Taking stock of the market

While Mark Twain was said to have worried about how the stock market customarily plays out in October, I made a “fearless forecast” exactly opposite his sentiments.

With the way it is unfolding, it could certainly end the way I said it would be.  Its usual tendency to go down more than go up at this time of the year seems to be going away.

Again, the market was up for the third week at the close of trading last Friday. Its gain for the week further gathered strength to end with a bigger weekly advance of 118.0 points or 1.82 percent.

The holiday last Tuesday seemed to have served as an invigorating breather rather than a break that could have taken away the momentum that the market had established the week earlier.

On Monday last week, the market started with the advances gathered in the first and second weeks of the month.  It was riding on a cumulative gain of 109.99 points or 1.72 percent. However, trading that day ended lower at 6,442.70, down 47.10 points or 0.73 percent.

When trading resumed on Wednesday, the market opened less than a point higher than the Monday close. The market opened at 6,443.43.

The market closed last Wednesday above the day’s open and low of 6,443.43 and 6,443.19, respectively, but it ended lower by 19.69 points from the day’s trading high as it closed at 6,483.57.

By then, the market was up 40.87 points or 0.63 percent. It was a negligible advance, yet it signaled for the first time that it had resumed its upward movement.

This was followed by another advance, with a bigger gain of 77.31 points or 1.19 percent on Thursday.  The market closed at 6,560.88, which was way above the day’s low of 6,528.22 and the day’s open of 6,533.99.  It was 7.51 points lower than the day’s high.

What’s significant about the market’s trading for the day is that more types of investors entered the market and traded across a wider spectrum of listed issues.  Daily volume almost tripled although value turnover rose by only P770 million from previous day’s level.

Daily volume and value turnover on Monday and Wednesday were as follow: 1.16 billion shares and P4.02 billion, and 1.62 billion shares and P7.48 billion.

On Friday, value turnover continued to be as big as that on Thursday.  But, daily volume dropped to 1.92 billion shares.

This will explain why the market did not fall last Friday.  Stronger hands (long-term investors) resumed their hunt in the market.

In May, the market hit an all-time high of 7,403.65.  The market’s close last Friday, 6,607.83 points,  was 784.37 points lower than the record.

Assessments

Taking into consideration the market’s average daily volume and value turnover since the market fell hard in June and, again, in August, it is quite difficult to imagine that it will be able to hit its latest all-time high by December.  There are only about 44 trading days left before Christmas Day and trading transactions after it will likely be lean and the possibility of a price run-up will be remote at this time.

As for the psychological barrier of 7,000, the market is just 392.17 points away from where it closed last Friday.

To start with, the breakdown of the market’s capitalization last Friday was divided and distributed as follow:  34 percent, holding companies; 18.59 percent, services; 16.1 percent, industrials; 15.6 percent, financials; 14.08 percent, property, and 1.63 percent, mining and oil.

The PSEi was revised on Sept. 16.  Two new companies made it to the list, replacing two in the previous list. LT Group Inc. (LTG) and GT Capital Holdings Inc. (GTCAP) replaced Manila Electric Company (MER) and gaming operator Belle Corp. (BEL).

Meralco and Belle were replaced because they failed to meet the three criteria to stay in the index.  These were the requirement on free float, liquidity and full market capitalization.

“On free float, the stock must have a public participation of at least 12 percent; on liquidity, the stock must belong to the top 25.0 percent by median daily value turnover per month for at least nine out of 12 months, and on full market capitalization, the stock should be one of the highest-ranked market capitalization (MCAP) measured by the company’s stock price multiplied by the number of shares being publicly traded.”

LTG is the holding firm of the Lucio Tan group of companies with interests in liquor, distillery, property, and banking.

Among those brought into the group are Asia Brewery, Tanduay Distillers, Fortune Tobacco, Eton Properties and Philippine National Bank/Allied Bank.

GTCAP is the conglomerate owned by George Ty and family.  It has interests in Metropolitan Bank & Trust Co. (MBT), Toyota Motor Philippines, insurance firm AXA, developer Federal Land Inc. and power firm Global Business Power.

In the reconstitution of the PSEi in February this year, property firm SM Development Corp. (SMDC) was taken out from the line up.  Bloomberry Resorts Corp. replaced SMDC.

Since BLOOM made it to the main index, it actively contributed in lifting the market’s business transactions.  The entry of the two additional holding company stocks seems to be producing the same impact on the market.  This may explain why the holdings firm sector has taken the biggest chunk of the market’s current capitalization.  Further market advances are expected to come from this sector.

In the meantime, we may expect supplementary boost from the three bottom dwelling sectors of the PSEi.  These were among the frontrunners before the hard fall of the market in June.  Another fall in August prevented them from regaining their old levels.

With global economic developments turning out to be not as bad as anticipated, these companies could make a surprise spurt to bring up the PSEi at the end of the year.

Bottom line spin

To my mind, it will be the said four sectors that will play an important role in the market’s yearend runup.  But more may come from the three bottom-dwellers of last Friday.  They have not recovered much of their previous prices before the market retreat in June and August.

Considering that the stocks of the said bottom-dwellers are far less weighted in the main index, the market may fall short from its all-time high record of 7,403.65, but it can very well hit 7,000.

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