Another bad weekBy Den Somera
Philippine Daily Inquirer
You read it right. My article today [Tuesday] has the same title as my column last week because the market may continue to perform badly—and we may have “another bad week.”
Actually, if you compare the performance of the market last week and the week before, the title of my article last week has not been perfectly reflective of the market’s trend. The market last week was up, in fact.
To recall, when the market closed at 4,879.42 last May 18, it was down 278.72 points, or 5.4 percent, on a weekly basis. Compared to last week’s close at 4,925.97, the market has recovered and was even up 46.55 points, or 0.95 percent, from the previous week.
The same is true on Wall Street. The Dow Jones industrial average index (DJIA) closed two weeks ago on May 18 at 12,369.38. It was down 451.22 points, or 3.52-percent lower from its close the previous week. Last week, the Dow slightly recovered. It was up 85.45 points, or 0.70 percent, when it closed on Friday at 12,454.83.
The Standard & Poor’s 500 index (S&P 500) likewise had a similar pattern of performance in the last two weeks. On May 18, it was down 58.67 points, or 4.33 percent, at 1,295.22 compared to the prior week’s close of 1,353.89. But when it closed for the week last Friday, the S&P 500 was slightly higher by 22.60 points, or 1.74 percent, at 1,317.83.
But when you look further back in time, like since the beginning of the month, the market trend, including Wall Street’s, had been on a downward spin. It was broken only by the small price upswing last week—an upward movement that has yet to be further confirmed if it is no longer part of the market’s general trend.
Based on the principles of technical analysis, the general direction of market prices may be interrupted from time to time. As in a bull or advancing market, market prices may experience temporary reversals from their upward movement. Such interruptions are called “pullbacks.” A “pullback” is but the falling of market prices from their peaks. When the fall is equivalent to as much as 10 percent, it is called a “correction.” The “pullback” or “correction” is brief because it is only a temporary pause from the general upward movement of market prices. As such, they are seen as buying opportunities.
A pullback, however, can also transform into a definite trend reversal. It doesn’t need to go past the stages of a “correction” before it goes into an irreversible trend. It takes some experience to be able to read it. This is the reason why stock trading is oftentimes difficult.
The same principle applies in a bear or retreating market. The general downward movement of market prices is also interrupted by what is called a “rally” or, more precisely, a “technical rally.” Lastly, a market “rally” can run into some sustained periods unlike a market “correction” or “pullback.”
NDO election results
It may have been also a bad week for my reader from Australia last week. And, with the results of the stockholders’ meeting at Nido Petroleum Ltd. (NDO) last Friday, May 25, it may still be “another bad week” for him this week. He was a candidate for one of the company’s available board seats.
Earlier, he gave me a very encouraging message for my article cautioning the market with the “go-go reviews” and “forward looking” statements made about the oil and gas potentials of Service Contract (SC) 72 located at the Recto Bank (another promontory claimed by China along with the Scarborough, or Panatag, shoal).
According to him, it is for the same reason that he is running for a board seat at NDO. This is precisely to protect the general investing public and rebuild shareholders’ confidence in the company owing to some “subsequent failure to achieve results” committed by management that had small investors like him suffer. The market price of NDO shares have considerably fallen due to these “overly optimistic acts.”
It’s a pity, he missed the cut. As reported by the corporate secretary of NDO, there were 80,625,180 proxy votes in favor of his election into the position and there were about 154,276,010 proxy votes against his election.
There were 31,070,325 proxy votes specifically instructed to abstain or not to participate in the “resolution” (as they term it) pertaining to his election. Also, there were 16,902,733 proxy votes uncommitted, which could be very well used to elect him.
Obviously, he did not have a chance from the outset. This is even if you would include all the uncommitted proxy votes of 16,902,733 to his favor. It’s only about 63.32 percent of the number of proxy votes against him already.
Management seemed to have worked very hard against him this year, following the removal of the power of the remuneration and nomination committee and its additional power to engage the services of an outside consultant to evaluate the abilities or qualifications of a candidate seeking a seat in the company’s board of directors.
He was able to muster only a total of 85,648,080 votes in his favor while there was a total of 172,750,143 votes cast against him. The total number of votes that abstained or did not participate specifically in his election even slightly went up. It increased by 30 votes for a total of 31,100,325 votes.
The present management of NDO got what they wanted. However, this may possibly not go beyond two years. The one single biggest stockholder, who happens to be a Filipino national, may take things more personally and take the helm of operating the company soon with the help of supporters.
Going back to the state of the market, the market’s upswing last week could just be purely technical, or what is called a “technical rally.” As the benchmark index lingered within the 5,000 level last week, some bargain hunting always seems to happen. This especially happened when the market fell lower by about 100 to 150 points.
The reason for this behavior of the market is that it has been driven by the same two major factors that had bugged the market in the last two weeks. Moreover, these two factors have alternately pushed up or down the market’s direction. These are the leads from reports on the state of the US economy and by the looming possibility of a Greek exit from the eurozone and the eventual problem it may cause to the world financial system.
With both major factors still hanging on the balance, this week may again be “another bad week.”
The writer is a licensed stockbroker of Eagle Equities Inc. You may reach the Market Rider at email@example.com, firstname.lastname@example.org or at www.kapitaltek.com.
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