No price rally yet

This week, stock prices may move sideways first then downwards before stabilizing toward the end. It will get support from the predictable changes of the season and by promising developments at the ongoing Asean Summit.

And if we are to expand our imagination a bit more, these could very well serve as catalysts to spur a market rally in the near future.

Current market data, for now, is not strong enough to power price rallies. Average daily value turnover is still within the P7 to P8 billion range and trading volume continues to be erratic. This current setup will only be snapped with the entry of fresh money.

Note that foreign investors’ trading direction has been heading south. But notwithstanding the current situation, foreign investors are still net buyers and consistent strong market participants.

Their participation averages 50 percent of overall market transaction. They buy in bulk and sell in small volumes, an indication they could just be trading within an acceptable range to take advantage of opportunities and realize easy gains.

How soon will more money enter the market? This question will definitely be answered by the attractiveness of local stock prices vis-a-vis similar products in equity markets across the region and on Wall Street.

While ours are not too pricey yet, our stocks can no longer be considered bargain. What could entice the entry of more money into our market would be the prospect for more growth and earnings.

In both areas, we appear to enjoy an advantage. We have the necessary economic fundamentals to support these.

Another obstacle that needs to be hurdled is the availability of a variety of stocks with market capitalizations that could pass the standards of foreign funds.

We may be a little short in this department. The good news, however, is that our local market has more to offer now than before.

For a long time, we could only count with our five fingers the number of stocks that have market capitalizations good enough for big funds. This has served as a barrier to the entry of more money.

Things have changed. We now have enough available stocks appetizing enough to big investors who could produce bigger value turnovers that, in turn, may drive higher price levels.

Needless to say, this will not be materializing this week or even up to the so-called Santa Claus period for rallying. At best, prices may just trade within a band favorable to trading plays.

Bottom line spin

Let’s go back to my friend’s investment portfolio I mentioned last week. He is about to earn his profits soon. To recall, his strategy to buy at the start of the year (he actually made most of his purchases on the last week of March) has gotten him ahead of the market.

Profits from his 10 additional holdings (which could also serve as your stock picks) were from as follows: Ayala Corporation (AC), 28.53 percent; Alliance Global Group, Inc. (AGI), 27.29 percent; SM Investments Corporation (SM), 44.89 percent; San Miguel Corporation (SMC), negative 1.65 percent; Metropolitan Bank and Trust Company (MBT), 19.97 percent; BDO Unibank, Inc., 21.82 percent; Bank of the Philippine Islands (BPI), negative 5.35 percent; Manila Electric Company (MER), 5.91 percent; and Nickel Asia Corp. (NIKL), 17.65 percent.

Somehow struggling with the trend in market prices, he will be using a mechanical technique to execute his exits. This will employ the use of a trailing stop.

A trailing stop is “an order to buy or sell a stock if its price moves in an unfavorable direction” to your interest.

A trailing stop could provide the investor greater flexibility to profit, or limit a loss. “The stop level can be expressed as either a fixed absolute amount or as a percentage of the stock’s current price.”

A big price cushion in a trailing stop could make you maximize your profits. And a tight price stop, on the other hand, could make you earn less. Using a trailing stop to your advantage can be a bit tricky. A grasp on the market’s volatility movement will improve your chances.

Lastly, the advantage of using a mechanical tool like a trailing stop takes away the emotion out of the decision process, which often turns out enabling a loss in profits and investment capital.