Philosophers have been trying for centuries to qualify and quantify what elevates humans from the rest of the animal kingdom. If you have ever had a pet dog or cat, maybe the philosophical answer is easy. Humans are easily bewildered by things that are in a state of disorder or chaos. Further, we absolutely must make sense out of that state of confusion.
If the family pet comes upon a new piece of furniture or a pile of clothes on the floor of the kids’ bedroom, you can see the animal’s surprise at this new situation. But that soon turns to “What can I do with this thing?”
Being so much higher on the evolutionary ladder, we immediately seek to know who, why and how. We have this need to create order out of chaos. If no reasonable answers can be found to our questions, we start reaching for solutions. “No one could have possibly built the ancient pyramids so it must have been the ancient aliens.”
Last week I wrote that the “crash” of the US stock market was a result of investors fearing that an increase in interest rates would stop them from buying back their own stock to support the price. We all know that, based on my decades of experience and incredibly brilliant intuitive knowledge, that is the only possible correct answer.
However, we also know that that is total nonsense.
Answers to a complex question usually have a successful shelf life of about 15 minutes. The cat is absolutely convinced that the clothes grew like a flower from the floor until Junior drops another t-shirt on the pile. Then the answer must change.
In the past 10 market days, the Philippine Stock Exchange Index (PSEi) has been in a state of chaos. We have had six daily trading gaps. A trading gap occurs when “there is a break between prices on a chart that happens when the price makes a move up or down with no trading occurring in between.” For example, the PSEi closed at 8,810. The next day the high was 8,680, meaning there is a “gap” between 8,810 and 8,680. This happens frequently but to have it happen six times in 10 days is nearly unprecedented. The last time anything like this happened was in March 2009, but not as many times or with such large gaps.
These gaps, both up and down, are like a cat chasing the light of a laser pointer around the room. So do not expect any kind of sensible explanation from me. But maybe ancient aliens are in control of our stock market. Actually, that probably does make sense.
Remember that sellers cannot create a transaction. Even if a seller is willing to sell at one peso for a P1,000 stock, they cannot force a buyer to buy. Buyers, on the other hand, can “make an offer” with a price bid so high that the seller “can’t refuse.” Therefore, buyers are now like the cat chasing the laser light trying to figure out where it is going to land next.
My lovely wife Ada likes to rearrange the furniture in the sala every couple of months. I have given up trying to figure out why. Now I only have to locate where she placed my favorite chair and sit down. The reality is that after the chaos of rearranging usually comes a more favorable outcome. The same will soon be true of our stock market. Wait, watch and be prepared.
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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.