WE think of “light” and “dark”. However, dark is the natural condition, an environment without light. We think of hot and cold but here again everything is cold until heat is added. When energy is put into the environment, then we have “light” and “hot”.
The stock market operates the same way. My observations of stock price movement lead me to believe that it operates much like the laws of physics. Rarely, for example, do prices change direction and trend from one day to the next. There is usually a pause at a top or bottom, much like a ball, when tossed into the air, must first stop going up before it reverses and starts going down.
The laws of thermodynamics state that heat constantly moves out of an object, going from a “hotter” place to a colder place. If a continuing source of energy is not added to the environment, the environment is going to grow colder.
The stock market is always losing energy through “normal” selling to convert to cash for reasons unrelated to the stock prices, such as wanting cash to buy a new car, for example.
We are told that prices went down because there was selling pressure. But in truth, it is buyers—not the sellers—that determine price movements virtually all the time. If buyers walk away, prices go down regardless of how much or little the “selling pressure” might be. Likewise, we have seen very high-volume days when prices went much higher even as there was much selling as evidenced by the high volume. Rarely do we have a low-volume day with prices going significantly higher, and if we do, prices usually go down the next day on even lower volume as buyers hold back.
We have had seven major occasions since the historic high last April when prices have tried and failed to break out to the upside, with three happening since early December 2015. These all occurred after an uptrend in price movement. Sellers did not stop the upside breakout. Why would they? They would be inclined to wait for even higher prices.
It was the buyers that walked away at a certain level after 3 percent, 5 percent and 9 percent moves from bottom to top. Why is there a lack of consistency in the amount of the moves before buyers left, and then, why did buyers walk away at all during an uptrend? The Zeroth law of thermodynamics may explain it. Both buyers and sellers try to stay in equilibrium with a third force, in this case the economy. Therefore, buyers and sellers come into equilibrium with each other at a certain point.
The bottom line may be that this current stock-market downtrend may mean the economy is not as exciting as the government experts want us to believe.
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E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.
2 comments
Really? I thought the market is down because the foreign funds took their profit already? Wouldn’t they be back now that the index is down 20%? And more importantly isnt the Philippine market affected by the global downturn like most countries?
Nope.
This bounce in the index is your window and opportunity to sell.