News reports described Wall Street’s month-end performance last week as closing “in fine fashion,” a description that I thought was too mild considering the way how the Dow Jones industrial average (DJIA) soared last Friday by jumping 277.83 points, or 2.2 percent. To my mind, said words were more appropriate to describe how our local market performed during the period.
Our market was faltering in the first two weeks of June. By then, the Philippine Stock Exchange index, or PSEi, had fallen to 4,930.63. On the third week, however, things changed. The market opened higher on Monday at 5,050.41. And due to its stronger and more bullish condition, the market was able to hit the high for the week of 5,156.92 on Thursday. By Friday, the market had gone lower but remained stable that it closed relatively higher on a weekly basis at 5,120.07 to register a week-on-week gain of 189.44 points, or 3.84 percent.
The bullish outlook and behavior of the market continued in the fourth week. The market made an impressive daily advance from Monday to Wednesday to produce a cumulative gain of 137.85 points. At this time, the market was at 5,257.92. On Thursday and Friday, the market slipped and lost its momentum where it incurred a small cumulative loss equivalent to 11.51 points. Notwithstanding such drop, the market still ended higher for the week by 126.34 points, or 2.47 percent, as compared with the previous week. This enabled the market to still close for the month of June in positive territory, so to speak.
Finding more meaning
But what does the phrase “in fine fashion” exactly mean? Consulting the dictionary, the phrase referred to the state that can be adduced as “best quality, choice, of excellent or highest grade.” With this definition, my impression on the performance of the market last week or for the month became even more like what I thought it was. This was because if you look closer at the market data, while it had been advancing in the last two weeks of June, the market was on a downtrend every Thursday and Friday or in each of the last two days of the week. For instance, when it was climbing on the third week of June, the market was already up 215.83 points when it closed for the day on Wednesday at 5,146.43. However, the market closed lower at the end of the week. It slipped and lost 26.39 points on Thursday and Friday so that the market ended higher by only 189.44 points, or 3.84 percent, on a weekly basis.
The same thing happened in the fourth week. The market was ahead by 137.85 points at 5,257.92 by the close of trading on Wednesday. This was reduced by 11.51 points in the last two days of the week as the market faltered, ending up by only 126.34 points, or 2.47 percent, at the end of trading on Friday.
But come to think of it, while the market seem to show some weakening after climbing for three days and ending lower in the next two days in the last two weeks, it is worthy to note that the market’s 52-week high and 52-week low are at 5,329.76 and at 3,715.01, respectively. Between these two extremes, the market has been on the uptrend to be within striking distance of the market’s high and has since then traveled far away from its low.
The market’s demonstrated behavior of faltering every time it comes closer to its 52-week high should, therefore, be expected. Following the principles of technical analysis, it is to be expected that the market will encounter a “resistance” on its upward movement. In plain language, as the market heads up higher, stock prices will tend to appear overpriced (called overbought, in technical parlance) that the buying initiatives growing out of the market’s bullishness is met with the tendency to sell.
Said the other way around, the market will tend to become more of being a seller than a buyer as it goes higher for the obvious reason that investors are tempted to take profits, thus posing “resistance” to further buying advances. Also, what should be taken to be another promising sign in the market’s performance for the month is the fact that the market is slowly trimming the distance separating its current performance from its 52-week high.
To hazard a fearless forecast, the market’s movement in the last two weeks to advance toward its 52-week high is an indication that market bulls (buyers) are becoming bolder over market bears (sellers), that it might just be a matter of time that they will soon prevail.
Bottom-line spin
One of the fundamental bases by which this conclusion may just become real is the way investors in Wall Street and other markets on both sides of the Pacific and Atlantic oceans “staged a huge rally” last Friday in reaction to the latest developments at the European Union (EU) summit. In particular, through German Chancellor Angela Merkel, Germany was reported to have agreed to take the more popular step to “strengthen and stabilize the eurozone credit markets and strengthen the region’s banking system.”
But as had been observed in the past, such news about efforts to possibly bring about a resolution to the eurozone problem has both driven up or down the direction of Wall Street and other markets like ours for the last two years. Even if the agreement reached last Friday is a real breakthrough, there are many details yet to be discussed and resolved, such as the actual deadline dates to finalize and implement it.
Thus, as the agreement forged by the EU leaders has momentarily created some confidence in the market, such agreement may not until then address the underlying problems in the eurozone. Thus, as the agreement goes into final crafting in the meantime, its development may pose major concerns that may, in turn, drive the market to go up or down again and throw the market to some news fatigue. In this case, the market may continue to behave in more technical than fundamental terms in the coming days.
(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.)