Phisix: What Market Internals Are Saying

A short comment on the market breadth of the Phisix.

The Phisix registered its first official weekly gain for 2011.

In 6 weeks through this year, the Phisix suffered 4 successive weekly losses and a nearly neutral week during the first trading week of the year.

So the bears have dominated.

I think that this will change quite soon.

Even if we set aside the argument of gold’s correlation and dissect on the market internals there are signs to suggest that the Phisix may have hit the bottom.

True, the rally last week had slim volume which usually demarcates a dead cat’s bounce.

However in furtherance of our earlier argument[1] where the extreme actions of retail participants represent as an opportunity to profit by doing the opposite, such signs seem to be reverberating.

One must realize that retail participants act mostly on the orientation of a very narrow timeframe, assess markets based on ticker based movements (linear thinking), and most importantly, are driven by emotions that are enveloped by mental biases and logical fallicies as rationalization.

That’s the reason why they are frequently referred to in Wall Street as the proverbial Pigs, who always get slaughtered by either the bulls or bears.

Figure 5 PSE: More Signs of Retail Selling

I have been saying that there have been signs of emergent market dissonance[2] which only proves that today’s falling Phisix signifies just a hiatus.

This includes the rising trend of local and regional currencies, divergences between developed economy and EM bourses, steepening of the yield curve, economic growth disparities, aside from net foreign trade.

As for the last aspect we can see some signs of diminished degree of selling (right window figure 5).

While it is true that advance decline spread has been deteriorating (left window), I think we have reached a point of climax where panicking retail participants appear to have capitulated during the previous week (not last week).

And with a significant number of Phisix composite issues now showing signs of stabilization, in terms of price action through the charts, my hunch is that today’s hiatus is bound for closure.

Go take advantage of this. Thank me later.

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[1] See Phisix: Panicking Retail Investors Equals Buying Opportunity, January 31, 2011

[2] See ASEAN Bourses Undergoing Interim Correction, February 14, 2011