Last week, I believe I made a very sweeping statement about how the market could be next year based on my impressions on how the Santa Claus rally would be this year.
This was prompted by the result of my review of the relationship of the market’s general yearlong performance in connection with the behavior immediately preceding the Santa Claus rally.
Behind the study is the basic theory in technical analysis that claims that while every market movement is the outcome of different and separate fundamental factors, the fact remains that they produce certain price chart formations in recurring patterns.
As I have reported using this basic theory of technical analysis, I found some uncanny results: Stock prices were strongly on the rise in the last five trading days of 2009 and first two trading days of 2010. This event that composed the Santa Claus rally of 2009 also became the market’s general trading pattern of performance for 2010.
What happened to the market again this year appeared to be coincidentally similar to the Santa Claus rally that happened in the last five trading days of 2010 and first two trading days of 2011. Stock prices were already falling from the beginning and could hardly climb.
As it happened, the market was weak and volatile. Something always came up to break its advances.
While it made a significant gain from where it started at the beginning of the year, the market is less upbeat than what it was in 2010.
To where it stood from my vantage point, the market appeared to remain on the downtrend. It has yet to break its year-high of 4,563.65 established on August 2.
Owing to these observations, I made a terrible guess about what the Santa Claus rally might be this year and what could be the market’s performance in 2012.
’11 Santa Claus rally
The Santa Claus rally for 2011 (which, to stress, includes the first two trading days of January), will happen this week.
As I’ve said, I believe I spoke too soon about what it might be. This is because of last week’s trading performance, this year’s Santa Claus rally may turn out to be entirely different from what I said it might be.
The total value turnover of P42.61 billion last week was almost double of P24.58 billion in the previous week.
For that, the market was able to make a net advance of 87.35 points from a closing index of 4,392.29 last week compared to the closing index of 4,304.94 a week before. The gain is about six times more than the market’s total net advance in the previous week, a pace that makes the market now look less overbought or pricey over the previous two weeks.
To recall, for the week ending Dec. 10, overall value turnover amounted to P28.05 billion. For the week ending Dec. 16, value turnover reached P24.58 billion. In the said instances, the market was able only to make a net weekly advance of 1.50 points and 12.44 points, respectively.
Taking into consideration the various breaking market news over the weekend, when more positive leads emerged to support a better market for next year, the Santa Claus rally for this year may turn out to be better than what I imagined last week.
Bottom-line spin
One foreign market newsletter claimed that our market is on the verge of a historic market run-up withstanding the gloomy economic and business outlook suggested by a number of experts, here and abroad.
Such vision, however, appeals to the new book of Jim O’Neill of Goldman Sachs where he postulates that there will soon be four additional countries that will become economic powerhouses. They will help “takeover the economic reins of both Europe and the United States.”
Three of these new powerhouses will come from Asia, one of which is a neighboring country of the Philippines.
O’Neill became known for his work about what he called the BRIC nations. These countries are Brazil, Russia, India and China (BRIC).
As you may know now, these countries were formerly developing economies that rose to become economic powerhouses. They have remained the world’s growth engines.
In his new book “The Growth Map,” O’Neill adds there will be four new nations that will likely rise. These countries may more than cover the estimated loss the world may continue to suffer as a result of the economic weakness prevailing in the US and Europe. He called these new economic growth engines collectively the “MIST,” which stands for Mexico, Indonesia, South Korea and Turkey.
In his new theory, the MIST “will outperform in the near future” and will rise from being developing countries to economic powerhouses. They will become the next “growth markets” that will give blood to global economic health.
Exactly 360 degrees of this vision is the viewpoint of “Dr. Doom” Noureil Roubini, the professor of economics at the New York University, who says “the US economy is destined for another recession in 2012 on account of partisan politics in Washington.”
Another foreign market newsletter echoed this view with its predictions for 2012, which are as follows: Oil at $150.00 a barrel; no recovery in the housing sector; the euro will finally fail; the Dow will test 9,500; Israel will attack Iran; the price of natural gas will fall to historic lows owing to expected new finds; prices of rare earth prices will run up owing to the decision of China to bar its largest rare earths producer, Baotou steel (which produces about half of the world’s rare earth production), from exporting due to environmental concerns.
Between these opposing views are common forecasts on the robust demand for gold, which will possibly drive its price to $2,000, and for copper and steel prices to move from sideways to higher levels.
In the end, experts agree that the US and the global economy will recover sooner than expected. This will be made possible by the contributions of what O’Neill calls the BRIC and MIST nations.
It will be led by China in particular as it flexes further its economic muscles in the years to come which, according to O’Neill’s study, has already “shifted China from a top exporter to one of the world’s major importer (of US goods) since the 2008 crises.”
Have a happy and prosperous New Year!
(The writer is a licensed stockbroker of Eagle Equities, Inc. You may reach the Market Rider at marketrider@inquirer.com.ph or directly at www.kapitaltek.com.)