Further market consolidation
I mentioned last week that market participants were equally divided as to where the market will be heading. This was prompted by the way how they saw the market’s behavior in the last seven weeks or so—especially in July.
The daily gains and losses of the market proceeded to decrease in alternating sequence. In turn, this rendered the gap between the high and low of the market’s trading range to gradually narrow.
Due to this, it is believed the market must already be at some equilibrium or technical turning point, ready to fork from its current tracks.
In this connection, market participants were equally divided as to what direction the market will take. To one group, the market was ready to move higher. As to the other group, it was ready to move lower.
Further look
Last week, it seems neither of these views would soon seem to happen. The market continued to move sideways to further consolidate.
In thin trading and extraordinarily low value turnover of P4.56 billion, the market dropped lower to 6,850.47 on Monday and sustained a daily loss of 39.08 points or 0.57 percent. This happened even when foreign investors were net buyers for the day and accounted for 53.13 percent of total market transaction. There was no trading on Tuesday, a declared public holiday, in observance of Eid al-Fitr also known as the “Feast of Breaking the Fast.”
Total value turnover was more normal on Wednesday at P8.25 billion. Like it had been doing, the market made a small gain of 17.12 points or 0.25 percent as it settled at 6,867.59. The market ended the day in positive territory because value turnover of foreign investors amounted to 58.63 percent of total market and foreigners were at the same time net buyers.
Like it had been in the past where after a day’s advance the market goes down, it did the following day, Thursday. The market dropped to 6,864.82, ending with a daily loss of 2.77 points or 0.04 percent on a total trading transaction of P7.47 billion. Notwithstanding a larger value turnover of 59.61 percent by foreign investors on total value turnover, the market still fell. This can probably be explained by what they did—they were net sellers for the day.
The market bounced back on Friday and gained 29.41 points or 0.43 percent on slightly lower total value turnover of P7.15 billion. Observably, the market was up despite the fact that foreign investors became net sellers for the day, again; foreign transaction hit 60.20 percent of total market transactions.
Bottom line spin
Take note that in the foregoing events, the market still ended down even when foreign investors were net buyers and was up even when they were net sellers for the day.
If you look closer, the explanation can be found in the extent of participation of foreign investors in the market’s overall trading business for the day.
The market was up when they handled no less than 60 percent of total market’s business as in last Friday. And the market still fell and ended down because they had a lower volume of transaction or, maybe, the locals were given more volume than they could absorb.
In technical analysis, the movement of a stock’s price (or securities for that matter) within a defined price pattern or band is called consolidation. This phase of a stock’s price movement is generally considered as a period of indecision. This period is a prelude to the stock’s price movement to break out beyond the defined price pattern or barrier.
Consolidation periods, accordingly, “can last for hours, days, months or even years.” And such periods are often called as base or staging point. This may explain the ongoing difference of opinion by market participants about what direction the market will take next, for in any market consolidation the logical move was for it to either go up or down.
When the market goes up after consolidation, the market is said to have gone into a phase of accumulation. In a technical chart, a consolidation period appears as a rectangular pattern of a price line at which a stock’s price is bouncing up and down to an upper and lower limit.
When investors turn out to be more of buyers than sellers within the consolidation phase, the process is called accumulation. In this case, the stock’s price is expected to more likely go up. Therefore, this period is seen as an opportunity to buy.
When the opposite happens or when investors turn up to be more of sellers than buyers, the process is called distribution. This will result in the stock’s price going down, thus, an opportunity to sell.
It may interest you to know that the market’s sub-sector price-to-earnings ratios (PER) as of last week were as follows: financial sector, 18.47x; industrial sector, 21.15x; holdings firm sector, 17.98x; property sector, 34.83x; services sector, 27.03; and mining and oil sector, 32.04x.
In addition, the Chinese “ghost month” already started yesterday, Aug. 4, and will end on Sept. 4, 2014.
(The writer is a licensed stockbroker of Eagle Equities, Inc. You may reach the Market Rider at [email protected] , [email protected] or at www.kapitaltek.com
