Market lessons

Every time the market gets close to breaching 7,400, it is pushed back.

While this has been going on for the last three months or so, many are lulled by the thought it will happen very soon.

This idea got a boost last Friday, following the announcement by Moody’s Investors Service’s upgrade of the country’s credit rating to “Baa2.”

The market bounced back on Friday with a daily gain of 152.11 points or 2.15 percent after a succession of daily losses since it resumed trading on Tuesday. This was exacerbated by an additional loss of 102.98 points or 1.44 percent on Thursday, when it was less than 100 points away from the psychological support level of 7,000.

The thought of a strong comeback, however, may have been completely erased this weekend. As we closed for the week, Wall Street was just about to cap its last trading day for the week, as well.

And what a few hours can make. After trading on a string of record levels several days back on encouraging economic reports, Wall Street “slumped to its worst weekly loss in two and a half years.” This was triggered by the heavy sell-off brought about by the further drop in oil prices.

Adding fuel to this was the statement of the International Energy Agency that global oil demand next year would be much less than previously estimated.

The price of oil fell to $60 a barrel on Thursday. In retrospect, oil prices had fallen 47 percent from its peak of $107 a barrel in June this year.

And, contrary to claims that life was hard before because of rising oil prices, the recent fall in oil prices did not result in a comfortable life.

Experts say that tumbling oil prices “is a detriment rather than a net advantage to the economy and the stock market.” They argue that consumers may benefit from lower gas prices but energy companies will suffer, in terms of reduced earnings.

When earnings are diminished, they say these companies will “spend less on plants and equipment.” This, therefore, will hurt the chain of allied businesses under them.

When this happens, a similar domino effect will ensue that will render life hard and difficult again, like it was when oil prices were rising.

Market studies

The market in 2013 and 2014 is an interesting study of the buy-and-sell and buy-and-hold strategies. The objectives of these strategies are exact opposites. The buy-and-sell strategy is trading in nature like investing short term. The buy-and-hold strategy is investing for the long term.

Short-term investing can be as short as trading within a day, or trading market positions held not exceeding six months.

Long-term investing is simply trading market positions after a holding period of more than six months.

The market started strongly with a main index level of 5,812.49 in 2013. From that level, the market briskly proceeded northward.

By May 27, the market reached 7,270.89, enabling it to rise at the average rate of 25.09 percent. On a yearly basis, the market was potentially growing yearly by 60 percent.

Unfortunately, the market’s direction reversed in the following two months. It fell by 13.86 percent, in the process. This effectively drove down the market’s average growth to 16.24 percent by July 26.

The market continued its downtrend, with additional losses of no less than 11.57 percent. On the last trading day, the market’s net growth rate dropped to 15.36 percent.

This makes 2013 a fitting market for the buy-and-sell strategy, for if you sold in May and stayed out for the rest of the year, you would have realized earnings of 25 percent.

In contrast, selling within the first half of 2014 would not have been as profitable. Although the market followed an upward trend like in 2013, its climb did not find a peak in the first six months of the year. This happened on the week ending Nov. 28. By then, the market stood at 7,294.38, up 23.59 percent.

By the end of trading last Friday, however, this was trimmed to 22.41 percent as the market failed to offset earlier losses during the rally last Friday on the back of the Moody’s upgrade in the country’s credit rating

Bottom line spin

Looking at last week’s trading data, the market’s slide was the result of net foreign investors’ selling activities and reduced market participation to only 44.93 percent.

This is disturbing. Foreign investors’ market participation since the start of the year was about 49.58 percent. Last week’s data meant foreign investors are not only selling out, they are leaving the market.

In the same measure that Wall Street investors were troubled by the slump in oil prices, foreign investors’ activity last week can be a disturbing sign of an impending downturn of the local market.

To think, too, that the equity markets of the world had been on the uptrend since 2009, the local market seemed ripe for a sideways movement or consolidation. This will allow the market to muster strength to launch another bull run, which will likely happen in the next 18 months or so.

Aside from the presidential elections, several development and productivity projects of the public and private sectors will enter the final stages of completion by then.

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