Get out of the PSE now

There is nothing good to say about the trading on the Philippine Stock Exchange.

Stock prices should trade with what stock analysts call the fundamentals of the corporation. Earnings and further prospects being positive should translate into higher share prices. There is nothing in the corporate world or in the macroeconomic picture that is negative enough for us to see stock prices at current low levels or to justify that prices should do lower.

Company earnings and growth through all industry sectors are excellent and show little sign of falling significantly. Stock prices are trading at a ridiculously low price-earnings ratio of about 12. The country’s economic growth, even at the low end of revised forecasts, shows strength.

Yet, I can say without hesitation that prices will move significantly lower before they will move significantly higher, that is, above 3,000 on the Philippine Composite Index.

Technical stock analysis, the study of actual price movement, shows that investor sentiment is terrible and is showing no signs of improving in the short term. And it is sentiment—raw emotion—that motivates people to spend their money, especially so when buying shares of stock.

Whether you buy and sell shares for the short term or the long term, the psychology is exactly the same. You buy because you believe the price will never be any lower within your investment time frame. You buy PLDT today because you do not believe the price will be any lower in the near future. Likewise, you sell PLDT today because you believe the price of PLDT will not be any higher in the near future.

Currently, and actually for the last seven months, every time prices have gone higher, sellers have entered the market believing prices would go lower very soon. The sellers have been right.

Every time buyers have gained some confidence and bought in believing prices would not go lower, they have been wrong.

Buyers have been constantly disappointed and sellers have been constantly accurate, and that leads to a falling market no matter what fundamental, corporate or country, conditions might exist.

The market has moved in a very clear and consistent trend since October 2007: down. Look at the last seven months. It has not mattered what corporate results or future outlook was; prices went lower. It did not matter that the credit problems in the West had virtually no effect in the Philippines; still lower prices. It has not mattered recently that the US stock markets, along with other major exchanges, are rising; the Philippine Stock Exchange (PSE) sheds more value.

Reading the newspapers, you find a wealth of excuses and explanations for the fact that stock prices keep going down. All of these comments are wrong. Even when prices go up, the comments are wrong.

This is not about worry over inflation, rice, fuel prices, confidence and economic growth. Nor is it about profit taking, bargain-hunting or any other stock-market/economic catchphrases.

The only emotion that is driving investor sentiment is uncertainty; indecision about the peso, prices and government policy. Investors do not have the slightest idea of what they think the future holds. They have not formed a firm opinion about the future. Buyers are hesitant to make a firm commitment to a brighter tomorrow. Sellers are unwilling to get out of the market, thinking that, maybe, the future might not be so bad.

Look at the United States. The New York stock market is up for 2008, breaking back above 13,000 after falling to 11,500 earlier this year. The US economy is stagnant. The housing market is a disaster. They are in the midst of a long and bitter presidential election. The dollar is very weak, although strengthening slightly. Fuel prices are through the roof. Food has never been any more expensive. And stock prices are booming. However, investors are confident they know what the future looks like, even if the picture is not exceptionally optimistic.

Sellers, not buyers, drive stock-market prices. Every time buyers have come to the market, sellers have stopped all price rallies. I said more than two months ago when the PSE index stood above 3,000: “For the market to go up, we need a big selloff bordering on panic.” Still true. Most issues are lower now than they were back then.

If you bought shares of the top companies in the last seven months, sell today. You will soon have the opportunity to buy back cheaper. If you own shares of second and third liners, hold on; it is too late to sell and within three months or so, you may thank me for this advice.

If we can fall to around 2,600 (or lower) in the next weeks, we will see a strong persistent 2008 rally. If not, prices will continue to slowly drift lower, and if this slow burn continues, we could drop to 2,200 or even 2,000. The longer you wait to sell out, the lower the price you will receive.

We will not go higher until investors lose their uncertainty and are firmly convinced there is no light at the end of the tunnel. Until that time, sellers will continue to liquidate on any upward movement, killing any sustainable rally. 

E-mail comments to mangun@email.com.

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Outside the Box: Get out of the PSE now

There is nothing good to say about the trading on the Philippine Stock Exchange.

Stock prices should trade with what stock analysts call the fundamentals of the corporation. Earnings and further prospects being positive should translate into higher share prices. There is nothing in the corporate world or in the macroeconomic picture that is negative enough for us to see stock prices at current low levels or to justify that prices should do lower.

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