Should you buy in today’s rally?

Last week was a pleasant surprise. The market did the improbable as it made a huge leap to recover lost trading ground in the first two days of December. It easily sent the benchmark index only within 100 points from what I stated as the market’s optimistic closing level for the year of 4,400.

At the rate at which the market bounced back to challenge my personal market estimate for the year, I could not help but ponder what many investors are wondering about: “Should you buy in today’s rally?”

Local rally

Last week was also the closing month of November. And because November 30, Wednesday, was a holiday in observance of National Heroes Day, trading for the month ended on Tuesday, when the benchmark index closed at 4,211.04.

On closer review, the closing index of 4,211.04 was also the session’s low for Tuesday. When viewed from past trading records, this kind of performance is an unmistakable sign of the market’s latent weakness. This is particularly true when volume and value turnover are growing bigger from previous periods similar to what happened in November 14 to 25.

Incidentally, within this two-week period of November, the market again fell by another 51.37 points. At the same time, too, the market dropped lower by about 104.28 points from the month’s high of 4,365.87—which incidentally was the market’s closing index for November 14—as the market settled at 4,261.59 by the close of trading on November 25.

By then, I also observed that the market was back to where it was at the beginning of the month which, as I likewise pointed out in my last article, was even some 10.13 points lower than the first week of November’s closing index of 4,271.72.

I used this observation to validate my recommended trading strategy to “trade the range,” which I continued to recommend until the close of trading last week.

Worth mentioning, too, the market went down lower by another 50.55 points in the last two trading days of November, which supported my earlier observation that the market before last week could be at its bottom or was near bottom.

Wall St., other markets

Wall Street also behaved exactly like the way our market performed in the first two trading days of December. This was duplicated by the trading patterns tracked by regional markets last week as well.

In particular, the Dow Jones industrial average (DJIA) last November 30, Wednesday, dramatically opened higher by some 250 points from its previous close of November 29. News on a breakthrough plan agreed upon by the leading countries in the region to contain the debt crises in Europe along with the newly issued employment data on the US economy that showed marked improvement contributed to this favorable market performance.

This was followed by another stellar market performance on Thursday, December 1. The Dow climbed higher and broke through the exciting 12,000 level. As the trading dust settled for the day, the market closed at 12,020.03.

On Friday, December 2, the Dow again opened slightly higher at 12,022.37 and proceeded to hit the session’s high of 12,146.68 and low of 12,007.12, involving a trading range equivalent to 139.56 points.

Unfortunately, before trading closed for the day on Friday, the Dow lost momentum and closed lower at 12,019.42. Though this was slightly lower by 0.61 point only from the previous day, it could only be interpreted as Wall Street’s sign of continued weakness and lack of power to mount a decisive market run-up.

The same kind of interpretation is applied to the posture of other regional markets even as they apparently tracked a more upbeat market mood like ours in the last two trading days of December.

Bottom-line spin

If you will recall, I mentioned sometime in October about the radical forecast made by a small group of Wall Street analysts who, despite the prevailing negative outlook then on the US economy and in Europe owing to the worrisome debt problem unfolding in the region, they claimed that Wall Street will still be able to mount a stunning rally in December.

I also added that if this happens, our local market will as well take a similar path. This was because our market has never followed any other way other than the monolithic direction taken by Wall Street. This was further supported by the observation that our market has managed to carry on a gamely outlook as stock prices continued to be healthy despite the absence recently of more positive leads here and abroad.

It doesn’t take much practical thinking, though, to realize that the prognosis made by this small group of analysts from Wall Street is very improbable. At best, it can only be a possibility.

But needless to argue the point, a market rally appears to be happening. And, by the way it looks, it has been in progress since last week.

Taking into consideration available market parameters that can give additional interpretation on the actual nature and state of the market, the present market run-up looks more to be what is technically considered a “set-up.” As such, it is nothing yet but a sign that needed further confirmation by additional set of trading standards to become a basis to take action.

Until then, therefore, the question “Should you buy at today’s rally?” will have to wait for more confirmatory developments—which soon should become evident like—maybe this week.

(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.)