For the week, the Philippine Phisix had been one of a few bourses that had escaped the interim cyclical correction. The bullish momentum appears to have prevailed, which eked out marginal gains.
On a year to date basis, the Phisix grew by 1.2% as of Friday, coming off this week’s .25% advance. Remember that in early 2011, the Phisix was down by about 15%.
Parsing on market internal activities, despite this week’s marginal gains, profit taking appears to have taken hold as decliners led advancers by a modest margin.
Yet the market leadership in the Philippine Stock Exchange (PSE) has clearly shown an ongoing process of rotation.
Two weeks ago the service sector became the market’s darling. Last week, the property sector grabbed the spotlight. This week, market leadership had been shared by the mining & oil and the holding sector.
The holding sector had been lifted by the material gains of the peripheral components: property, energy and mining holding company DM Consunji [DMC +9.14%], property banking and agricultural Filinvest Development Corporation [FDC +7.06%] and property, water, road and infrastructure based Metro Pacific Investment [MPI +3.93%].
Meanwhile, the mining sector has been singlehandedly buoyed by Lepanto Consolidated (LC +15.7%, LCB +17.54%).
On the losing side, the Industrial sector posted hefty losses (-2.45%) mostly due to energy company San Miguel Corporation [SMC-11.56%] which voluntarily suspended trading its shares as the company undertakes a fund raising program via sale of convertible bonds and shares[1].
San Miguel’s loss had been accompanied by electric utility Meralco [MER] which likewise shed 4.61% over the week.
Daily Trades As Sentiment Guidepost
One would note that even when the Phisix underwent a correction phase (blue vertical line) during November of 2010, the number of daily trades remained significantly above the levels during the first half of 2010.
This only implies that the correction then had NOT been a general phenomenon, and that there had been significant activities over the broader markets.
During full blown bear markets, the fall in equity values are transmitted to trading activities which likewise would exhibit substantial declines, as the public losses interest on “speculative” activities. So a feedback loop mechanism occurs, falling equity prices equate to falling trades and falling trades amplifies the price declines.
The reverse is true in bullmarkets: Higher prices translate to more trading activities and more trading activities are likely to magnify gains of equity prices. I say “likely” because there are exceptions to the rules.
The point is daily trades function as indicators of the sentiment of trading participants or of the general market.
Resolving The Overbought Levels of the Phisix
The Phisix seen from a technical viewpoint is still largely overbought.
Almost all indicators, I use, suggest that this has been so: The Phisix trades way above the 50 day Moving Averages (MA) shown in the main window, the Relative Strength Index (RSI), MACD (moving average convergence diverge) and the Full stochastic (Full STO) shows of overextended levels.
So it would not be a surprise for us to see some profit taking activities that may take hold.
But the technically overbought levels of the Phisix might also be resolved through a consolidation phase. This means the Phisix could go rangebound but the overbought levels will be resolved by specific issue related actions, as expounded last week[2].
And this week’s actions appear to reflect on these dynamics. Issues that had been overbought were sold, while issues that have lagged became market darlings. This defines the rotational dynamics.
Obviously the general trend determines the specific issue performance, but the actions are dissimilar (degree of movements) and spread through time (shown by diverse intervals—some issues take long before market attention shifts on them or some are inherently volatile or etc.).
But again if any hiatus surfaces, then this should likely be ephemeral, which should present as buying opportunities for traders, punters or long term investors.
Otherwise, attempting to catch short term waves might lead to missed opportunities.
As Publius Ovidius Naso the Roman Poet popularly known as Ovid once wrote,
“Chance is always powerful. Let your hook always be cast; in the pool where you least expect it, there will be fish.”
[1] Finance Asia San Miguel gives price guidance for $850 million fundraising, April 14, 2011
[2] See Phisix-Philippine Peso Back In Rhythm, April 10, 2011
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