Phisix: Understanding Benchmarks; Tidal Flows and Ebbs

``I don't set trends. I just find out what they are and exploit them." - Dick Clark, American Entertainer

Recently we were asked why we chose 2,650 as our threshold benchmark for a transition to a bottom cycle than 2,600.

Figure 5: stockcharts.com: Phisix Does This Like A Recoupling?

Our reply is that trend lines can be deceptive. Look at figure 5, the green line (1) was the original downtrend line, when the Phisix made a first attempt to bottom out in May- unsuccessfully (red circle). Thus the high from that failed breakout becomes our beacon or our lamppost to suggest of the transitioning from the current phase (bottom) to the next phase (advance). That benchmark is about 2,900.

The next blue line (2) signifies the second downtrend line at 2,600, which we thought acted as a minor resistance with the most recent high at 2,650 (blue horizontal line) or a margin of 50 points as enough cushion for false breakouts.

Well the Phisix performed exceptionally well this week. Our benchmarks were significantly overrun. All downside jolts from the US markets have been met with a shrug or insouciance. However the upside was treated with even more dazzling sprints. Plainly said, the Phisix disregarded significant downside moves in the US markets but outclassed them when they moved up. Our Phisix hasn’t behaved like any of the recoupling rubric as proclaimed by the macro looking market and economic Jeremiahs. Not yet anyway.

In fact, the Phisix appeared to have acted out the script we presented last week in Phisix: Knocking At The Exit Gates of the Bear Market!...to a tee!

Moreover, the Phisix strongly outperformed the US market up 4.2% backed by strong broad market activities. Considering that the US closed significantly higher last Friday, we are likely to see a strong opening on Monday.

True, foreigners remain net sellers but they have been reduced to a significant minority (44% week on week) as local money has now dominated the upside action. If the forcible liquidation coming from abroad has diminished thus it is understandable for the locals to take on the destiny of Phisix on their own hands. It is HOME BIAS working at its finest (for the year and since October of 2007) so far.

In short, compared to May, today’s rally seem have stronger legs which should imply what we have been looking for- a transition cycle.

For the bottom phase, we expect one of the two scenarios: one a consolidation or base formation, or two, gradual ascension. If the Phisix should move abruptly higher we might see a sizeable retracement but the recent lows or the former resistance now support should hold, if we are correct about the market in a bottom cycle. And in a bottom the appropriate action would be to accumulate on issues to position for a recovery.

By the way we shouldn’t expect so much for this cycle. The Phisix is still faced with severe external risks, and could be weighed by storms from shocks. Nonetheless, a bottom suggests of a base in spite of the tempest. Anyway, our idea is that if some markets in Asia can pick up in as much as the Phisix then a potential recovery is in sight.

Some have asked me on what issues to buy.

Allow me to quote my favorite from Edwin Lefevre from the classic book Reminiscences of a Stock Operator, ``I never hesitate to tell a man that I am bullish or bearish. But I do not tell people to buy or sell any particular stock. In a bear market all stocks go down and in a bull market they go up...I speak in a general sense. But the average man doesn’t wish to be told that it is a bull or bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He does not even wish to have to think. It is too much bother to have to count the money that he picks up from the ground.”

Proof? Look at Figure 6.

Figure 6: PSE: Sectoral Indices In Synchronized Actions

According to Mr. Edwin Lefevre (a.k.a. Jesse Livermore) “In a bear market all stocks go down and in a bull market they go up...” All industry indices have performed almost in sync-bank-blue, services-gold, mining-black candle, commercial-maroon, property-red, and holding green-from bullmarket to bear market to the recent turnaround.

Of course one may argue that one industry could outperform the other. That is true. But generally speaking, they flow or ebb like a tide on the beach.

The last bear market saw almost all stocks fell beyond the 20% threshold bear market levels, except for a few which we identified in Phisix: Learning From the Lessons of Financial History.

If we are right about the Phisix’s new cycle, then the next cycle should see the same characteristics.