Market Rider: From bad to worse

Quite different from what I said how it would happen, the market’s strong climb the week earlier was already “vertical” enough to make it revert to its former trend as it did last week, following a technical theory in a “correcting” market.

As stated in textbooks, when the market “goes into a strong rally producing an almost vertical pattern over a short period of time,” it’s a sign that it will revert to its original trend as it has yet to reach its bottom or turning point.

The market the week before may have already gone through what is described as a “vertical climb over a short period of time.” The daily fall that followed last week was the reversal to the original trend. In other words, the market didn’t need to climb further last week to create a “vertical pattern” because its climb the week before was already “vertical enough.”

Considering past trading results, the market’s performance in the week ending September 14 is deemed “vertical enough.” Its weekly gain of 121.15 points, or 2.33 percent, can be what is theoretically described as “vertical pattern.”

This makes the results of trading last week a classic example of how different a theory may actually happen. It may come in forms different from how one expects it, like how it did.

This is why stock trading is sometimes called an art rather than a science. Some market events happen over and over again, like the seasons of the year, but they will not necessarily recur in exactly the same fashion as they did before.

More important point

The more important point now, however, is what will happen next. It is said that the market will experience an equivalent “vertical” fall after the spike. To some accounts, the anticipated drop will be equally deep.  It can be far longer, too.

Looking at last week’s trading results, the market drop was not that bad and deep. It resulted in a weekly loss of only 30.41 points, or 0.57 percent. Even on a daily basis, market losses were not also that grave.

Trading on Monday ended on a positive territory. Apparently, the previous week’s momentum was still there that the market was lifted on Monday. As a result, the market ended with a gain of 28.43 points, or 0.53 percent, at 5,350.90.

It, however, started to decline on Tuesday, ending lower by 19.77 points, or 0.37 percent, at 5,331.13. This was followed by losses of 14.10 points, or 0.46 percent, on Wednesday and 22.06 points, or 0.41 percent, on Thursday when the market closed at 5,294.97. The market suffered another loss on Friday but only by 2.91 points, or 0.06 percent, to 5,292.06.

Other developments

During the week, several small cap and/or speculative issues sizzled.  One was A. Brown Co. Inc. (BRN), the holding company of the Brown Group of Companies.

Since it is primarily engaged in real estate development, BRN is listed under the “property” board of the bourse. Among its subsidiaries are: A Brown Energy and Resources Development; Brown Resources Corp.; Nakeen Corp.; Andesite Corp.; Bonsai Agri Corp.; and Masinloc Consolidated and Power Inc.

“BRN also has an 11.4-percent interest in Monte Oro Resources Inc., whose subsidiary, Monte Oro Grid Resources Corp., won the bidding for National Transmission Corp. together with State Grid Corp. of China and Calaca High Power Corp.”

“In 2010, BRN subscribed to 2,850,000 shares and 3,000,000 shares of Palm Thermal Consolidated Holdings Corp. and Panay Consolidated Land Holdings Corp., respectively, at par value. On Dec. 8, 2010, PTCHC acquired 100 percent of DMCI Concepcion Power Corp., formerly known as Palm Concepcion Power Corp.”

The trading activity in BRN was triggered by the news that the company and its power subsidiaries signed an agreement with AC Energy Holdings Inc. (ACEHI)—a subsidiary of Ayala Corp.—to build a power-generation plant in Iloilo.

The plant is a 135-MW facility that is intended to address the “anticipated power supply situation in Panay and the Visayas using the latest in clean coal technology.”

In a diclosure, the company said “the project plans are inclusive of a second 135MW plant for future development.”

Interestingly, though, the plant is targeted to start operations by 2015.

Based on the latest market statistics posted at the PSE website, BRN closed at P3.17 and had a session high of P3.54 last Friday. It has a recorded 52-week high of P3.89 and 52-week low of P1.70.

Per the PSE website’s posting last Friday, the “adjusted” P/E ratio of BRN was 161.2411 times.

Bottom-line spin   

Even without the anticipated technical prognostication that the market will revert to its original trend following a “vertical” uptick, present fundamentals bare its weakness, that it is perforce to continue to move sideways to lower.

The breadth and width of the market have also been materially limited by the greatly diminished trading activity in the mining sector since the imposition of the moratorium in the issuance of mining permits. This was followed by the promulgation of Executive order No. 79 (the new mining law), which stopped new mining activities and significant stock trading activities “until relevant legislation is passed.”

It is aggravated by the decrease in trading transactions for Philex Mining Corp. (PX) shares, owing to the operating losses it is seen to incur following the extended closure of its Padcal mine.

Considering the weak global market situation, the local market is understandably not yet ripe for a reversal of trend.

On the other hand, considering anticipated events here and abroad for the rest of the year and next year, there is a strong possibility that the local market may start moving up any time now.

Thus, it is possible that—in a correcting market—the fall may no longer be so steep. But this may not be true for those who continued to hold long positions on BRN last Friday. For them, the worst is yet to come.

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