The market last Friday ended in exactly the same fashion as it did the week before. It closed at the day’s session high of 6,957.10, which was also an all-time high for the market. Total market transactions for the week hit P90.35 billion, the highest done by the market so far.
It is interesting to note that half of the market’s weekly value turnover was generated on Wednesday on account of the block sales on LT Group Inc. (LTG) that amounted to P49.95 billion. On the whole, the market made a weekly advance equivalent to 65.67 points, or 0.95 percent, out of three days of advances and two days of retreats. This brings the market to only about 542.90 points, or 7.24 percent, away from analysts’ early estimate on how the market would fare at the end of the year.
This made some people say it could be time to sell, and even be completely out of the market. Others disagree. They believe that while it may now be the time to sell, it is still not yet the time to be completely out of the market. Analyzing the foregoing scenarios, something seems to be wrong in how investors appreciate their predicament in order to win their game in the market.
Investors want to know if it is the best time to sell and if it is all right to buy back or remain out of the market. To my mind, these concerns are two distinct matters. The concern which begs for an answer as to whether it is all right to stay in (or out) of the market is not that important and as connected with the decision to sell.
No doubt, each concern is that primal. They stand in the same level of importance, too. They are not necessarily to be tackled simultaneously. They are rather—more appropriately—to be treated one after the other, with the former being the first concern to be answered.
This is the main reason why investors usually lose their game in the market. They complicate the decision-making process by including collateral questions along with the main concern to be resolved and drive them as well in the pure and exclusive use of either technical or fundamental analysis. As such, investors stray away and miss to capture the dynamics working at the time in the market with the applicable analytical means.
Lesson from legendary traders
This brings me to the technique used by one of the legendary market traders of all time, Richard Wyckoff.
Wyckoff, in his study of the market, took close notice of the difference and changing nature of the market. Out of his study, he found out that market changes are the result of actions led by speculative activity, price actions within the market, and the need for investment value.
He came out with what he called “10 vital traits” of these different market actions and used them as a step-by-step selection criteria and decision model to trade (or buy and sell) stocks.
“The 10 traits were split among three groups or categories.” These are the “corporate related (based on trends of the fundamentals), industry related (based on trends of business in general), and technical related (based on technical swings in the market.”
Thus, like in the foregoing example, his model will first address which of the market’s group category is ruling over its movement. He will test them with the “vital traits” that has to appear in some determined sequence before making a decision and course of action.
His method is as well the combination of fundamental and technical analysis. Thus, his stock selection and trading method is governed by the following five evaluation steps: The first is to “determine the present position and probable future trend of the market; second, select those stocks that are in harmony with the market—in a bull market stronger, in a bear market weaker, using the idea of relative strength; third, select those stocks that have built a cause for a potential move in keeping with one’s goals.”
“Fourth, use point and figure charts to determine how far the stock is likely to move. Determine the stock’s readiness to move and then analyze the standard price and Point and Figure charts with the help of the 10 buying and selling tests.”
Fifth, guide your decisions and course of actions with the generally applicable technical laws that govern all market behavior and direction.
With his methods, Wyckoff became wealthy “that he eventually owned nine and a half acres and a mansion next door to the General Motor’s Industrialist, Alfred Sloan Estate, in Great Neck, New York (Hamptons).”
Bottom-line spin
The above method has some similarity with that practiced by the contemporary but equally legendary trader Peter Lynch.
Though his decisions are drawn more from fundamental considerations, his method of buying and selling has a similar procedure. He buys stocks on the basis of a list of certain factors that has to be present. He will then use them for his decision to sell by simply reviewing if these factors no longer exist.
In summary, the use of a blend of technical tools and fundamental analysis appear applicable as they were used by legendary traders like Wyckoff and Lynch, to mention two.
To win your game in the market at present, therefore, technical and fundamental analysis when used together would make you more effective rather than with one of them only.
(The writer is a licensed stockbroker of Eagle Equities Inc. You may reach the Market Rider at marketrider@inquirer.com.ph, densomera@msn.com or at www.kapitaltek.com.)