The surge to the record levels by the Phisix has been unfolding exactly the way I have been anticipating them—particularly rotational dynamics (or the relative effects of money applied to the stock market) as symptom of an inflationary boom.
I previously wrote[1],
my long held view of a broad based rotational process where there had been a rotation away from big caps to the broader market (second and third tier issues), rotation among sectors (from leaders to laggards) and rotation of issues within specific sectors.
All of which have been manifestations of an inflationary boom.
Rotation among sectors.
The current market leaders, the property sector and the financial sectors, whose gains may have been overextended seems to have taken a recess this week. Thus the shift out of the current leaders into this year’s laggard the mining sector and the service sector.
From the price trend perspective, the green ellipse exhibits the divergences of the banking (black candle), property (violet) holding (green) and commercial (blue) over the short term from the mining (gold) and service (red) sectors. The leaders climbed as the mining sector consolidated while the service sector declined. For last week, that relationship seem to have reversed.
Rotation of issues from within specific sectors.
Since the property heavyweights have taken a rest, the market’s attention promptly shifted to second and third tier issues.
Former laggards have morphed into virtual rock stars.
The heavyweights Ayala Land (ALI-Blue), SM Investments (SM- orange) and Robinsons (RLC-green) whom led the markets higher from the start of the year appear to be undergoing a correction mode.
However over the past week, laggards Filinvest Land (FLI- violet) Megaworld (MEG- red) and Empire East (ELI-black candle) made a belated charge.
While the Phisix did post marginal gains over the week, this was neutralized by the slightly negative market breadth where by sellers edged out advancers.
Given the recent hefty rise to record levels, profit taking should be expected from the Phisix and the overall markets. But any retrenchment will likely to be muted as the easy money environment will continue prompt for more rotational actions that leads to the “rising tide” phenomenon.
[1] See Phisix: The Journey Of A Thousand Miles Begins With A Single Step, March 12, 2012
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