Market path and pricing

It may have escaped your attention: The market’s direction has been downhill since the middle of April.

I don’t blame you. The market had some interesting stock plays within the period that may have in some way taken away your attention from the market’s actual path.

These individual stock plays were not large or long enough to increase and improve the market’s average daily value turnover beyond its current normal of P7-8 billion and, thus, prevent the market’s overall decline. They were not also necessarily all inspired by fundamentals.

Last week was a typical example of the market’s trend since April. After closing at 7,503.72 the week before, it went down 47.54 points or 63.8 percent last Monday with the closing index of 7,456.18. The market recovered on Tuesday, closing at 7,505.48, up 49.3 points or 0.66 percent. This was followed by another rally on Wednesday when the market closed higher at 7,536.31, up 30.83 points or 0.41 percent.

The market went on to its third straight day of rally on Thursday as it closed at 7,606.86. This resulted in a gain for the day of 70.55 points or 0.93 percent. Such uptick by the market was brought about by local investors’ buying initiatives arising from overseas news developments such as the continued improvement in the state of the US economy and by the remarks of Moody’s and Fitch (the international economic risk- and credit-rating companies) on the economic fundamentals of the country.

On Friday, the market closed lower. It fell to 7,601.17 on a day’s loss of 5.69 points or 0.07 percent. Strong overnight gains on Wall Street failed to boost up local market interest to another day of rally.  Instead, investors played safe.  They took profits for the weekend.

Price levels

It may be interesting to look at how the market’s overall price-earnings ratio (PER) since the middle of April. They might be able to make us understand better that while the market appears good, it had been actually falling. They might also show us where the market could possibly be heading to in the coming days.

On April 10, the market hit its record close of 7,946.89. Within the same week, it also hit the record session’s high of 8,136.97. A week later, or on April 17, the market settled lower at 7,946.89, down 180.59 points or 2.22 percent; benchmark index PER was 22.71x and all-shares index PER was 18.85x.

Subsector PERs were: Financials, 15.57x; industrials, 22.46x; holdings firms, 19.18x; property, 33.88x; service, 26.05x, and the mining & oil sector, 22.41x.

The market’s fall continued the following week, but a rally on April 24 and 27 broke the fall and brought back the market to 7,958.87.

The effort was totally lost by April 30.  The market slipped down to 7,714.82.  By then, benchmark index PER stood at 22.09x and all-shares index PER was 18.56x.

Subsector PERs were as follows: Financials, 19.23x; industrials, 22.19x; holdings firms, 17.27x; property, 31.07x; service, 25.74x; and the mining & oil sector, 24.19x.

The market followed the same pattern of advances and retreats in the first half of May. But after May 18, as the market continued to fall, the drops were bigger than the rallies that it became obvious it was going downhill.

The market’s worst was on May 28, when it fell to its lowest at 7,505.03. It was saved by a rally the following day that propelled the market higher to end the month at 7,580.46. At this time, benchmark index PER was 21.75x and all-shares index PER was 18.21x. Subsector PERs were: Financials, 18.48x; industrials, 21.43x; holdings firms, 16.80x; property, 31.02x; service, 25.74x; and the mining & oil sector, 22.82x.

By the start of June, the market attempted to rally. The effort slowly faded in the next few days that by June 9, the market hit its lowest since it started to decline in April. In the week ending this point, the benchmark index PER was 21.52x and the all-shares index PER was 18.33x.

Subsector PERs were as follows: Financials, 18.49x; industrials, 20.96x; holdings firms, 16.60x; property, 30.69x; service, 25.57x; and the mining & oil sector, 22.35x.

Last week, the market has already climbed back by as much as 277.73 points or 3.65 percent since it sank to its latest low of 7,323.89 on June 9. The benchmark index PER was 21.26x and the all-shares index PER was 18.38x.

Subsector PERs were: Financials, 15.93x; industrials, 19.54x; holdings firms, 20.77x; property, 20.25x; service, 24.32x; and the mining & oil sector, 17.77x.

For the week ending Jan. 2, the benchmark index PER was 20.13x and the all-shares index was 18.64x. The PERs of the different sectors were: Financials, 19.12x; industrials, 21.30x; holdings firms, 16.08x; property, 27.77x; service, 25.17x; and the mining & oil sector, 31.59x.

Bottom line spin

Notice that PERs have risen since the start of the year. But observe that there were times when some sectors had higher PERs even when the overall market indices were lower. This may explain the stock plays and resultant market recoveries in those periods.

Notice, too, that although the market had been closing lower from previous lows since the middle of April, trading had not broken down below the lower limits of the trading band it had since the start of the year.

Following the rebound last week, the market may not need as well to have a bigger total market value turnover than the daily normal of P7-8 billion to be able to climb higher and revert to an upward trend. This, however, may need a change in the fundamentals presently affecting the market. Such changes could come from inside or outside the country. Until then, the market may continue to move sideways and stay in an indeterminate direction.

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