If the chart patterns for the first quarter results were to be followed, the current upward trend of the market is not likely to stop.
With a starting index of 4,371.96 on Jan. 2, the market was 735.77 points (equivalent to 16.83 percent) higher when it closed for the quarter on Friday at 5,107.73.
This is a radical departure from the market’s active but too cautious performance in the same period last year, when it closed at negative 150.87 points or 3.59 percent lower. It also trumps the overall net gain made by the market in 2011 equivalent to 165.95 points.
Considering the developments over the weekend, this may hardly continue any further. Aside from the expected softening of demand and lesser activity during the Holy Week, the market may actually start to grow weaker from now on.
Last Friday, US President Barak Obama announced the US would undertake more “robust” efforts in seeing to it that the sanctions law (passed by the US Congress and signed by him in December)—designed to dissuade Iran from pursuing its nuclear program—would be implemented.
The nuclear program, according to Iran, is intended only for civilian purposes but it is looked upon with suspicion owing to its constant blatant public flaunts to either “wipe out Israel of the map” or take actions to “protect” (block or control) the flow of trade in the Strait of Hormuz.
Factoring in the unbridled posture of North Korea, the market may be in for a big trouble.
Feared repercussions
The Strait of Hormuz is the narrow strait between the Gulf of Oman in the southeast and the Persian Gulf. The north coast is bounded by Iran while the south coast is bordered by the territories of the United Arab Emirates and Musandam, an enclave of Oman.
It is said to be the only passage to the open ocean for large areas of the petroleum-exporting Persian Gulf, namely Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia, the United Arab Emirates and Iran.
This makes the Strait of Hormuz “one of the most, if not, the most strategic strait of water on the planet,” according to one review.
From available statistics, “on an average day in 2011, about 14 tankers carrying 17 million barrels of crude oil passed out of the Persian Gulf through the Strait.” This translates to “35 percent of the world’s seaborne oil shipments which is about 20 percent of the world’s total oil trade.”
Of the total oil traffic through the Strait of Hormuz, “more than 85 percent went to Asian markets, with Japan, India, South Korea and China as the largest destinations,” the review said.
“An estimated 3,000 vessels, including fishing vessels and oil tankers, passed through the Strait of Hormuz in 2011,” the review added.
“At its narrowest point, the Strait of Hormuz is only 21 nautical miles (about 40 km) wide.” On a logistics supply standpoint of view, the strait is “one of the world’s most strategically important choke points.”
Iran’s promise to take control of the Strait of Hormuz is, therefore, very dangerous. It will disrupt the current oil trade in the region and destabilize the present world order spearheaded by the US and its allies.
“The Libyan Civil War,” according to another review, “sent oil prices up from $84 per barrel to more than $113.00 in less than three months. Libya as the world’s 17th-largest oil producer,” according to a report.
“Considering that Iran is the fourth largest (oil producing country in the world), pumping close to five percent of world supply, it is feared that a war with Iran may lead to an international and economic calamity of unprecedented severity,” according to the editorial of a foreign financial magazine. An unrestrained North Korea will further exacerbate the already highly volatile situation in the Middle East.
Reflections
These developments may or may not ripen at all as feared. Its negative impact may be averted from actually happening in the end.
While it stays unresolved, however, the potential aberrations in the status quo will unsettle markets, in general, and undermine investments made last week or earlier.
This reminds me of the dilemma I was in exactly one year ago. At that time, I was tormented by the demands of being right as an analyst should be about the market because of my column and the trader that I am to win my trades.
Analysts and traders are worlds apart. They use a set of different skills that demand certain kinds of discipline and, to a certain extent, personality.
An analyst must be “well informed and intelligently discerning.” This is because when wrong, this will cost him his reputation and value to give advice about the market.
A trader does not have to be widely read and smart. He or she only needs to be practical, for “being wrong is a fundamental assumption” to a trader as much as he must win his trades.
The investing public is driven by the wrong impression that the only way to win their trade is to be right about the market like an analyst. They fall helpless to this misconception all the time.
Bottom line spin
As it dawned on me during my self-imposed introspection at this time last year, being able to capture the turning points of the market that lead you to enter or exit trades is better than being right about the market. This is because the objective of investing is to win your game or minimize losses once the market goes against your trade. This requires the ability to identify market “set ups” and “confirmations”—the skill that effective analysts and successful traders must have.
The “set up” is a market pattern that gives rise to an expectation of what may happen. It provides the basis for action which should be supported by another market signal called the “confirmation,” the element that triggers the decision to actually enter or exit a trade.
This should explain the market dictum—and theme of this column—which states that “making money in stock trading does not mean knowing the secrets of forecasting future prices.”
Have a meaningful Lenten break and a “Happy Easter!”
(The writer is a licensed stockbroker of Eagle Equities Inc. You may reach the Market Rider at marketrider@inquirer.com.ph , densomera@msn.com or at www.kapitaltek.com)