MANILA, Philippines--The market was again just difficult to read last week. It left me thinking like the typical beginner who pines for the Holy Grail??the mysterious trading system said to exist out there that can make it easy for you to earn lots of money in the stock market with little effort or no risk at all.?

Instead of completing the right shoulder of a perceived head-and-shoulders pattern, which meant the market was to go down, as most predicted, it did not. It reversed direction not only to head north on Tuesday but also to break the long established and hard-to-break 3,133 resistance level of the Philippine Stock Exchange index or PSEi.

On a weekly basis, the market made a remarkable net climb of 83.45 points, closing at 3,180.68 on Friday.

New support, resistance levels

The existence of a bearish head-and-shoulders pattern was disproved. It was dismissed as another figment of the imagination. It also demolished the 3,133 level as a lingering strong resistance point, for the market never pulled back since it broke through it on Tuesday.

That resistance point will now serve as the market?s first line of support. The previous 3,062 support level will become the second line of support.

All these basically happened as daily volume and value of market transaction held on within the P3-billion mark. This was accompanied by the strong presence of foreign trading that accounted for about one half of total transactions. This was supported by the fact that main board cross transactions have increased also to about a third of total turnover.

Owing to these developments, the character of the market has changed, too. Market stochastics showed that stock prices in general have gone out of the overbought limit and have shifted to the neutral zone of the trading spectrum.

If last Friday?s value turnover of P3.2 billion is an indicator of the market?s growing robustness, it is safe to say that there is still room for price runups. This will be triggered by the continued rotational buying that is happening in holdings, property, bank, food and beverage stocks, and maybe in the power and energy sectors that have lagged behind.

Initial market resistance is placed at the 3,250 level or 69.32 points away from last Friday?s 3,180.68 close. The next market resistance is 130.0 points higher at the 3,480. These will be spiced up by some plays from third-line stocks reported to be the subject of management mergers and/or business joint ventures. Watch out for them.

Bottom line spin

I particularly like the analogy that Dr. Alexander Elder gave in his book ?Trading for a Living? on the wisdom of managing rather than forecasting future market prices. He gave an appropriate medical situation that showed why it was better to manage than forecast future market prices.

Three weeks ago I made a forecast on the market. I was quite right in saying then that it may have already reached a turning point based on some probability milestones but uncorroborated by technical charts. Based on these, the market should be changing direction and must be heading up anytime soon.

However, I became over concerned with a ?correct forecast.? I dropped this position a week later in favor of the more popular technical view that the market was in the process of completing the right shoulder of a head-and-shoulders pattern and mature this week just before Holy Week. As it turned out, the market suddenly changed trend and broke off to a climb.

This became a reminder that indeed ?making money in stock trading does not mean knowing the secrets of forecasting future prices.? We must manage information and make decisions based on probabilities.

Dr. Elder gave the following example: A patient is brought to an emergency room with a knife sticking out of his chest. The family members wanted to know if the patient will live and how soon he can go home.

In this situation, the relatives are asking for a forecast. But, it?s the doctor?s job to manage the patient?s condition. The doctor has to prevent the patient from dying from shock. So, he must first give pain-killers and start an intravenous drip to replace lost blood. Thereafter, he
removes the knife and sutures damaged organs.

Next, he has to watch against infection.
In other words, a good doctor has to manage the patient?s condition and takes measures to prevent complications to insure his life and health. It is not for him to say before hand if the patient will live or not.

He then settled the issue of managing versus forecasting with the following statement in the cited medical situation: ?When a family begs for a forecast, he (the doctor) may give it to them, but its practical value is low.?

Have a spiritual Holy Week and a Happy Easter!

(You may reach the Market Rider at mailto:marketrider@inquirer.com.ph or directly at mailto:densomera@yahoo.com)