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If your
stock-market portfolio usually amounts to P5 million or
less, you will probably fall into one of three
categories.
You
might have liquidated your positions at the early stages
of the recent decline. You took your losses, and now you
are sitting on a pile of cash waiting for the right
opportunity to get back into the market.
Or, you
might be an investor who waited longer and sold out with
substantial losses, perhaps losing as much as 50 percent
or more.
The last
four weeks have been very difficult, but maybe you can
console yourself with the thought that at least you did
not stay in for the full ride down. The financial wounds
are still fresh and you are extremely apprehensive about
getting back on the stock-market train.
At the
same time, you might also be worried that you will miss
the opportunity to recover your losses when and if the
market starts going higher.
If you
are part of the third group that has hung in there since
the beginning, taking massive paper losses on your
positions, every trading day is certainly a new
adventure, even though I have no idea how you managed to
cope with the last month.
The
Philippine Stock Exchange is closed for the holiday as
of this writing. America and Europe rebounded last
Friday, and Asian markets are responding favorably to
the move by the US Federal Reserve in lowering its
mostly symbolic discount rate, the amount the Fed
charges to loan money to the banks.
My
crystal ball is unable to make any predictions for today
or the rest of the week. However, I would not get too
excited about any rally, and I would be very cautious
about entering the stock market if you happen to be on
the sidelines.
I was
not impressed with last Thursday’s and Friday’s New York
market rally. I do not see this as a reversal of the
short-term downtrend, but simply a technical correction
at best and, at worst, a short-covering rally.
Also,
despite the moves by the western central banks, this
credit-crunch issues is not resolved and, again, the
seriousness of the situation is still an unknown.
Finally,
even if the immediate problem is contained, so much
money has been lost in this fiasco that the
credit-market game has changed.
The
defaults on these subprime loans are causing a situation
with US banks similar to what happened in the
Philippines
in the late 1990s. Our banks wound up with billions of
pesos of foreclosed property on their books, and it has
taken time to clear up. It is only in the last couple of
years that these nonperforming assets have become
manageable, which coincides with our stock-market rally.
On
Friday the PSE index closed just below 2,900. Using that
level as a benchmark, the question is at what level will
the PSEi be at two weeks or four weeks from now. The
day-to-day fluctuations are only the path that the
market will take further down or up, but do not forecast
the future.
The two
scenarios are clear. Either the market will continue its
decline despite any daily rallies, or immediate daily
upward price movements will signal a reversal of
short-term trends and the continuation of the bull
market.
Please
bear this point in mind. A reversal of this downtrend
will not be confirmed until prices break and then hold
for several high-volume trading sessions above 3,400. A
move to 3,200 would be a good sign, but it is not the
strong signal we need for confirmation.
If you
go out with smaller losses and have cash ready for the
market, wait to go back in unless you intend to quickly
trade very short-term movements. The stock market is
fragile right now, with many apprehensive investors
ready to sell out at the least bad news.
If you
took big losses, I suggest at least a two-week vacation
from even looking at stock prices. You have suffered
enough and any false move to the upside might be fatal
to your investing funds. Relax. If the market does turn
to the upside over the next few weeks, there will still
be great profit opportunities on the road to 4,000.
If you
are still holding on to your positions, pretend you just
got into the market at Friday’s closing prices and that
you have no losses.
Whatever
the value of your portfolio is, this is where you start.
Then trade it this way. If prices go up 10 percent, you
made a paper profit. Take that profit? It’s your
decision. If prices drop 10 percent, then you need a
20-percent increase just to get back to breakeven. Time
to get out? Your choice.
My
worst-case scenario is a rally to above 3,400 (or just
under) and then back down below that level to form a
head-and-shoulders pattern, which would then target
2,400 to 2,200.
E-mail comments to mangun@email.com. |
