The choice is yours

Since the beginning of the year, the market—as measured by the benchmark Philippine Stock Exchange index, or PSEi—has fallen to as low as 3,705.10 and rebounded to as high as 4,563.69.

This market low was established on February 28 while the market high was established on August 2.

Between these two points of the benchmark index spectrum, the market was able to log a total of 858.55 points—a market performance, which if you come to think about it, means that the price of the 30 composite stocks of the PSEi has moved along a general price range equivalent to 23.17 percent.

Including last Friday’s closing index, the market is only about 6.83 percent, or 291.93 points, away from the year’s high, and 13.39 percent, or 504.17 points, away from the year’s low.

By these numbers, it looks like the market has been technically trading near its resistance (stock prices’ high) than its support (stock prices’ low). In addition, it appears that the market continues to be held off from breaking out of its old high of 4,563.69.

And, if we were to believe what most people say as to what is about to happen, the market will be driven down to another low.

Closer look

From the PSEi’s 52-week cycle, it appears that the market has been indeed on an actual decline. The big attempts that it made to recover during this period appear to be more technically than fundamentally inspired.

Extending back to a longer time frame beyond 52 weeks, this suspected tendency of the market becomes more evident.

Looking at the trading chart, the market was on a continuous climb after it picked up momentum in February 2010. The pace of the market’s advance became even faster so much so that it made an almost steep climb for the whole month of September.

Not for long, though, it became apparent that the pace of the market’s advance could not be sustained. This was because unfolding fundamental developments, again, could not catch up to support the market’s pace.

Thus, the momentum of the market slowed down the following month in October. By the first week of November, the market’s pace and direction seemed to have completely changed.

This caused the market to go down on some form of a spin that produced trading opportunities through the price channel it created. Nonetheless, the market’s direction continued to be on the downtrend.

This continued until the market hit bottom on Feb. 28, 2011. This was again followed by a steep recovery that lasted until May.

In the next two months or so, the market consolidated but presumably on higher grounds of market bulls, so to speak, that in July the market started to be again on a run-up.

This recovery of the market produced so much momentum that it propelled the market to establish its all-time high, when it hit 4,563.36 on Aug. 2, 2011.

However, within the next week after that exciting record-breaking feat, the market fell to the low of 4,129.30. This happened on August 9.

The market struggled to recover in the next two months but only to be sent down to experience another low at 3,715.00 on September 26.

Up to the last week of October, the market was on a recovery climb. But after hitting the high of 4,345.75 on October 28, the market has been, again, on a downtrend.

In view of the forgoing review, it can possibly be said that the market’s upward direction and trend established in 2009 following the last market contagion in 2008, may have been changed and reversed.

But unlike what happened in 2008, it can be possible that the next fall of the market may not be as bad. This is because, all these times, stock prices have been resiliently trading on comparatively smaller trading volume and value turnover transaction.

Determinant factors

In the last 52 weeks, there were two critical external factors that have been materially affecting the mood, trend and outlook of the market. The first is about the actual condition of the US economy where it is feared that it may still sink into a double-dip recession. The second is about the expected financial contagion that may erupt as a result of Europe’s debt and banking crises.

These factors, ironically, have both pulled down or pushed up markets in some non-logical ways. There were times, too, when one of them is given more concern than the other that equity markets like ours likewise move up.

Thus, you may see newsstories that would, in turn, explain the performance of our market into something like this: “Wall Street goes up as it ignored ongoing uncertainty regarding how Europe will implement its debt crises plan or US stock prices fell further ahead of a confidence vote in Greece as investors shrugged off some signs of improvement in the US job market.”

Bottom-line spin

Just about this time last year, I wrote that I was making a radical reversal to my personal estimates as to how high the market will be by the end of the year then. If you will recall, there were three popular estimates as to how high it will be.

Back then, I completely dropped the idea that the market will reach the first two popular estimates. These were the 4,600 and 4,400 levels.

The most popular estimate was 4,400, which included my support. The next most popular was 4,600. And the last was 4,200.

To the surprise of friends and acquaintances, I switched to 4,200 which turned out to be right. The market lingered within the 4,200 level for the most part of December and ended the year at exactly 4,199.31 at the close of trading on Dec. 29, 2010.

My choice as to what will happen to the market soon could be the least popular among the forecasts on how the year was to end then in 2010.

I believe the world equity markets that include ours will not totally collapse as many feel it would owing to the looming crises brought about by the problems in Europe or in the United States. While they may not be entirely resolved soon, it is my feeling that some success will be achieved in managing their negative impact on the market as they continue to be a problem and concern. You may or may not accept this view. The choice is yours.

(The writer is a licensed stockbroker of Eagle Equities Inc. You may reach the Market Rider at [email protected] or directly at www.kapitaltek.com.)