Going either way

I was very glad to see the market make a rebound last week, like I said it would. It made a net weekly gain of 189.44 points—the biggest absolute weekly point gain since the start of the year—as the Philippine Stock Exchange index (PSEi) closed last Friday at 5,120.07.

But while it did, it did not rebound in the way it should or, more appropriately, as in the way it was depicted in financial terms. The rebound was purely technical. It did not at all happen out of a growing change in the fundamentals of the market. If you will remember, the market last week was full of global bearish influences.

For the two biggest economies in the world, more bad news came in last week: US unemployment data revealed more signs of weakness in the state of the American economy; China also showed signs of a slowdown in production. Yet, investors reacted differently. Like on Wall Street, stock prices—ironically led by banks— gained last Friday after Moody’s bank downgrades. Instead of serving as a negative catalyst as the downgrades in effect cast doubt on the long-term profits and prospects of the banks and, thus, dampen trading, a run-up happened that even propelled “the S&P 500 index to bounce back and recover from its second-worst decline of the year,” to quote news reports describing the performance of the index.

Notwithstanding the preponderant character displayed by the market, experience tells us that there could be some fundamental grounds that may explain why the market clawed back and rebounded last week. In the run-up of bank stocks on Wall Street, reports explained that US investors regarded Moody’s downgrades “as having little material impact on the ability of the firms to do business,” so that while investors acknowledged the downgrades, it did not cause them any alarm.

In other words, to the majority of Wall Street investors, the subject banks were being relegated only to a lower ranking on the basis of their earnings performance but were certainly still of investment grade as they remained very viable on the basis of their overall ability to operate and continue business. More importantly, these banks are far from being at the brink of insolvency or bankruptcy.

Thus, as Wall Street ended higher last week, this is because the “bulls” (buyers) were more technically aggressive then than the “bears” (sellers).

Last week’s climb

Looking at the daily results of trading of the market last week, it seems like local investors shared certain similarities of attitude as those on Wall Street. But like I’ve been saying since the start of the month, local investors become bullish when the market trades below the benchmark index of 5,000 but becomes similarly bearish when the index goes over, at least by 100 points above it.

As the market closed the other Friday (June 15) at 4,930.63, it evidently rose higher the following Monday and closed at its session high of 5,050.41. The same thing happened on Tuesday. The market index closed higher compared to the previous day and ended at its session’s high of 5,081.61—denoting an observable momentum by the market to advance further on.

This evident bullishness or attempt of the market to rally when pushed down below 5,000 was carried over until Wednesday. The market again advanced further and closed for the day at the session’s high of 5,146.46. By then, the market was beyond 100 points from 5,000. And, as I’ve been saying, the market seemed to have always turned bearish (tended to be sellers than buyers) every time it traded beyond this level of the PSEi. Therefore, on Thursday, while it reached a session high of 5,156.92, stocks started to become overbought (overpriced) that the benchmark index was driven to close for the day at the session’s low of 5,109.43. On Friday, because the market was more or less within the lower limits beyond 5,100, the bullishness of the market prevailed. Trading reached the high of 5,133.57, the low of 5,058.76 and closed at 5,120.07.

Bottom-line spin

The market pushed on with its advance on Friday. However, it did not close at its session’s high or low. Fortunately, it closed within the higher level of its trading range for the day, which if we add the other daily trading results of the market last week, it will most likely continue with its overall movement: It will try to push on higher this week.

This is an ambitious forecast considering that the market’s 52-week high is 5,329.76, which is about 209.69 points, or about 4.1 percent, away from the market’s close last Friday. It’s also about 172.84 points, or 3.35 percent, from the market’s high of 5,156.92 last week.

Since the market has always turned overbought every time it traded a little beyond 5,100, this will logically point to the conclusion that the market may not trade any higher anymore this week, contrary to my foregoing fearless forecast. To recall, the market was immediately sold down and driven lower by as much as 50 points from the day’s high last Friday because the market was again beyond the 5,100 level. This happened as negative news continued to surface, too.

To mention one downer for the market, the proposed mining executive order was not signed last week as was earlier reported. And from reports over the weekend, it will not be signed this week. It may even take until the end of the third quarter to be signed.

Such delay has already caused the government to miss its targets. The mining industry (even when government revenue shares have not been as big as in the new proposed policy), is already a big contributor to the country’s productivity and economy. This alone is a big downer for the week. This factor alone has suppressed the prices of mining stocks from their healthy volatility, thus discouraging gainful market plays since the current mining policy was suddenly suspended.

However, as we are headed toward the end of the month this week, the probability that the market may not push on higher this week might be offset by the traditional tendency of the market to window-dress by the end of the month. This is corroborated by the fact that in May when the market tended to be down than up—earning the market saying of “sell in May and go away”—it made a resounding weekly gain of as much as 136.47 points, or 2.77 percent.

With this observation, the market may then rebound this week, after all. The experience in May might again happen even if the market obviously still lacks fundamental catalysts; as they used to say in the market, “
There are always some opportunities buried in the muck.” To say the least, therefore, the market may go either way this week and beyond.

(The writer is a licensed stockbroker of Eagle Equities Inc. You may reach the Market Rider at [email protected], [email protected] or at www.kapitaltek.com.)