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ONE
month ago, on March 14, the Philippine Stock Exchange
index (PSEi) closed at 2904.73. As of this writing, the
market closed at 2,904.73. I know that it is just
coincidental, but I wrote back then that the market
should fall another 10 percent. In fact, I said it
needed to fall another 10 percent before there would be
a great buying opportunity.
Of
course, immediately after I wrote those words, prices
fell some and then went up over 3,000, seemingly to
reverse its downward trend. A good friend who measures
his portfolio in millions of pesos consoled me with the
words that I could not be right all the time.
In
truth, I am rarely “right” but often premature. I will
say it again. The stock market will fall to the 2,600
level or even lower before any sustained rally can
begin.
The
stock market has been in a sustained decline since
October of last year. Price upswings have taken prices
only to the top on this long-term trend channel. For the
same reason, declines have been fairly limited to the
bottom of the trend channel. However, the overall price
action is down and a reversal of that trend is not easy,
nor will it come quickly.
This
fall in prices is against a background of some
reasonably strong negative news. Higher Philippine
inflation, subprime fallout, high energy and food costs,
a problem with the supply of rice and an increasing
perception of distrust in the administration are all
contributing to investor worries.
On the
opposite side, there are a slew of good happenings. The
property companies are reporting sustained strong
earnings. Major foreign investors continue to come into
the
Philippines,
as shown by a Macao group entering a listed gambling
company and the Petron share sale. There has not been
any foreign selling of the large IPO placements to
foreign groups made last year. Capital spending is
basically steady if not that robust.
Nonetheless, sentiments drive the market and, for now,
the good news is ignored. You cannot argue with the
price action, and the action is down and will be for
some time to come. The only way that a quick reversal
could occur is if we get 1) a sustained but rapid
sell-off, followed by 2) an equal period of stagnate
price movement.
Although
there is some slight technical support at the 2,900
level, it is unlikely that we will see a rally from
these current price levels. There are too many weak
holders in the stock market right now. That is, a rally
from 2,900 will bring in strong selling above 3,000, as
we saw in the last month. Whet we need is for the
nervous investors to cut and run, and I do not think
that will happen at 2,900.
The
support level on the PSEi is at 2,600, then 2,500 and
then 2,000. I want to believe that 2,600 will be a
turning point, but it may not be unless we move there
quickly with large trading volume. The worst-case
scenario is more of this crumbling of prices. If we do
not see a climactic drop in the next month, then we may
see a slow, painful deterioration to levels below 2,500
through the third quarter. The longer this slow burn
takes, the lower the potential downside, even as low as
a fall below 2,000.
As I
said before, although prices have fallen some 50 percent
from the highs, investors are still hanging in there,
hoping to sell on short-term rallies. This does not
forecast a strong price rally.
Technical short-term targets for some of the more
heavily traded issues look like this:
PLDT—P2,600
Megaworld—P2.00
Ayala
Corp.—P4.00 then P3.60
BPI—P47.50
Globe—P1,400 then P1,300
PNOC
Energy Development Corp.—P4.50
Alliance
Global—P3.50
Ayala Land—P9.00
then P8.00
BDO—P43.00
then P38.50
First
Phil. Holdings—P40.00 then P30.00
Robinsons Land—P10.00 then P6.00
SM
Investments—P250 then P210
Holcim
Philippines—P4.50 to 5.00
Meralco—P70
then P60
Jollibee—P40
to 45
Most of
these issues should reach their lower targets if and
when the broad market hits its support at 2,500 to
2,600. Therefore, the most reasonable trading strategy
if you are not into stock-market investing is to wait
for the support levels of both the broad market and
individual shares to be achieved. If you are still
holding individual shares, I suggest you stop waiting
for a miracle and get out, unless you are willing to
hold on when prices are much lower.
Otherwise, hold on through the storm for brighter days
ahead by “dollar cost-averaging,” meaning buying an
equal money amount of stock on a regular basis
regardless of the stock price.
If we
bottom out during the third quarter of 2009 at whatever
level, we will see a long-term rally that will target
well above the historic high. And the target date for
that is 2010. Another coincidence, I suppose.
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