The Philippine stock market started February on a positive note last Friday. The PSEi index closed 84 points higher at a reading of 6,707 and up a slight 0.32 percent for the week.
Closing the day at the 6,700 level was good but even more positive was the value trading of P5.6 billion. The daily volume was “clean” meaning that often on heavy volume days, there is 10 percent or more that is some sort of large cross-trade. This can be from one stockbroker to another or from one account to another with a single brokerage firm.
These are legitimate trades, but they are not “public” trades from normal retail clients. One data that I watch is the number of individual trades that an issue does so that I can calculate the average size of the trade. A smaller average size means more retail clients are participating.
For January the PSEi closed 3.04 percent higher than from the end of December. For the last three months the PSEi is 10.68 percent higher and since the October 2023 low at 5,960, the index has gained 12 percent. If you follow the press/media, there is great attention to the daily fluctuations and rarely if ever to the larger picture. Further, the analysis is usually something like, “The stock market was up today because of a general increase in the Asian markets.”
From last Saturday’s press: “Stocks rebound as Wall Street bounces back.” Where is the commentary on the period October to now? And when the PSE is down, it is a very predictable “PSEi tumbles as Fed quashes rate cut hopes.”
As an asset class, equity markets tend to follow a general trend up and down over a longer period of time. But every PSE trader’s dream is that the PSE would actually closely follow the Dow Jones short term moves.
If anyone bothered to deep-dive the data over 10 years, for example, they would discover that there is about 50 percent chance that if New York is up, the PSE will also be up. Trading off the Dow is a great way to lose money. Further, and this is fun, the PSE starts the trading week and closes the Monday session before the New York market opens for Monday trading. The same data deep-dive reveals that NYSE has a slightly—actually infinitesimal—chance of being up when the PSE is up the day before.
If you read the press/media reports—and some of the stockbroker analysts’ comments—you might think that professional traders and investors get up every morning and check the news reports before making a stock market decision not unlike looking out the window to see if it is going to rain.
I check the news every morning to see which of my age peer group had died (RIP Carl Weathers), which country the US has started bombing (congrats Yemen), and, lastly just because, the trend of Philippine inflation i.e. crude oil prices (Brent under $80: hooray).
My trading decisions are based on which issues are moving or have moved and which I think will move higher based on the trend that the charts show me. That is how most people that TRADE the market make their decisions as opposed to those that TALK the market, especially those in the realm of academic “Financial Literacy.”
But don’t external factors strongly influence stock prices? Yes, they do but no, not necessarily in the ways you might think.
Here is the US/global “SITREP” from The Kobeissi Letter. “Since 2024 started five weeks ago: markets have removed an interest rate cut from forecasts, US CPI inflation jumped for the first time since September 2023, US interest rate cuts are no longer expected to start until May 2024, two jobs reports have come in stronger than expected, the US 10-year note yield is up nearly 15 basis points, and the S&P 500 is up 5 percent to a new all-time high while the Magnificent 7 have added $3 trillion in value.”
What does all that have to do with making a buy/sell decision for PSE shares? I do not have a clue. Ask a “Financial Literacy” professor/guru. I am waiting for one issue that I own to close a trading gap at P3.42 so I can take my 39 percent profit.
E-mail me at email@example.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis provided by AAA Southeast Equities Inc.