Watching the trading on the Philippine Stock Exchange (PSE) these last two days was wonderful. But only if you are the kind of person who slows down at every traffic accident to check if there are any fatalities.

I know that stock-market trading is not as interesting to most people as it is to me. Then again, I am probably a little strange since I think watching basketball on television is boring; I like to be there in person so I can see the action away from the ball.

So allow me to tell you why you should now become more interested in the Philippine stock market.

Every day the headlines are proclaiming all the bad economic news. “Experts” like me seem to enjoy writing about all the possible gloom and doom. And things are somewhat uncertain right now. Yet, in the end, we all have an obligation to take advantage of any opportunity to increase our income and our wealth.

On March 18, when the PSE composite index stood at 2,900, I said prices would fall to 2,600 before any buying opportunity presented itself. Of course, I expressed the same analysis on April 16, May 5 and June 6. As of yesterday, prices fell below my magic 2,600 level. Now there is a possibility that prices will continue to fall, perhaps as low as around 2,000 to 2,200 for another 15-percent to 20-percent drop.

However, at some point, prices are going to come roaring back, and you will be able to make a lot of money if you are prepared.

If you are currently in the stock market, holding the big company shares, what can I say? You had your chance to get out many times over the last three months. The only common-sense strategy now is to sell immediately and hope prices go lower so you can get back in at a lower price. The index will probably fall at least to the 2,530 range before any rally will start, so you might be able to save a few bucks.

If you are holding second-line stocks, you should continue to hold them because it is unlikely that we will see more price erosion in these shares.

If you are a former stock-market investor, or are new to the market, now is the time to start preparing for buying opportunities. I would strongly suggest that you attend any of the stock-market trading seminars offered by one of the local stockbrokers or by the Philippine Stock Exchange. It never hurts to hear what industry participants are saying, particularly when the market is falling. If you have some extra cash, open a trading account with the minimum amount just to get the broker’s research, but, of course, do not start trading yet no matter what you are told.

When you do start trading, limit your purchases to the name-brand companies, the blue-chip and index companies. When the market starts rallying, you want to be in the big stocks and not wasting effort trying to find the “hot tip” companies.

Ok, so why do I think a strong rally is on the horizon, and when is it going to happen?

I have been saying for months that the market needed a strong selloff before prices could go up, and foreign money is now giving us the opportunity to profit. The sales by foreign brokers have been nothing short of spectacular in the last two weeks. The foreigners have dumped literally tens of billions of pesos of shares, all blue-chip companies. Unfortunately, there has been a lot of local “sucker” money trying to bargain-hunt (or catch a falling knife) through this selling wave. And let me tell you a little secret: A good part of the recent peso depreciation has been because of this foreign selling. Watch for the peso to be stronger a couple of months from now.

Twenty years of observing the PSE has shown this: Foreign-money buying tends to be heaviest at or near the high, and the greatest foreign selling comes at or near the low. It is not that foreign money is dumb. It is simply because they dominate the volume of trading on the PSE and, therefore, cannot be very nimble. Further, most all of the foreign money tend to move in the same direction at the same time, like a herd of stampeding elephants. When they start buying, prices go up, as when we saw the historic highs reached late last year. The reverse is also true.

The market has been falling all year long but most of the last five months has been local selling. Now the elephants are scared and we have dropped 10 percent in less than a month.

Because this last drop has been foreign-dominated, you should hold those smaller, second-tier issues because it is unlikely that they will fall much further. There is no foreign interest in selling those shares.

I predict it will be, maybe, a month or so before you should get into the market. After the hard selling stops, there must be a cooling-off period. Locals will test the waters. Prices will very cautiously move higher, and six months or so later, the foreign elephants will return to give you great profit opportunities.

Finally, we are witnessing the bloodbath I spoke about in March. Now we can go higher. 

E-mail comments to mangun@email.com.

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Watching the trading on the Philippine Stock Exchange (PSE) these last two days was wonderful. But only if you are the kind of person who slows down at every traffic accident to check if there are any fatalities.

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