THE CONSENSUS on the direction of our market today may be likened to the existing assessment on the impact of the earthquake and tsunami that hit northeastern Japan and the ongoing wave of uprisings in North Africa and the Middle East on the world economy: They may not be as bad as to affect the already bullish outlook of the world economy in the long term but they may lend to further consolidations of stock prices in the medium term as they trigger price volatility.
The picture of the market may look simple to handle as described but could be tricky in reality. It could cause you to suffer whipsaws or be simply sold out of position at the losing end.
Unknown variables
One overriding reason why this kind of trading predicament could happen is that the prior events that occurred have given rise to other variables that may develop into independent factors that could alter the market picture as described in the foregoing prognosis.
For instance, the problem with the damaged nuclear plant in Fukushima, Japan, could become more difficult to manage due to complications that have arisen. The new problem by itself could altogether turn the already grave situation worst.
As of late, it is reported that food contamination due to radiation is fast rising. It is feared that the radiation problem may rise into a nuclear-energy crises in the proportion of Chernobyl, thus, adding more to the complexity and gravity of the problem to what it originally was.
As a result, this eventuality can expand its damage and extend its ill-effects to other countries whose economies may have significant dealings with Japan.
The same is true with the political and social unrest that is spreading across North Africa and the Middle East. If not handled properly, they could serve as a tipping point that could drive oil prices higher as to seriously affect the economic recovery that is underway in the free-world markets.
Therefore, these variables could bring about serious consequences of unknown proportions that can totally change the market’s complexion.
Support, resistance levels
Nonetheless, it appears that concerns over the said events in Japan, North Africa and the Middle East have started to subside. Last Friday, the market closed at the 3,875.81 level after it fell to as low as 3,839.88 the week before.
Within the last two weeks, too, we had big block sales and cross sale transactions at the main board, indicative of the fact of what is quietly happening in the market: There is still investors’ confidence; these transactions are also showing us into what sectors of the economy these big investors are committing their money in a big way.
These stocks were: Energy Development Corp. (EDC), Globe Telecom Inc. (GLO), Philippine Long distance Telephone Co. (TEL), Manila Electric Co. (MER), San Miguel Corp. (SMC), Jollibee Food Corp. (JFC), Metro Pacific Investments Corp. (MPI), Bank of the Philippine Islands (BPI), Ayala Corp. (AC), SM Prime Holdings Inc. (SMPH), and Leisure & Resorts World Corp. (LR).
Most remarkable in the above transactions was that of SMC: On March 16, Wednesday, there was a block sale of SMC involving 301,666,675 shares. The transaction was equivalent to about 10 percent of the outstanding shares of the company. It was carried out in three transactions at the identical price of P70 a share or a total amount of about P22 billion.
The price was a bargain. It was less than 50 percent of the closing price of SMC last Friday of P157 a share.
Quite noticeable that happened, too, out of the 10 trading days of the last two weeks, foreign buying outweighed foreign selling to a ratio of nine is to one, indicative of foreign investors’ feelings that the market may have already bottomed out.
In view of these obtaining circumstances, the present support and resistance level of the market can be as follows: major support could be placed at the 3,600 level of the benchmark Philippine Stock Exchange index or PSEi while immediate support could be more or less at 3,700, with market resistance at the 4,000 level or just below it.
Bottom-line spin
To my recollection, big volume of buying transactions transpired within the 3,900 to 4,000 channel. Market momentum, then, appeared strong. It was poised to produce a market run that could result into a market breakout and resumption of the bullish trend of the market that started to sour last November last year.
Being caught in the current market downturn due to the recent events, they could now be looking for opportunities to sell.
This makes the technical observation that the 4,000 index level may continue to remain as the market’s resistance level.
Looking back, the market never traded lower than the 3,700 level since the start of the year. The lowest it went to was at 3,723.20. This happened on February 11, Friday. Since then, the market has been moving sideways to upwards.
But continued market performance that has set aside concerns on the said events like what has been happening as of late on Wall Street may lead to a stronger local market momentum that may finally break the resistance level of 3,900 to 4,000.
However, this may not happen yet. Obtaining variables in the market are yet too undefined. Until then, the market may continue to trade sideways.
On second thought, the long-term outlook of the market remains bullish, looking at the growth of economies of countries following natural or man-made disasters.
To my mind, this means that if you have some “patient money” (long-term), you may continue to “buy selectively on price dips.”
(You may reach the Market Rider at marketrider@inquirer.com.ph or directly at www.kapitaltek.com.)