Expect more sideways movements

Share prices closed last week in negative territory, foiling and practically stopping the market run-up that we have seen in the previous two weeks.

Analysts blamed profit-taking and outflow of foreign funds for the market’s slide. The benchmark Philippine Stock Exchange index (PSEi) posted last week only two days of gains versus three days of losses.

The market fell on Monday last week when it settled at 7,837.47, counting a day’s loss of 51.86 points or 0.66 percent. The market noticeably opened high at 7,889.47, and proceeded to hit a session high of 7,900.28. Foreign investors were net buyers for the day.

Despite all this, however, the market still slipped.

Searching for answers from the market’s trading results, one item stands out: Foreign investors’ participation for the day was quite low at 44.39 percent of total market transaction.

The outcome of the following day’s trading results appeared to validate this observation: The market recovered and ended with a net gain of 20.62 points, or 0.26 percent, even if foreign investors were net sellers for the day. Still, their trading activities were noticeably low at 44.32 percent of total market transactions.

The market continued its climb on Wednesday. At the closing bell, the market settled at 7,938.37, posting a net gain of 80.23 points or 1.02 percent.

But Thursday was another story. It opened high at 7,963.73 and hit a peak of 7,994.27. By closing, however, it made its way down to 7,936.85 or equivalent to a net loss of 1.52 points or 0.02 percent. The downward momentum continued on Friday, despite an attempt to pull through with an open high of 7,952.87. Unable to go up any higher beyond 7,958.08 at midsession, the market shed 50.95 points or 0.64 percent at 7,885.90 by closing.

The market’s fall appeared, this time around, to follow the usual norms. It was influenced by the trading tack of foreign investors.

During the latter part of the week, foreign investors were net sellers. However, their trading activities accounted for 54.76 percent and 54.48 percent of total market transactions, respectively, on Thursday and Friday.

Every time the market reaches or comes close to hitting 8,000, it is met by some kind of a sell-off. As such, this level has served as the market’s resistance: the price range at which upward price movement is impeded due to the presence or availability of an overwhelming supply of shares.

A look at the individual performances of the market’s sub-sectors may further provide insights as to where such resistance is happening.

To begin with, four of the market’s subsectors also ended on negative territory. These were the financial, industrial, folding firms and services sectors.

Except for the services sector, the three other sectors have been posting gains the week prior. Last week, however, they were trading 2 to 3 percent lower of their sectoral average price-earnings ratios. The property sector, on the other hand, continued to post positive trades at the price-earnings ratio of 25.33 times. Looking back, the property sector had previously traded beyond 28 times earnings.

Although still ignored by the majority of investors, the mining and oil sector continued to show promise. Trading at 22.63 times earnings last week, the sector was looking strong.

Resistance levels are characteristically found at the upper levels of range-bound markets. They may be very short-lived, or may remain a resistance level over an extended period of time.

Based on experience, a breakout (overcoming an identified level of resistance) happens when trading is accompanied by heavy volume and an increased amount of volatility.

As of last week, average daily value turnover had gone up to P8.064 billion on a total volume of 84,115 transacted shares. This is slightly higher than the market’s year-to-date average total value turnover of P8.005 billion and slightly higher than the average daily total volume of 73,267 shares.

Though higher, the market’s average daily total value turnover appears not big enough yet. Average daily volume transaction is likewise still not that high. Without these two primary conditions, the market is still far from breaking the 8,000-level.

The Chinese ghost month, which has somehow become a part of the local market’s culture, is just around the corner and should put some pressure. Therefore, expect more sideways to lower price movements in the coming days.