Phisix 7,450: Intensifying Signs of Destabilizing Speculation (Blow off Phase)

Post-election euphoria has sent the Phisix to skyrocket by 6.4% over the week. 

While the bullish upsurge breached through the 7,400 psychological barrier erected in May of 2013, the character of the recent runup has been different from when the PSEi hit a new record at 8,127.48 in April 10, 2015 

In comparative numbers, the PSEi surged by 22.73% in the past 76 days from the nadir of January 21 2016 through Friday to average .29% gains a day. 

From the interim bottom of December 17 2014 through record April 10, 2015, the PSEi returned 16.67% in 70 days to average .24% a day. 

The slope of the recent rally should be a testament to the intensifying mania. Last week's 6.4% jump was vertical or 90 degree ripfest!

Today’s rally somewhat resembles the May 2013 episode when 7,400 threshold was first established. Then the PSEi generated a lesser 15.5% from the March 20 2013 bottom to the May 15 2013 record or an average of .43% in 35 trading days. Yet the outcome of the May 2013 peak was a quasi bear market.

Yet the nature of the rally today diverges from April 2015 or May 2013 when one examines the contribution of composite issues. 

Below are charts of issues that forged new frontiers last week, or trades within recently carved record heights.  

Pls note that the PSEi was last quoted at 7,436.79. The last time most of these issues reached their past record watermark was when the PSEi hit 8,127.48 last year. 

And importantly, current record highs have emerged mostly from the 'Viagra Effect'. 

SM (+7.34% week on week; ranked first in terms of market cap weight) 

SM subsidiary shopping mall-real estate firm SMPH (+5.08% week on week; ranked fourth in market cap) 

Ayala Corp (+12.65% week on week; fifth spot in market cap) 

Not even declining rate of PER growth has served as a hindrance to the desire to push the PSEi to new records. AEV (+10.11%; ninth place in market cap) stormed to another record.

AEV Subsidiary AP also run berserk! (+6.7% week on week; eighteenth place in market cap ranking) 

The King of the Viagra effect has been no other than JGS. 

JGS posted a shocking 16.2% return week on week and has now climbed to the third spot in terms market cap.  By the way, JGS has been a favorite issue for Team Viagra's streak of marking the close pumps.

Note that for the six charts, such vertical spikes or blow off actions have virtually been unparalleled or historic by their respective price action standards. 

Differently put, 'this time is different' for the above charts in the context of euphoria.

Two more issues (JFC and GTCAP) are at spitting distance to new records.

Yet the above turbocharged firms have largely been responsible for PSEi 7,450. 

Yes the desperate or frantic attempt to push the PSEi past 7,400 has been concentrated to mostly these biggest weighted market cap firms.

And please be aware that blow off tops are signs of manias at the extremes. 

Manias as described by historian Charles P Kindleberger and Robert Z. Aliber from their classic book "Manias, Panics and Crashes" Fifth Edition (p.41-42) [bold mine]

Manias are associated on occasion with general ‘irrationality’ or mob psychology. The relationship between rational individuals and an irrational group of individuals can be complex. A number of distinctions can be made. One assumption is mob psychology, a sort of ‘group thinking’ when virtually all of the participants in the market change their views at the same time and move as a ‘herd.’ Alternatively different individuals change their views about market developments at different stages as part of a continuing process; most start rationally and then more of them lose contact with reality, gradually at first and then more quickly. A third possible case is that rationality differs among different groups of traders, investors, and speculators, and that an increasing number of individuals in these groups succumb to the hysteria as asset prices increase. A fourth case is that all the market participants succumb to the ‘fallacy of composition,’ the view that from time to time the behavior of the group of individuals differs from the sum of the behaviors of each of the individuals in the group. The fifth is that there is a failure of a market with rational expectations as to the quality of a reaction to a given stimulus to estimate the appropriate quantity, especially when there are lags between the stimulus and the reaction. Finally irrationality may exist because investors and individuals choose the wrong model, or fail to consider a particular and crucial bit of information, or suppress information that does not conform to the model that they have implicitly adopted. 

G-R-O-W-T-H was once the rationalization behind the record ramp. Today it seems to have been replaced by C-H-A-N-G-E. 

It appears that anything now will be used to justify the hysteric bidding up of Philippine equities. 

It's now all about price chasing, valuations be damned!

Yet the obverse side of every credit fueled mania is a bust.

Here are some examples of manias which turned into panics and crashes. 

Charts from Robert Prechter (Lynn Coins) 

And don't forget the world's seventh largest firm in America which suddenly became bankrupt: Enron