By the time you read this, all of the following may have been proved true or completely wrong. However, one thing is for certain: the capital markets, including the Philippine Stock Exchange (PSE), gave short-term traders a wonderful and potentially profitable ride last week.

The international markets focused on crude-oil trading and on the dollar. The headlines on the business web sites highlighted the confusion of those “experts” trying to figure out what is happening. From an international business web site, two articles rested almost side by side. One headline read, “Dollar Down as Commodity Prices Climb.” The other wrote, “Commodities Rally on Dollar Fall.” Which is it? Are commodity prices wagging the dollar tail or is it the other way around?

In truth, neither concept is probably right. The dollar had rallied strongly over the last weeks and selling for profits was likely. Commodity prices plummeted in the last six weeks, giving sellers the opportunity to book their profits.

The only close tie between the dollar and commodity prices is that both the drop in commodities was too far, too fast and the dollar rally was too high, too soon.

The idea that large volumes of money switch investment vehicles all at once and at the same time is not entirely accurate. Yes, money does flow to where profits are most easily gained. Yet, many factors influence buying and selling decisions on the commodity side as well as with currency traders, and, often, these factors operate independently of, if not in opposition to, one another.

Supply-and-demand variables with the commodities are not necessarily influenced by currency activity. Likewise, interest fluctuations, as well as trade flows, are greater concerns than the price of crude oil.

However, if you look at a chart of both the euro/dollar and crude oil, the charts are strikingly similar, including with last week’s action, but only since the July 2008 tops.

In other words, the 12-month fall and the 12-month rise in crude oil were generally independent of each other. The net result was the same in that the dollar reached its low against the euro at the same time when oil hit its second historic high. I say second high since the dollar actually repeated its historic high this July after reaching the same level in April 2008, when oil was trading at less than $120.

Interestingly enough, if the dollar rally continues, the euro could drop to 1.44 from the current 1.48. If oil follows the currency movement, crude will be below $90 a barrel.

The sharp reversal of oil to the upside on Thursday was very predictable, and I am annoyed that I did not see it coming. The daily chart of oil showed an obvious short-term double bottom giving a clear buy signal.

Further, trading volumes and the global and visible market, the Intercontinental Exchange or ICE, have dropped from some 350,000 contracts a day down to more than 150,000. This created a “thin” market so that when technical traders received their buy signal, a lack of selling pressure allowed prices to spike.

The following day volume jumped as the gains were almost completely erased as traders took advantage of prices to book short-term profits to open new selling positions at higher prices.

Trading on the PSE has been even more fun. Prices have been down- trending since the failure to breach the 2,800 mark on July 12. It was inevitable that the rally would stall, as prices need to fill a “trading gap” at 2,600. This is an area where prices jumped too far, leaving a “hole” in the daily charts that should be filled before the rally can advance.

Most market commentators are rightly saying that the 2,600 area is critical. If this level holds, we go up. If it breaks down, we are in price trouble. I concur. Still, a fall to as low as 2,500 might still keep the brighter picture intact. Even 2,400 on the index would be acceptable as a resting point if that fall happens sharply and quickly.

The market gave a short-term sell signal on Friday. Not necessarily good, but not necessarily bad. The technical indicators may be telling us simply that prices must fall to fill the gap mentioned earlier.

The good news is that the medium-term technicals still have a buy signal firmly in place. The long-term charts show that prices are bottoming out and give clear indications that a buying signal is waiting. The very good news is that the potential for a long-term selling signal is significantly diminished.

We are told that PSE prices may depend on the direction of the dollar and of crude oil. Maybe, only maybe. At this point, things get really interesting. The longer-term charts for the dollar and oil show a divergence. The dollar looks poised to fall and reverse its six-week rally; oil wants to push more on its downtrend.

Caution may be the wisest strategy for the PSE. If you profited from this four-week rally, great; sit on the sidelines. If you are a longer-term accumulator, hold off your buying until the market settles down and shows a clear direction.

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PSE stock-market information and technical analysis tools were provided by CitisecOnline.com Inc. E-mail comments to mangun@email.com.

Editorial: Chaff from the grain

A LOT of arguments have been made in recent weeks against the administration’s program for using cold cash as doles to the poorest of the poor, on the justification that they need help right now, when the twin tsunamis of high energy and high food prices are lashing the most marginalized everywhere.

Outside the Box: Short-term market predictions

By the time you read this, all of the following may have been proved true or completely wrong. However, one thing is for certain: the capital markets, including the Philippine Stock Exchange (PSE), gave short-term traders a wonderful and potentially profitable ride last week.

On Firm Ground: Advantages of international commercial arbitration

The effects of globalization and the efforts of the government and the private sector to attract more foreign investments into the country have caused an influx of international commercial transactions. This heightened interest of foreign investors in the country certainly benefits the economy and can be sustained by making our business climate more conducive.

Omerta: Lilian Hefti—‘attritable’

Under the Attrition Act of 2005 (Republic Act 9335), the two major revenue-raising agencies of the national government are effectively governed by a system of reward and punishment based on their collection performance.

Mirror on the wall: Raising money for government

Two of the most feared agencies of the government, the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC), were given up to the end of September to list down the most notorious among its personnel to dismiss them from the service.

Sen. Edgardo J. Angara: Mobilizing domestic savings for development

Last week the Personal Equity and Retirement Act (Pera) was finally signed into law, after pending for several sessions of Congress.

William Pesek: Hoping Nouriel Roubini is proven wrong

It’s hard to forget your first Nouriel Roubini experience.

Fifteen months ago, I watched an Asian Development Bank audience in Kyoto squirm and fidget as the chairman of Roubini Global Economics LLC gave his bleak, contrarian opinion that the global financial system was about to hit a wall.