With every transaction that involves a negotiated contract, the buyer always determines the price and seller always determines if the transaction will take place. That is true for the stock market also.
Look at this actual offer to sell taken from the Internet on a local online marketplace. “Hyundai Grand Starex Gold Limited VGT 2015, 2.5Liters Turbo Diesel, Top Condition, P1.598M Negotiable.”
When we see the word “negotiable,” do we assume that the final price will be higher or will it be lower than P1.598 million? If the transaction pushes through at P1.4 million, then the final price was determined by the buyer’s bargain hunting. If the price was determined by “profit taking,” the seller would have said “nonnegotiable.”
The seller determines if the transaction will take place, but the buyer determines what the price will be. In the aftermath of the 1997 Asian financial crisis, bids to buy new condominiums were about 30 percent lower than the asking price. Most sellers decided that the transactions would not take place at that lower price. But any sales transactions that were completed were done at the buyer’s price, not the seller’s.
Last week the Philippine Stock Exchange Composite Index (PSEi) was up 102 points last Thursday at 8,461. The next day—Friday—the PSEi was down 124 points at 8,337. The PSEi was down on bargain hunting not profit taking. When prices go lower, it is because
buyers are not willing to pay a higher price. If profit taking moved prices, then all sellers would ask P2,000 per share for every issue and buyers would have the choice to “take it or leave it.”
You may say that sellers decided to “take profit” down at PSEi 8,337 and you might be correct. However, that 8,337 price was determined by the fact that that was the price buyers were willing to pay.
This past Friday, bargain hunting took the stock market down.
Ayala Land Inc. (ALI) was the most active issue trading with P92 million and closing at P42.40 down 2.08 percent. ALI contributed 14 points to the 124 PSEi fall. Here is where the bargain hunting comes in. Forty-two percent of all the trading on ALI came at a price of P42.40 in the last 10 minutes of trading.
SM Prime Holdings Inc. accounted for 35 points of the 124 and closed at the low of the day at P36, down 4.76 percent. That price accounted for 65 percent of all transactions and again took place in the last 10 minutes.
SM Investments Corp. did not close at the low of the day but was still down 2.24 percent at P974.50 and dropped the PSEi by 25 points. Sixty-four percent of the trading occurred in the last 10 minutes at P974.50.
Bank of the Philippine Islands was down 3.2 percent at P103 and the PSEi lost 14 points because of that move. Do I need to say that 67 percent of the trading happened at P103 in the last 10 minutes?
In a negotiated sale—which describes the stock market—the seller wants the transaction more than a particular price. The buyer wants the “price” more than the transaction. That is the reason for the word negotiable.
Have you ever sold something for a lower price than you wanted? Have you ever passed on buying something because you did not like the price? Do you think that department stores want to do their profit taking at “70-percent off on selected items”? They are just accommodating the bargain hunters just like on the PSE.
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.
1 comment
If prices are up, it’s profit taking. If prices are down, it’s bargain hunting like during mall sales. Sounds logical. But many still say “Index rallies back to 8,400 as investors look for bargains.” Though demand drives prices higher, the investors in the above quote are not getting a bargain because the index went higher yesterday.