One of the many human emotions that is most alarming is desperation. I am not speaking of the emotion that a parent has when a child is sick and experiences that feeling of helplessness.
The desperation in this case is the emotion of having absolute faith and confidence in something that is at least a little shattered when it proves to be unsuccessful in describing the real world.
Stock market analysis is primarily divided into those who believe in the “Fundamentals” and those who follow the “Technicals.” Each side is almost certain that they have found the ultimate answer. Allow me to give a silly analogy that I hope will not trigger your sensitivities.
Fundamental stock market analysis is similar to Catholic Christianity and Islam. There may be some internal differences and disagreements—Roman Catholic and Eastern Orthodox; Sunni and Shia—but the basic beliefs and doctrine is unwavering and concurrent. The same is true with fundamental analysis.
As in the religions, there is a firm set of dogma that is religiously followed, pun intended. The fundamentalists can tell you when a stock market, or issue, is cheap or expensive based on parameters that leave little room for discussion. These are not unlike the Ten Commandments or the Five Pillars of Islam. There might be some refinement and minor changes over time, but “Price Earnings Ratio,” “Debt-to-Equity,” “Book Value” and the like are really not to be argued with.
The Technicians follow a basic creed that price analysis and forecasting can be done by understanding the way prices move. I would compare them to Protestant Christianity. The basic tenets are the same but—as with Protestantism—there are thousands of different “denominations.” For example, Candlestick charts tell the truth for some as do Point-and-Figure charts for others. Is the future found in Elliott Wave Theory or in the Seventh Wave Principle? God only knows, maybe literally.
And then there is the 2019 Philippine stock market. Both the Fundamentalists and the Technicians are moving quickly into desperation mode.
One local guru said back in early August that Jollibee was an incredible buy above the P230 area and sort of whispered—he is far too nice a guy to say it—that anyone who did not agree with this analysis was a fool. He must really like the stock now that it is about 20 percent lower. One stockbroker says, based on Price Earnings alone, the composite index absolutely should be at 8,000. Another one from a prominent bank says that the economic numbers should be reflected in much higher stock prices.
Several of the technicians talk about the market being oversold and others mention “euphoria” as to why prices are not higher, but should be. Considering that the relative strength index on a monthly basis has been virtually unchanged all year and the index is almost exactly the same as the close on January 4, 2019, “oversold” and euphoria do not seem to be part of the equation.
I am neither a Fundamentalist nor a Technician. In a brief conversation with him the other day, former PSE President Hans B. Sicat used the term “chartist” and I like that best—since it rhymes with “scientist.”
A scientist knows that mixing vinegar and baking soda creates bubbles, the amount depending on the purity of the ingredients. A chartist knows that a Complex Head and Shoulders pattern is followed by a 20-percent decline, depending on the price movement prior to the formation of the pattern. I am a chartist.
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.