PSE: Wait and watch

ON Sunday of the recent long weekend, I was walking the aisles of the SM Department Store at the Mall of Asia. Suddenly, I found myself surrounded on all sides by a crush of humanity, all roaming while I was seriously trying to get someplace to actually buy something.

On my right was an open area. Here was my chance to break through. Good fortune was not with me. “Sir, Polo Black Ralph Lauren. Only P7,000 less 10 percent.” The only bottle I would spend P7,000 for would have a label “30-year-old whiskey.”

I had no other choice than to return to the crowded aisle.

The reason for the telling of my silly but true-life adventure is to explain what has been happening on the Philippine stock market. No matter how motivated buyers have been at any given time, they have been unable to break through the crowd.

There is much conversation about how the stock market is a “poor” performer for 2018. What is missed is that the Philippine Stock Exchange index (PSEi) has been in a coma for a month once the index fell to the congestion area below 8,085.

In particular, since March 21st, the market has traded about a 230-point trading range, measured on a daily closing basis. This is about a 2.7-percent range, which is basically nothing. The textbook definition of this type of trading is a “consolidation,” “to describe the movement within a well-defined pattern of trading levels.”

However, a more practical description would be a period of congestion where prices are unable to move because too many investors are just roaming around.

This price congestion area is bracketed by extremely strong resistance above PSEi 8,085 and equally strong support at the 7,870 area. Support is the historical price level that buyers have been willing to buy at, and resistance is the area at which buyers have walked away.

The support and resistance areas that we are now experiencing go all the way back to April 2015, when the PSEi first reached the 8,000 level. This same congestion area happened in July to August 2016. This support and resistance area is so significant that it became a congestion area in July to August 2017. And here we are again.

Buyers are willing to buy at the support level, but they are not willing to buy to push prices through resistance. This is a classic congestion (or consolidation) trading. The reason that buyers are not willing to buy above resistance is that there is not enough trading volume at support.

That may be the “what,” but what is the “why” for this movement? The experts will tell you about corporate earnings, interest rates and politics but none of that will help you make money.

I have a magic alarm clock. Every day, about 30 minutes after the alarm rings, the sun rises. No seriously, this has happened every single day. You are going to tell me that there is absolutely no causation between my alarm clock and the sun. But, that does not matter because there is an absolutely reliable correlation. Alarm rings; sun rises. No further discussion is necessary.

There is an equally reliable correlation to the price movement on the PSEi and that is the exchange rate of the Philippine peso to the US dollar. The peso moved from 52 to 49.75, and the PSEi moved from 8,250 to 9,000 from October 2017 to January 2018. The peso moved back to 52 and the PSEi went down to below 8,000. No further discussion is necessary. So, if you are a local stock market investor, wait and watch.

 

E-mail me at [email protected] 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.

Turning Points 2018
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