Outguessing the market’s behavior has become my preoccupation. And it has been making my trading performance terrible and difficult.
The market may suddenly plunge one day, make a stunning rebound the next day, pull back the day after and again rally the following day, consistent with the turn of negative or positive events. And just as when you think this is how the market will again behave, it suddenly breaks into a different algorithm of reactions not necessarily according to the same order of occurrence of bad or good news.
The same is true with the direction of different equity markets like ours with the rest of the world. They also have turned unpredictable. Last Friday, our market ended lower over uncertainties spawned by the presidential elections in Greece to be held last Sunday. Other world markets like Wall Street closed higher despite the uncertainties. The S&P 500 is even said to have made its best weekly close last week since the start of the year.
Confounding the matter, I was at the same time consumed with trying to predict as to what could really happen to the market as a result of an unprecedented win by the leftist party that may lead Greece to default on its financial obligations and force the unthinkable to happen, which is to exit the European Union.
Over the weekend I pondered upon all these concerns and found out that there was something wrong: I realized what I should not be doing—I was predicting all these times to figure out my next trading move. This reminded me of the old market adage, which says: “Making money in stock trading does not mean knowing the secrets of forecasting future prices!” Simply, this means that you need not have the ability to know what may exactly happen in the future to make money in the market. In other words, you don’t need to outguess the market in order to win your game.
Market status
The market for the second week of June was again down when the Philippine Stock Exchange index closed last Friday at 4,930.63. The fall was equivalent to 63.44 points, or 1.27 percent, down from the previous week’s close of 4,994.07 for the week ending June 8. Adding the losses incurred by the market in both weeks, the market had fallen to a total of 131.81 points, or 2.6 percent.
This seemingly gloomy picture of the market starts to become brighter when we look at the amount of money transacted for the period. Last week’s total value turnover amounted to P45.46 billion on a total volume of 6.51 billion shares. This was about double the total transactions realized the week before as total value turnover then amounted to only P23.96 billion on a volume of 6.33 billion shares.
Considering that the amount of money last week was practically double that of the transaction made the week before, but with total volume of shares quite identical, it is quite obvious that the market has shifted from lower to higher-priced stocks. Looking closely at the daily transactions, trades in the market has certainly shifted to second and first line issues. More significantly, the transactions of the higher-priced stocks emanated from the market’s block sales.
On Monday, there were these block transactions on Manila Electric Co. (MER), Universal Robina Corp. (URC) and Globe Telecom (GLO). This was followed on Wednesday by transactions on Philippine National Bank (PNB), Security Bank (SECB), Philippine Long Distance and Telecommunications Co. (TEL), again on MER and URC, Alliance Global Inc. (AGI), Ayala Land Inc. (ALI), Lopez Inc. (LPZ), SM Prime Holdings (SMPH), Banco de Oro (BDO), SM Investments (SM) and Metro Pacific Inc. (MPI).
The biggest transaction for the week happened on Thursday. It involved Alaska Milk Co. (AMC) and URC. Total value turnover for Thursday amounted to P18.67 billion. Because of these block sales, foreign buying became significantly bigger than foreign selling on a 60-40 percent distribution basis.
Elements of a successful trade
Far from having the ability to predict the future and stock prices, studies reveal that there are only three factors that can help you make money in the market. These are keen grasp of prevailing market psychology, position sizing or money management and technical skills, which pertain to both fundamental and technical analysis.
Surprisingly, it is keen grasp of prevailing market psychology or the ability to anticipate correctly the reaction of the market to unfolding developments is said to be the most significant of the three elements that enables one to win his or her trade and make money in the market. According to experts, it accounts for 60 percent of one’s chances to winning his or her game.
Position sizing or money management comes second. It accounts for 30 percent of one’s chances of winning. As explained, position sizing or money management is interpreted to mean as the manner by which one bets his or her money at any given time. Thus, one may become a winner in three out of 10 trades because the amount of money placed in each trade is not the same. And believe it or not, technical skills only account for 10 percent of what will make one a market winner.
Bottom-line spin
In addition to the foregoing character of the market last week, investors continued to become sellers than buyers whenever the benchmark index goes over a hundred points beyond the 5,000 level. Inversely, investors tend to become buyers when the market index falls below said level. Also, because total value turnover has increased tremendously despite a general net fall in stock prices last week, it looks like our market remains liquid and still bullish.
The apparent inclination of Wall Street and other markets abroad to go against bad news last week also seem to indicate that there can be more than what meets the eye in the apparently tenuous situation brought by the current debt crises in Greece. For one, a default and/or even exit in the European Union can cause serious havoc but its effect may be short and that a rebound in markets may just come in just as fast. On this basis, whether the Greek crises may turn sour or not, a rebound in the markets—including ours—could be imminently underway.
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.