Current market outlook and the SONA

Before last week, the movement of the market has been observed to be very “technical” in nature. This was expected to continue last week.

True enough, the market continued to behave technically last week owing to lack of new leads that could change the fundamental dimension of the market.

On Monday, bulls (buyers) immediately took the lead from bears (sellers) in setting the day’s trading mood. The market opened 31.87 points higher at 5,278.28 against Friday’s close of 5,246.41.

Bulls went on to lift the market higher during the day to a session’s high of 5,316.87. But the market was immediately hemmed in by profit taking, reconfirming its highly technical state.

This sent the benchmark index to close lower at 5,300.24 at the end of trading on a regular value turnover of P6.58 billion (also) on regular volume of 2.59 billion shares.

Despite the market’s lower and/or apparently weaker close for the day, it remained bullish last Monday. The market opened that day at 5,278.28, which was the session’s low. Thus, it was not surprising to see the market climbing higher on Tuesday and setting the following overall performance: hit the session’s high of 5,374.35, hit a low of 5,300.13 during the day on partial profit taking owing to its technical nature, and close at 5,365.70 to post a new high past the last 52-week record of 5,329.76.

Significantly, the market registered a higher-than-usual value turnover for the day of P7.09 billion on only 1.75 billion shares, which meant one thing: Investors turned to “blue chips or first liners” instead of third and second liner stocks.

“Blue chips or first liner stocks are well-established and financially sound companies” that command higher market prices because they are known to “operate profitably in the face of adverse economic conditions, which helped to contribute to their long record of stable and reliable growth.”

“Third liners” are the so-called “speculative” stocks or those that do not have yet an established record of profitability and viability. For this reason, they command lower market prices.

“Second liners” are stocks that have less operating experience and capitalization compared to “blue chip stocks” but have shown some measure of profitability and viability. As a result, they command higher market prices, usually in between the price band of first and third liner stocks.

Owing to the market’s highly technical nature, the bears overpowered the bulls right from the beginning of trading when the market opened on Wednesday at 5,366.58.

The market managed to go up by only 36.58 points at 5,403.10 before it went on to slide down all the way to its close of 5,354.72. Total value turnover amounted to P6.08 billion on total volume of 3.17 billion shares.

Fortunately, the market fell by only 10.98 points, or 0.2 percent, as a result. Higher foreign buying transactions may have prevented the market from falling further as the ratio of buying and selling for the day remained at a ratio of about 1.5 times to one, in favor of the former.

Due to technical considerations, the market again recovered on Thursday and closed higher compared to the previous level by 15.26 points, or 0.29 percent, at 5,369.98.

Foreign buying transactions remained bigger than foreign selling transactions at almost the same ratio as before.

On Friday, the market opened at 5,370.44. It went on to hit a high of 5,383.44, hit a low of 5,349.82 and closed at 5,362.68. Compared to the previous day, the market incurred a net loss of 7.3 points, or 0.19 percent.

Total value turnover amounted to P7.43 billion on volume of 5.70 billion shares, signifying a market whose transactions for the day were more confined to lower-priced stocks.

Other observations

The market’s retreat last Friday was too small to have any serious meaning contra the current direction of the market. Overall, the market still made a sizeable weekly gain equivalent to 116.27 points, or 2.22 percent.

Such gain was said to be the result of speculative activities by some market participants in connection with the forthcoming opening of the 15th Congress on July 23 where P-Noy will deliver his much-awaited third SONA.

This is not to discount, though, the contributions of some positive leads last week that helped the market to perform well. One was the favorable sovereign credit rating received by the Philippines from Standard & Poor’s (S&P), which “recognized the progress of the Aquino Administration in ensuring fiscal stability through improved revenue administration and prudent and effective public expenditure.”

Said upgrade was the “8th positive credit ratings action” given to the Aquino Administration. It likewise made the Philippines “one notch below investment grade” by two out of three major credit rating agencies as they raised the credit rating of the country to “BB+” from “BB.”

The other positive lead was the news that local production of rice had improved significantly. While expecting to import about 1.3 million tons in 2011, the country actually imported only a little over 850,000 tons.

For 2012, importation is expected to hit only 500,000 tons. In 2013, the country is expected to be self-sufficient and will no longer import rice, all due to the propagation and use of true certified seeds administered by the Department of Agriculture.

Bottom-line spin

Along with higher business confidence and stronger economic statistics, the market seems to be poised to produce more stock plays that will drive the benchmark index higher on fundamental grounds than on technical terms.

Considering what P-Noy may announce in the SONA, this may not happen yet.  We seem to already know what he will say. For instance, he will again talk about the above-mentioned accomplishments, “including the impeachment of Chief Justice Renato Corona, the failed flight of President Gloria Macapagal Arroyo, the K to 12 basic education program and cash transfer program as innovations being undertaken in education and social services, the continuous SALN investigations as adjunct program against corruption, improvement in disaster management, as well as peace agreements, and advances in regional and international relations.”

What may probably lift the market higher even before the SONA is the signing of the long-pending Executive Order on the mining sector. It is reported that the mining EO will be signed early this week. The mining EO is desired to showcase the government’s outlook in balancing the interest of the national and local government that in the end must respond to “the needs of people at the local level.”

This may render the market to move downward to sideways as to consolidate. To my mind, though, this should be taken as a good chance to review your stock positions for the seasonal market run-up towards the end of this year or early next year.

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