Market Rider: Something’s amiss

October appeared to be another good month as the market ended higher with a gain of 78.41 points, or 2.18 percent, as it closed at 5,424.51 last Wednesday.

Most significant for the period, the market broke previously established record highs. It hit the record closing high of 5,443.74 and the record session high of 5,484.63 on October 4 and 5, respectively.

However, this was unlike the market’s performance in July when the market first proceeded to hit the record session high of 5,403.16 before hitting the record closing high of 5,369.98 a day later on July 5 with a net gain of 150 points, or 2.89 percent, from the previous month’s close of 5,196.19.

Notably, total volume amounted to 209.21 billion shares and total value turnover amounted to P165.62 billion in October. Again, this was in contrast to the market’s performance in September when it had a total volume of 34.96 billion shares and a total value turnover of P103.5 billion.

Unlikely events

Even limiting only the market’s performance on the above observed data, I can’t help but feel that something is amiss that I just cannot immediately articulate despite bullish reviews about the market. For sure, I have this feeling that the market might be in for an unlikely surprise.

Like one of the stories attributed to the legendary stock investor Jesse Livermore, also known as the “Boy Plunger or the Great Bear of Wall Street,” who made millions of winnings by shorting the market on events that were held to unlikely happen. In 1907, the unlikely happened. The “Panic of 1907,” otherwise called the 1907 Bankers’ Panic, market crash happened. This was actually preceded by the San Francisco earthquake of 1906, “a major earthquake that struck San Francisco and the coast of Northern California at 5:12 a.m. on Wednesday, April 18, 1906.”

According to the story, the market was then very active that stock prices were on an upward swing. Investors’ outlook was strongly bullish, pushing stock prices higher all the more. It was then that Jesse Livermore made his first big moves to trade and ended up with huge winnings out of shorting the market.

As described, the San Francisco earthquake plunged the market as it caused a “devastating fire that lasted for several days (leaving) about 3,000 people dead and over 80 percent of San Francisco destroyed whose economic impact has been compared with the more recent Hurricane Katrina (of 2005).”

From then on, Jesse Livermore rose to become one of Wall Street’s legends by trading on the basis of events that were unlikely to happen.

Technical considerations

The occurrence of an unlikely event that may—even just temporarily—disrupt and reverse the market from its current upward movement is far from the feelings of those I know who are also following the market. To most of them, the market in October was even a “last-chance-to-buy” time for the year as they are expecting the market “to fly” from now on.

But like I said, I have this feeling about the market that it might experience a short reversal like a “pullback” before advancing any further. Fortunately, technical analysis, while quite hard put to fully justify it, can lend some basis to my feelings about the market. If you look back, the market made a huge gain in July amounting to 245.22 points, or 4.84 percent, as it closed at 5,307.66. In August, the market suddenly ended lower, retreating by as much as 104.05 points, or 1.96 percent, on a monthly basis as it closed at 5,196.19.

The market recovered in September, advancing higher to the 5,346.10 level as it made a net gain of 150 points, or 2.89 percent. This made the month of September a good month contrary to popular impression. In October, the rate of market advance slowed down by almost half. It managed to advance by only 78.41 points, or 1.50 percent.

This happened as total trading volume soared to more than five times that of the September level while total value turnover increased by 60 percent.

Bottom-line spin

It could be true that what could be amiss in the current market situation at the moment may not necessarily lead to a market crash. I agree with the popular thinking that a market crash looks quite remote considering existing market fundamentals.

A “pullback,” however, can be possible. Current market prices are no longer that cheap. They have gone up high enough that they can always fall to a “type of price movement seen as a brief reversal of the prevailing upward trend, signaling a slight pause in upward momentum.”

This can be deduced from the market’s volume data for October. The market shifted its focus of trade from high- to medium-cap stocks to low-cap or penny stocks like the shares of Alcorn Gold Resources Corp. (APM). Just over 30 days ago, the share price of APM traded within the range of P0.014 to P0.017. In the next few days, they went up higher from P0.031 to P0.046 following a disclosure that the company was to be converted as the holding company of Puregold Price Club Inc. principal Lucio Co. The shares of APM were further heavily traded from P0.069 to P0.096. By October 18, the price of APM shares rose to P0.14 each. On the following day, October 19, APM shares hit the 52-week price high of P0.169 a share. This went down to P0.1540 on October 24 and further to P0.147 on October 31.

One explanation why the price of APM shares went up to as much 8.9412 times or 894.12 percent (P0.169 divided by P0.017), was the impression of some market speculators that it would not affect or penalize Lucio Co’s interest in the deal. As claimed, Lucio Co will not mind speculators from playing up the price of APM because he can always swap his assets at his own terms and receive stock payment at par value like what happened to parties or companies of a similar situation in the past.

From what I understand, however, the bourse recently reinforced its rules in related third-party interest. Any form of self-dealing is now strictly disallowed. The price of stocks to be issued will be based on the immediate 30-day moving average of the stock while the value of assets to be swapped will be determined by an independent qualified third party.

With this reinforced rule to govern the pending asset-for-shares swap deal, the price of APM shares will only fetch almost half of its recent prices. This could cause a sell-off across the board by speculators and trigger that market pullback that I could not at first articulate following the market’s performance for October.

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.