YOU probably don’t need to read any further unless you are invested in the Philippine stock market. Actually, on second thought, if you are “invested” in the Philippines or its economy, you might want to read a little more.
The Philippine stock market just completed a miserable month. It is not that the broad market was down an extraordinarily large amount; it was the negative sentiment that the 2.77-percent fall in the Philippine composite index has and will
continue to generate.
After a 3.49-percent increase in October—which followed a 9-percent drop in the previous two months—November was supposed to be the month that Jaws was gone and it was safe to go back in the water. For some issues, it was safe. The price of LT Group shares went 19 percent higher. But then shares of Bloomberry Resorts Corp. fell 15 percent. It was that kind of month.
On top of all the price movement, we faced “Apec Week” when the stock market was closed for two days and Metro Manila was effectively shut down for five days. Yet, we ended the month on a day that saw one of the highest trading volume days in 2015. All the while, the experts could not seem to decide what was moving the markets: China’s economy, US interest rates, or domestic economic numbers that were neither particularly good nor particularly bad.
So what is happening with our stock market?
I can give you all kinds of brilliant market analysis—and I will —but I fear it is also coming down to something I very rarely equate to stock-price movement. Politics, even Philippine politics, just does not figure into investors’ decisions. Unless there is a cataclysmic shift in government policy, “politics” just does not figure in the stock-market picture. Major changes—like what happened in Greece—causing the market to crash are created over time. Even a change in government policy principles from “right” to “left” or whatever causes economic adjustments down the road.
However, something is different this time in Philippine politics that may be affecting the stock market. Listening to the discussions about the next presidential election, it seems as if there are not any adults left in the room.
Perhaps, Philippine politics has not gone completely from “guns, goons and gold.” But we definitely have moved far into “hype, hashtags and hysterics.”
But stock-market investors are serious in their opinions about the future unlike all the political “experts.” When I see someone on social media willing to make a P10,000, P100,000 or P1,000,000 wager on a political candidate—as stock investors do every day—then I will be more impressed with their wisdom about the candidates. It is not that these people do not feel strongly about their choice of candidate being important and even critical for the nation. They do. But the 2016 election is obviously turning very ugly and extremely uncertain as to the efficiency and effectiveness of the political process.
Stock-market investors do not like even the appearance of chaos, especially on the political front because if it gets out of control, it can spill over into the economy.
Capitulation is defined as giving up or surrendering. Wars are won and lost when one side loses for whatever reason its will to fight. In the market, capitulation means that the majority of investors are convinced that prices will never go any higher and sell out. They give up on the market. Because everyone has sold out, that creates a bottom. The problem is that you know there has been capitulation only in hindsight. Has the enemy stopped fighting just to regroup and come again or have they really given up?
If the month of November was not a capitulation in the stock market, then we are at the beginning of a relatively brief, but potentially significant, “collapse” in prices that will see the stock market fall at least another 10 percent to below the 2013 low.
I wrote this past Saturday that “The PSE trend is still up” and I still see that for the long term. I also put forward the opposite idea several months ago with the question, “What if the stock market is headed into a multiyear downtrend?”
Old guys like me trade for the short term and analyze for the long term. We trade “short” because five years from now may never come, and analyze “long” because we may not live to see the results of our bad predictions. A 30-year chart still says the market is going higher. But the months of December and January are going to decide the question of capitulation or collapse in the medium term and I will trade it that way.
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.