Bulls vs bears

It looks like old market hands got their answer last week as to which of the two opposing market forces is in control of the market.

As previously discussed, old market hands were not comfortable with the market’s displayed performance. Despite its continued daily advances since the start of trading on Jan. 2, it was unable to go beyond 6,100.

This made them question what was happening and worried about the stability of the market.

In the process, they suspected that the market could already be at—or near—the technical turning point of its current trend. It would just be a matter of time that market bears (sellers) would overtake market bulls (buyers) and change the state and direction of the market.

Closer look

Looking more closely, the market’s performance last week may not be enough to completely erase the suspicion of old market hands about the actual state of the market even if it was able to close at 6,139.21 which, in the process, broke past the 6,100 level.

When the market opened on the first week, it immediately registered a net advance of 158.72 points, or 2.72 percent, despite the fact that the week consisted of only three trading days.

This was followed on the second week with another but smaller net weekly advance of 80.30 points, or 1.34 percent, which ended still below 6,100 at 6,051.75.

The market slipped on Thursday, Jan. 10, on an apparent selloff that pushed back the market index to the 6,018.57 level, suffering a net loss for the day of 72.61 points, or 1.19 percent.

When the market recovered the following day, Friday, the advance was barely enough to regain lost ground. Total net gain amounted to only 33.18 points, or 0.55 percent.

When trading resumed on Monday last week, the market was able to advance by only 42.15 points, or 0.7 percent, at 6,093.90.

More than that, the market was limited to a narrow trading range of between 6,115.18 and 6,066.02. Total value turnover amounted to P9.28 billion and total volume reached 3.83 billion shares.

On Tuesday, the market fell to 6,087.67 and suffered a net loss of 6.23 points, or 0.1 percent. Total value and volume turnover amounted to P9.07 billion and 3.96 billion shares, respectively.

The market fell lower on Wednesday as it settled at 6,047.52 with a bigger net loss of 40.15 points, or 0.66 percent. Total value turnover was a little less at P7.01 billion as total volume also fell to 1.94 billion shares.

On Thursday, the market recovered lost ground and claimed a net gain of 24.66 points, or 0.41 points. Total value turnover for the day amounted to P7.32 billion on a total volume of 2.44 billion shares.

The market on Friday climbed faster and ended higher with a total net gain for the day of 67.03 points, or 1.10 percent. Total value turnover rose to P9.34 billion and total volume dramatically increased to 6.92 billion shares.

As a result, the market was able to realize a weekly net gain of 87.46 points or 1.45 percent. This also allowed the market to hit 6,139.21 and beat the 6,100 resistance level with 39.21 points.

Bottom-line spin

As can be observed from the daily turnover and volume last week, the market still appeared to be overbought (overpriced), in general.

The market experienced selloffs whenever trading sessions went past by 6,100 especially when trading transaction revolved around stocks with large or big market capitalizations.

For instance, while the market did not sustain a net loss on Monday despite hitting a session’s high past 6,100, the market fell on Tuesday and Wednesday as transaction continued to be confined to stocks with large or big market capitalizations.

As I have discussed before, when transaction volume for the day is relatively low and value turnover is relatively high, trading for the day was more or less confined to stocks with large or big market capitalizations.

Thus, if you will notice, the market especially fell on Wednesday when volume transaction shrank to 1.94 billion shares and total value turnover remained at the regular magnitude of P7.01 billion.

This also happened on Tuesday’s trading results when transaction volume and total value turnover remained at 3.96 billion shares and P9.07 billion, which also meant that trading transactions revolved around stocks with large or big market capitalizations.

The only reason why trading ended higher on Friday, however, even if it hit a session’s high of 6,150.62, was volume transaction was much higher at 6.92 billion shares on a total value turnover of P9.34 billion.

In this case, the market shifted to stocks with small market capitalization, which up to this time were considered relatively less overpriced than stocks with large market capitalizations on account of foreign investors’ trading.

Total foreign buying up to the end of last week was reported to have amounted to P67.27 billion while total foreign selling reached only P48.72 billion.

Searching for bases to otherwise disprove the foregoing interpretation on the market’s trading results up to last Friday, the decision of the Bangko Sentral ng Pilipinas to maintain key policy rates and reserve requirement ratios is one example that may encourage domestic consumption and investment that will accrue to further economic growth and expansion.

On the external front, the two great markets that have critically affected the world’s economic and financial condition for the longest time seem to be getting better, too.

Europe now seems to be getting closer to resolving its debt problems and US economic growth is starting—as described—“to be gaining traction.”

According to the head of an international securities firm in charge of Asian equities sales, while our market’s current price level look high enough when you look back from where it was a year ago (much more so when you go back two years back further), price multiples will relatively adjust lower as our economy will continue to grow and expand business earnings.

Additionally supported by the relative political stability of the present times together with the prospects that these will continue in the country’s future political landscape, it will just be a matter of time that more money will enter the market which, in turn, will drive market prices higher from where they are now; as observed, political stability is a balm that provides “actual assurance and psychological calm” to foreign investors.

Owing to these comments and observations—among other favorable economic and political observations not given space at the moment—it seems that the balance of market bulls and market bears will continue to tip in favor of the former for a while, until actually proven otherwise.

(The writer is a licensed stockbroker of Eagle Equities Inc. You may reach him through [email protected], [email protected] or www.kapitaltek.com.)