Breakout or breakdown point

Trading at the stock market has been, so far, confined within the benchmark index range of 8,000, rendering the level a technical “breakout” or “breakdown” point.

It could be a breakout or breakdown point because the 8,000 level has served as the market’s “critical point” for the longest time.

If sustained by a buying demand that has a volatility that would enable it to break through, it could become the market’s “breakout point.” When it stays at a level that would serve to stop prices from advancing further, that’s the market’s resistance level. And when it is consequently forced to fall from there, it becomes the “breakdown point.”

Last week, the situation continued to prevail—with trading again confined within the 8,000 range.

When trading resumed on Tuesday (Monday was a holiday to commemorate Ninoy Aquino’s death), the market ended at 8,015.93, down 0.8 points or 0.01 percent. Value turnover was at P6.12 billion on a total volume of 921 million shares.

The market opened upbeat at 8,018.14, but lost steam in the afternoon as foreign investors refrained from aggressively chasing sellers. They accounted for 52.7 percent of total transactions.

The foreign investors’ trading tack was confirmed on Wednesday as the market closed at 7,998.75, down 17.18 points or 0.21 percent. As net sellers for the day, the foreign investors even accounted for 56.67 percent of total transactions.

The market closed Thursday at 8,009.93 on a day’s gain of 6.18 points or 0.07 percent. Selling sentiments seemed to have abated as manifested by the market’s low total value turnover of P4.64 billion. Foreign investors even ended as net buyers, capturing about P49.97 million. Of the total market transaction of P4.60 billion, buying deals amounted to P2.32 billion.

The market closed higher on Friday at 8,015.14, up 10.13 points or 0.13 percent. Total value turnover reverted to the more normal level of P6.25 billion. Total volume, however, was quite high at 1.77 billion shares, which meant that trading activity had been confined to second- and third-liner stocks.

The market’s close above 8,000 was also reinforced by foreign investors’ activities for the day. They ended as net buyers, notwithstanding a lower participation equivalent to only 47.04 percent of total transactions.

Bottom line spin

What could eventually enable the market to break out is the country’s improving economic situation, not to mention encouraging developments in overseas markets.

Gross domestic product (GDP) grew 6.5 percent in the second quarter. S&P Global Ratings, along with other foreign financial institutions, expressed satisfaction over this performance. It was in line with their estimates and they foresee the economy improving further.

Foreigners may also soon be allowed full ownership of investment houses under planned changes in the Philippines’ Foreign Investment Negative List (FINL). A main growth driver, of course, is investment.

For a market breakdown, however, we have two international flash points that could blow down not only ours but also the free world’s equity markets. A game that may end up a zero-sum game is brewing between the US and North Korea. This is complicated by an equally catastrophic situation that may arise from the India-China standoff over the Doklam plateau.

Under these circumstances, market wisdom reminds us that success in winning our game does not necessarily require being able to correctly predict where the market is heading. Rather, it is how prepared we are in facing any of these eventualities.

Applying this principle to the market situation, what will determine our success is not by our timing of entry, but by our exit.

The best time to plan our market exit is now.