Breaking record after record

The local market has been breaking record after record as if unaffected by global economic events that continue to put equity markets overseas on uneasy and erratic footing.

The previous record high of 4,413.42, which was established on November 5, 2010, was never broken until last July 4 when the market set a new record at 4,421.56.

After a string of short corrections the following days, which brought the market to its recent low of 4,376.23 last July 12, the market pushed on to again advance and hit another record last July 20 at 4,515.77.

Performance record

The market actually ended lower at the close of trading last Friday at 4,478.36. Evidently, the market gave way to profit-taking as investors played safe, keeping their earned profits before a disappointing event could come to pass, like the expected content of President Aquino’s State of the Nation Address (SONA) on Monday. Critics have already subjected it to questions and objections early on.

As part of the technical character of a market after a breakout, a reciprocal market correction always follows.

Looking back, the market has gone a long way since it started to recover as a result of the subprime crises, which turned into a full-blown problem in August 2008.

Like most markets in the free world, our market followed a parallel pattern of consolidation until it started to break out and recover in October 2009.

But the breakout in 2009 proved not to be that strong and solid enough for even the traditional Santa Claus rally that normally occurs during Christmas. It did not ostensibly materialize that year.

Come to think of it, the official declaration that the US economy was out of recession did not come until sometime in 2010. Before then, the market was only carried into active trading on the basis of “less-than-expected” deterioration on the state of the US economy.

This may explain why the market fell lower at the beginning of 2010. It could not sustain a market that had gone up to as much as double its bottom index following the subprime crises only because the US economy and other free world markets thrived on economic events that were further described by experts as “not as bad as it was expected to be.”

The market then started to demand for signs of real development gains. It grew tired of news that only gave consoling observations on the state of the US economy that were, after all, still negative.

But as the United States and the global economy started to show signs of actual recovery in 2010, our market responded dramatically. Trading activity became a bull run, establishing the first record high of 4,413.42 on November 5, 2010.

Bottom-line spin

Again, the market climbed up too fast toward the end of 2010, more than it did toward the end of 2009—again, on mere impressions of hope rather than on real development gains.

The market dip in 2010 lasted only less than a month. The market correction this year lasted to almost a quarter. More than that, it was seriously deeper and more intense. Both corrections, however, happened in the early part of the year.

The reason for the difference in gravity and intensity was due to new factors that fueled market volatility, the most significant of which was the wave of unrests that gripped—and continue to grip—countries in the Middle East and North Africa, where citizens are now demanding more political and social reforms.

These factors led to geopolitical instability that, in turn, had affected oil prices to move erratically to levels that could reverse fragile global economic gains so far earned.

These new factors, if not satisfactorily addressed, could further funnel a wave of more political and social unrest in the Arab world, which could lead to unpredictable consequences for world markets.

Market plays

In the meantime, the growing activity on mergers and acquisitions (M&A) going on locally has temporarily neutralized the impact of the abovementioned factors in local investors’ behavior and trading sentiments.

But again, there is yet another factor that may affect investors’ sentiments and trading behavior. This is the debt ceiling issue that is engulfing the current US administration and Congress, creating a serious rift that, as of this writing, remains unresolved.

However, even this early, high-profile personalities in the conflict continue to express optimism that a default will be averted. A solution, somehow, will be made. The results, nonetheless, will continue to divide and distract market behavior.

Turning to the local scene once more, the President’s address always elicited reactions that could initially start positive before turning to negative or the other way around.

As this article is being written before President Aquino’s SONA, it is felt that the President may receive a passing grade, but questions remain on how he will decide to fill up government vacancies to complete his government working team.

Ambivalence on this matter may cause a market sell-off which, to my mind, is more likely to happen soon anyway.

Reviewing closely market trading statistics, there seems to have been an apparent pattern of sell-off of first-line stocks by foreign investors last week as they became more of net sellers than buyers.

In addition, while the market’s overall value turnover had increased to more than a quarter basis points in recent days, which enabled the market to break record after record, market volume had observably become extraordinarily bigger. This makes one feel that such a development can only be generated by market plays on more low-priced and speculative stocks.

Should this be the case, the market may correct lower in the next few days. Thus, the trading call recommended for the week is to “sell” now.

(The writer is a licensed stockbroker of Eagle Equities Inc.. Other investing parties mentioned or referred to in the column may have a conflict of interest that can affect the objectivity of their reported investment activity. You may reach the author at [email protected] or directly at www.kapitaltek.com.)