by another net gain of 19.83 points or 0.28 percent on Tuesday, bringing the market higher at 7,089.01.
The market again recovered its strength on Thursday, before closing at 7,131.91 the following day.
The answers offered could be both valid. The question, however, may soon be answered more appropriately by market developments as we head toward the end of the month.
