Lessons of the month
After a series of fascinating runs that lifted the main index to several all-time record highs, it looks like a market correction is about to happen. This seems to have started last week.
After hitting a weekly advance of 189.91 points or 2.7 percent in the week ending May 3, the market’s weekly advances decelerated to 47.03 points or 0.65 percent and 17.49 points or 0.24 percent in the following two weeks, respectively, that brought the main index to the negative territory last week.
Though the loss was not that substantial, it was patently real. The market incurred a weekly loss of 10.96 points or 0.15 percent. The main index slipped to 7,268.91, which was 123.29 points or 1.67 percent lower than the market’s all-time high of 7,392.20.
Last year’s record
In comparison, the market’s main index was sitting at 4,371.76 when it resumed trading in 2012. The market was then moving sideways to settle just below the level the year before.
After a more than average trading activity in January, the market advanced to 4,682.44, up 310.68 points or 7.11 percent.
In February, the market continued to advance with another 215.21 points or 4.60 percent. By then, the market was at 4,897.65.
The market climb continued in March, gaining another 210.08 points or 4.11 percent as it closed for the month at 5,107.73.
In April, the market’s rise further continued. However, the rate of advance was much less. This time, the market was able to chalk up only 94.97 points or 1.83 percent higher than the previous month’s level.
The month of May was the market’s first waterloo. It retreated by 111.47 points or 2.14 percent to 5,091.23.
It was then that people remembered the article I wrote early in the month, proposing the market adage of “Sell in May and go away!”
This year, I got several queries on the subject. From those who remembered my article, their questions were pointed to whether it would be my view again this year.
In response, I said “no” but I gave an added recommendation to be more short-term than long-term in their positions. I pressed for short-term trading strategies like “swing trading.”
In view of last week’s market trading performance, I’m partly right. Swing trading made more sense, for —as popularly believed—market bears eventually rule the month of May.
On hindsight, too, it would have been less stressful if I sold and stayed out of the market as early as the second week of May.
Bottom line spin
Like always, denizens of the trading gallery of the exchange swear that they have seen it coming, that they have already gotten out before last week.
Actually, for those who are experienced enough in the market, they would have felt it coming, too. This is especially true when you take into account how the market has been trending in the last three weeks.
The only problem is that, sometimes when good news continues to pour in despite telltale signs that the market is already “overbought” (overpriced), you just get carried away to take that risk of “staying a little longer and too late to get out.”
In this connection, I recall the investment dictum followed by Peter Lynch, the author of the popular book “One up on Wall Street.” He attributes his great success to this investing approach.
He says he is not particularly concerned of the state of the economy when it comes to making a decision in taking a stock position. What is important to him is the financial condition and quality of the stock’s company business, which he diligently studies. This is formally known as the “bottom up” investing approach.
The bottom up investing approach does not involve analyzing in great detail the status of the economy and related markets, otherwise known as the “top-down” approach. Rather, it deals on the analysis of the stock’s fundamental bases of valuation, which are mainly the company’s state of operation, financial condition and performance, and the management’s record of capability and integrity.
There is still, however, a great debate as to which of these two methods is better and more effective in deciding which stocks to pick. The market, nonetheless, is full of examples on how both proved useful and effective at one time or the other.
On second thought, it is said that your success is commensurate to the effort you put in to know your chances of winning your game in the market, which is to understand the potentials of your stock picks.
Thus, going through the exercise of studying your stock picks with the use of both methods, while taxing, is certainly a prudent way of increasing your chances to win and profit from your trading and investing game in the market.
A colleague in the market who responds to the assumed name of “exprmarketing” is recommending listed stock Universal Robina Corp. as a good “bottom-up” stock pick. He claims that considering the company’s anticipated second quarter operating results, “the current price of URC is still at a discount.” It is likewise a yearend stunner, for its estimated income performance for the year is expected to significantly increase.
You may want to revalidate this recommendation with a detailed “top-down” investment study.
Lastly, you may also want to follow closely developments in the mining industry. Now that the local elections is over, the government may soon have to settle once and for all contentious issues regarding the so-called mining reforms embodied in Executive Order No. 79, which rendered so much investments hanging and at the risk of loss. Interestingly, prices of mining stocks have dropped considerably.
(The writer is a licensed stockbroker of Eagle Equities Inc. You may reach the Market Rider through [email protected], [email protected] or at www.kapitaltek.com)
