I have been reporting that insiders have been claiming that “the worst seems to be over” for the market as early as three weeks ago when it hit an apparent bottom at 5,143.35 on August 24. Insiders reaffirmed this claim with the additional comment that the market was already “out of the woods” considering the trading performance last week. This remark is a jargon used in golf to describe a player’s situation whose game had been in danger—due to the hazard trees put in play in the fairway—has escaped real trouble.
If we look back at how the market fared last week, this observation may have considerable bases: The market closed resoundingly with a gain of 121.15 points, or 2.33 percent, at 5,322.47. A week back for the period ending September 7, the market only registered an unimpressive weekly advance equivalent to 5.13 points, or 0.10 percent.
It could not certainly be justified to have any connection or of any indicative significance in the market’s achievement last week were it not for the market’s record since August 31 when it finally closed in positive territory at 5,196.19 and came out with a weekly gain of 52.83 points, or 1.03 percent. Looking back further at how the market traveled since July, the market’s outlook has certainly turned strongly positive. To reach 5,322.47 last Friday, the market has certainly broken through several intermediate levels of resistance.
I can, therefore, fully appreciate the claim of insiders that the market may have certainly recovered together with the feeling that it could even be at the brink of breaking out to unknown limits. The weekly trading gain of 121.15 points, or 2.33 percent, is a clear and present evidence of that claim. The market has strong momentum. Taking into consideration its movement from the week ending after August 24, the state of the market cannot just be dismissed to be an aberration or an abnormality that has no particular solid predisposition.
The market’s average daily value turnover of about P5.4 billion last week was significantly higher than the market’s daily average of P4.2 billion since three weeks ago. It was no less than 28 percent higher. Average daily volume turnover has remained the same in width and depth. The market has continued to trade on big cap stocks while at the same time engaged in the chase for small cap stocks at times, which pictures a market that is actively positive.
The market, however, still bears some traces of weakness. Trading losses continue to be experienced in some days of the weeks under review. For instance, the market continued to suffer from weakness last week as it incurred trading losses on Monday and Tuesday. The week before, September 3 to 7, the market slipped in two out of five trading days, too. And in the week further back, August 27 to 31, the market also registered a trading loss.
The sum of these trading results, nonetheless, point to a strong market that is evidently on the upward direction.
This is the technical picture. How about the market’s fundamental outlook? Is it as solid as the technical picture?
Fundamentals
The lingering feeling of not being able to trust what you see in the charts and in other technical tools about the market considering past developments, even insiders called to take profit in the face of the market’s continued advances in the last three weeks. There is also this feeling among insiders that based on the foregoing trading results of the market, it is very possible that it is begging to break out and head upwards to unknown limits.
Come to think of it, the market as of last Friday’s closing is only 40.21 points away from the last closing high of 5,362.68 established on July 5 and only 80.69 points away from the market’s recorded session’s high of 5,403.16 also registered on the same day. The question now is where could the market draw strength from present business and economic fundamentals?
Abroad, US market indices last week have been closing in what foreign financial news describe as “multi-year highs.” This is on the heels of the US Federal Reserve’s decision to launch its third round of bond buying known as the QE3, or the third round of “quantitative easing.”
Owing to this news, US stock prices are—as described—to be on the “tear.” In theory, this should be the effect. The Fed’s decision will certainly help prop up the American economy and bolster its performance. In turn, this will lead to improved overall business and macroeconomic status. The result of which, too, is tied closely to stock prices and the performance of the stock market.
Equally as important, too, there seems to be some real solution now for the credit problem in Europe. There are two big developments last week that give glimmers of hope to restart growth in Europe. Accordingly, “the European Central Bank unveiled its plan to buy—in unlimited amounts—bonds of troubled euro states that are prepared to meet its conditions.”
Even if “this action does not quite turn the bank into a full-fledged lender of last resort,” as observed in news reports, “this move promises at least to provide a backstop to ward off the specters of default and a euro break-up that have had the markets worried,” according to the reports.
The European Commission also unveiled what news reports describe as a “key policy to start dismantling the negative feedback loop between sovereigns and banks, addressing the financial fragmentation that is undermining the euro from within, and the other issues that weigh heavily on confidence and inhibit growth.”
In this connection, the European Commission disclosed its “plan to create a banking union, with unified supervision arrangements under the ECB.”
These developments, which in the last three years have largely influenced the movements of equity markets worldwide, are expected to provide the fundamental hope for growth and positive outlook in the global economy and markets.
On the local front, government is confident that full-year targets on the economy are expected to be met by the identified growth programs it has laid. This is in addition to the outlook on inflation that it will not breach the estimated inflation rate of 3 to 5 percent in 2012 and 2013.
Bottom-line spin
With both technical and fundamental reviews pointing to a market run-up, since the market had long been repressed but remains strong and aggressive, there is a good chance that stock prices may go viral. This will mean that the market could easily break through the vaunted target 5,500 level in a short time.
If this happens, however, there is this technical possibility that the market will as well immediately revert to a drastic correction as in a vertical fall in the same way it may have moved upwards due to overexcited investors’ reaction to the foregoing observations of an increasingly improving technical and fundamental outlook.
(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 visit www.kapitaltek.com.)