On the market’s recent movement

For the last 30 days, our market behaved like one of the typhoons that visited us lately.

While moving at an almost stationary pace—as in being range-bound—you can feel its threatening power and disastrous fury.

Like if it had moved deeper inland as estimated by weather forecasters, the typhoon would have again caused devastation owing to our current weak dispositions. But it did not. It changed course and moved away to another direction. This spared us of certain catastrophes.

Drumbeats of bad news

I’d like to think that our market will follow a similar path like what the typhoon did: The market will break away from its range-bound-like behavior and move on to spare us from catastrophic consequences as in stopping short from a potentially precarious situation of breaking down.

As of last Friday, the benchmark index closed at 4,219.58, which was just about the market’s closing index on May 6 when it settled at 4,219.07.

At that time, the market suffered its biggest weekly loss equivalent to 100.44 points. The big fall of the market index, however, did not appear alarming as such then. Market outlook remained positive.

But last Friday, while the market index settled at about the same level at 4,219, the situation in the market had become different. Negative market concerns had taken a big bite out of investors’ confidence.

Experts are now conspicuously drumming a heightened beat of alarm to already known economic and market downside themes.

Largely still under the influence of Wall Street and global financial trends, our market is about to succumb to concerns that may send it to a broad retreat due to what Fed Chair Bernanke calls the “frustrating slow” recovery of the US economy and the widening difference of the European central banks and Germany in how to handle the very likelihood of a default by Greece on its maturing debts.

This is complicated by the latest failure of the Opec countries to reach a consensus to increase production to ease price volatility that could worsen the already fragile state of the global economy.

This development came under the disappointing observation that the Opec countries had been “pumping 28 to 29 million barrels a day 40 years ago in 1971 when the world economy was five times smaller than it is today. It is still pumping 28 to 29 million barrels a day (to this day).”

Experts conclude the world economy is now running the risk of falling into another recession. This has actually increased because market leaders like “the US had become more vulnerable to geopolitical shocks and a rise in fuel prices.”

Since the “instability in the Middle East is far from over,” there are real risks that are now confronting the US and other economies.

This could, in turn, lead to another breakdown in the equities markets like it was in 2008.

Bottom-line spin

One bright side to this alarming overview of the market is that, while things might have worsened from what they were some months back, experts agree on the positive long-term outlook of the market.

Based on their estimates, further fall in the market is not remote in the following days. It may not, however, fall deep into “panic territory.”

In this connection, I wrote in my article on December 28 that while growth forecasts for 2011 were all optimistic, the world economy remained fragile. This meant that market progress would be entirely dependent on global economic developments.

I imagined that as things were not that certain, the market could be unpredictable and explosive. With that, I liken the market for 2011—unpredictable and explosive as in having “a bear among bulls.”

Corollary to it, I reminded readers for the need to be alert and realistic. One must always be ready to react as in being quick to accept a mistake.

The primary objectives of stock investment and/or trading are to win your game and preserve your money from certain serious losses as you play your game.

Being right or wrong with market forecasts is entirely irrelevant. What matters is being able to act to win your game or fold your stock position in the face of taking a loss because the market has gone against your trade.

There is no shame in being wrong with your forecast. The market is changing, like the weather.

As what a senior trader of a leading international investment house had summed the state of the international equities markets, “We came off a great Christmas and some nice (economic) data. Then, the storms, tsunamis and tornadoes came. Who would have guessed that economic recovery would hinge on to shifting of tectonic plates (in reference to the Fukushima earthquake incident in Japan) and global climate change.”

So, for our trading strategy, be ready to act accordingly this week. It could be to fold an old losing risk position or committing additional money to a winning investment play.

(You may reach the Market Rider at [email protected] or directly at www.kapitaltek.com.)