Market Rider: Unclear market movementBy Den Somera |Philippine Daily Inquirer
Even with the market’s established session high of 5,488.92 and trading close of 5,470.70 on November 12 that proved to be both record highs, the market’s trading performance last week was a big disappointment.
First, the market ended down by 29.50 points, or 0.59 percent, on a weekly basis when trading closed last Friday. Second, total volume fell by about 50.7 percent, which signaled that trading on speculative or penny stocks like Alcorn Gold Resources Corp. (APM), which has largely influenced the market’s volatile but healthy activity, has considerably dropped. This also, in turn, considerably slowed down the interesting price play on APM shares. Third, total value turnover has likewise dropped by 26.3 percent, manifesting a significant departure of investible money out of the stock market.
Together, they drove the market to suffer three days of successive declines in the face of two days of advances that occurred in between the declines during the week, radically departing from the trading pattern of the previous week of one day decline and four days of successive advances—a movement that makes the market’s direction still unclear.
How it happened
When the market closed at the record high of 5,470.70 on Monday, this was actually just 1.91 points, or 0.03 percent, higher than the trading close of 5,468.79 set on Friday the week before. This also led the market to tumble lower on Tuesday, sending the index to settle at 5,455.92 with a loss of 14.78 points, or 0.27 percent.
The market continued to tumble on Wednesday but with only a small loss equivalent to 4.83 points, or 0.09 percent, at 5,451.09. Surprisingly, the market fell further on Thursday, contrary to what happened on Monday when the rate of the market’s momentum decelerated as to suggest that it has reached turning point. The market ended on Thursday at 5,414.82 and suffered a bigger market loss equivalent to 36.27 points, or 0.67 percent.
This did not rule out Wednesday’s trading result that it must either be near or already at its turning point because the market continued to trade, more or less, within “average or normal level” during the week. This will explain why on Friday, the market ended higher rather than falling lower as it landed in positive territory at 5,439.28 with a net advance equivalent to 24.46 points, or 0.45 percent.
The prospects of the local market seem to be in a much better situation than the equities market of the United States and Europe. From fresh news reports, the US market is expected “to remain under pressure and choppy until after a deal is worked out” to avert the so-called “fiscal cliff.” This refers to the expiration on December 31 of the Bush-era tax cuts that will affect the take-home pay of the average American workers. If unchanged or not modified, “everyone’s tax rates will go up that will reduce the amount of money paid to workers.”
In addition, the “temporary payroll tax holiday (granted by the Obama administration) for the past two years (which) has boosted pay by more than $80 a month for workers making $50,000 and twice that for those making $100,000 will also expire, reducing paychecks even more.” Also, “work bonuses will also be smaller because the automatic withholding rate will increase to 28 percent from 25 percent.”
The Obama administration is said to have an alternative to avert the fiscal cliff if Congress fails to come up with a new program by yearend. The Secretary of Treasury has the authority to “leave the IRS income withholding tables unchanged even if tax rates go up.” This means that in January workers will not be hit with more taxes than what they pay today.
The problem with this solution, according to concerned officials, is that it may encourage Congress not to work immediately for a better economic deal. When this happens, and if this alternative proved to be wrong, it could lead to more fiscal problems. This will force employers to withhold even more from workers in order to compensate for the fact that they were “underwithheld” during the affected period.
Europe, on the other end, is expected to continue to be weak. According to the latest news, it slipped “for a second time in four years after growth shrank by 0.1 percent for the three months ending September, after a decline of 0.2 percent in the second quarter (too)—confirming the 17-nation currency area is back in recession for the first time since 2009.”
Leading economies like Germany and France, however, managed to achieve modest growth. While it posted further growth in the third quarter, Germany’s rate of growth, however, was observed to be slowing down. Reports say that its “economic expansion slowed to 0.2 percent in the third quarter, from 0.3 percent in the second. Specially affected were its exports and industrial production data.
France is better off. In the face of expectations for a flat performance, its economy posted a growth of 0.2 percent. The economy of Italy, on the other hand, remains to be poor. It continues to be in recession and is unlikely to improve anytime soon like the rest of the other countries in southern Europe. Overall, therefore, the near-term prospects of the equity markets of Europe remain uncertain and similarly unclear as to when it may change.
Judging from the market’s recent movements, it may not yet be hitting the popular end-of-the-year forecast level of 5,600 very soon. It may take at least the next three to four weeks to possibly break through it even if the market is just 129.30 points away from its recent trading session’s high of 5,470.70, or 160.72 points away from last Friday’s trading close of 5,439.72.
A large amount of investible funds have been sucked up by the recent public equity offerings. In turn, this has reduced the money in circulation in the market to be relatively thin and small. Added to that, investors are more recently attracted to speculative trading. As we all know, when investors lose from their speculative trading activities, they have the tendency to sell their index stocks. This will, in turn, fuel a selloff that may affect the market’s index as well.
The coming local election early next year, however, could serve to stem selloff activities that may come about from present trading activities. During election years, consumer spending and the production of consumer products tend to rise and increase as a result.
Therefore, the expected direction of the market for the second quarter of next year could be clear but its impact is not at all yet felt in the market’s direction for the next two weeks. To make an analogy, its direction within the period could still be a wild guess just as how the price of APM may finally resolve at the offering period.
(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.)