Phisix: Weighing On the Seasonal Effects

``The long-term trend in an inflation is toward less work and production, and more speculation and gambling.”-Henry Hazlitt, What You Should Know About Inflation p.131

The recent weakness in the global stock markets and commodity markets have exuded some apprehension that the impact from the combined stimulus packages may be wearing off and that the recessionary forces could be settling in. This is unclear yet, but it maybe the case for the US.

Figure 4: stockcharts.com: Global Recoupling?

In the recent liquidity driven rally, global stock markets appear to have “recoupled” anew with the US markets, see figure 4.

Since March, the peaks and troughs of the Philippine Phisix, the S&P 500 and the Dow Jones ex-Japan index have been tightly correlated. The blue vertical lines manifests of the “troughs”.

My initial impression had been to extrapolate the recent past performance to the future due to this correlated motion where perhaps the weakness in the US could also be equally projected on global markets.

However, it was a surprise when the US markets fell hard by over 2.6% last Thursday and Asian markets appear to have shrugged off or have been impacted substantially less by the said downdraft.

While one day doesn’t make a trend, it has been my bias that the global inflationary process could have cushioned the Asian markets. And this one day divergence could possibly serve as the prologue for the tale of this cycle.

Nonetheless we have said that given the sheer overbought levels, momentum and seasonal effects could all weigh on the Phisix and global markets.

Figure 5: Phisix: Seasonal Effects

But looking at the seasonal effects (see figure 5), the Phisix has responded variably to the July-September periods, mostly anchored on its major trend-where it has declined or consolidated during secular bear markets of 2000-2002 and similarly have risen or consolidated during the recent bullmarket 2003-2006.

In 2007, July marked the peak of the cyclical bullmarket as manifested by the extreme volatility.

In 2008, July-August seemed as the only period where a significant rally took place since the October 2007 zenith.

We don’t do short term predictions, nonetheless given the season’s penchant to reflect on the activities of the major trend, then perhaps we could most likely see either a consolidation or even a chance for an upside.

Of course, all these depends on the persistence of liquidity flows from the present policies and how the regional markets will respond to any infirmities manifested by the US counterparts.