Thursday, June 09, 2016

PLDT’s Blowoff Phase: Will This Time Be Different?

Another ferocious rally brought the PSEi to approach the 7,800 level in the early session today. However the profit taking weighed on the index, so gains had been pared down to just .16% at the close. 
Nevertheless, the continued momentum to pump the index in a vertical fashion! 
TEL was, in part, responsible for the shoring up of the index. That’s because another hysteric bidding episode sent TEL prices to the sky! The firm’s share price closed up by an astounding 4.9%! Since its milestone low at 1,624 in May 24, 2016, the largest Philippine Telco company have accrued a mindblowing 29.55% in just 11 trading days! 
TEL has been no stranger to major and minor boom-bust cycles, though.
So far, the magnified intensity and fantastic speed of TEL’s parabolic moves seems to parallel the firm’s share price activities during the 1998-1999 saga.
Yet the justification for these wild bidding sessions has been the joint acquisition by the duopoly, TEL and GLO of SMC’s “4G”. Albeit such deal officially transformed the duopoly into a monopoly. As explained before, technology and growth are not written on the stone. Many other factors as prices, income, monopoly and politics will play a big role in determining the success of the rollout.
And as further proof, even with 4G generating 500 million subscribers in China, price charts of the three main 4G telco providers, China Mobile, China Telecom and China Unicom have all been struggling. In fact, all three, -21.5%, -35.8% and -40%, appear to be in their respective bear markets based on their April 2015 highs.
This shows that there is NO magic in 4G!
As clearly expressed in media, technology equals G-R-O-W-T-H simply equates to reasoning from price changes (post hoc fallacy) which in reality represents nothing more than to rationalize gambling.
Understand that given the phenomenal record price breaking binge by many of the biggest market cap issues, a key reason why the Phisix remains below the April 2015 8,127.48 has been because of TEL’s divergence with the pack! (Add to this banking trio and the laggard ALI)
In terms of market cap weight, TEL ranked fifth last Friday, and as of this session’s huge closing, the firm has taken fourth place to nudge down SMPH to its previous spot. Tel’s market cap weight, as of today’s close, was at 6.6%. And last May, as bubble firms race to new highs, TEL carved out a 2007 LOW!
Stories are necessary to fuel action. So index managers have conspicuously been using the 4G deal to propel TEL. The goal is for TEL to compliment the others in order to break the April 2015 heights! Such ambitions have only resulted to a bigger and bigger push of share prices away from reality. Hence such detachment means of more imbalances being accumulated. Yes ALL actions have consequences. 
And as I have shown last night, the lesson from AC’s historical price actions has been that ALL vertical breakaway run have always succumbed to failure. There has been ZERO occasion where a vertical runup did not cause a big selloff or a crash. Or said differently, 100% of all vertical runups experienced breakdowns (but in different degrees)! 
Below I show TEL’s volatile history which essentially shares the same lesson with AC.
Nota Bene: In this presentation, all 30% and above parabolic runs I consider as major. Whereas all less the 30% are minor moves. 
It was just last January where TEL made a minor 22.42% bull charge in one month. Unfortunately, the bull charge was totally eviscerated also in about a month. Even the price base from which the bull charge was founded eventually was broken.  And the new 9 year low, last May, served as the springboard for today’s vertical ramp. 
As a side note, how memories can be so so so very short! 
Also note that there was a short parabolic bout when TEL set a new record in September 2014. Unfortunately Newton’s Third Law of motion—For every action, there is an equal and opposite reaction—became reality. So the mini boom eventually ended with essentially all the gains returned!
Yet this will serve as template to most of TEL’s historical performance
From October to June 2015, which I broke down into two charts: violent upswings eventually turned into violent downswings. Aside from Newton’s Law, the law of gravity seems to haunt TEL.
Now to the majors….
2007-2008.
Folks, TEL soared by 32.45% in 2007. Too bad not only TEL gave back all the gains, the denial minor 19.74% rally only exacerbated TEL’s crash (-35.12%)!
Asian Crisis and the Post Asian Crisis 
I learned that PLDT wasn’t instrumental in the crash of 1997. Although from 1998-2000 or post Asian Crisis, bulls instigated a series of breathtaking (4) major and some minor vertical rallies! 
And the ramifications had been the same. ALL of the rallies went kaput! 
Newton’s Law and the law of gravity ruled!
Remember the gigantic 179% rally in the PSEi in 1993? TEL was key to the Brobdingnagian gains by the PSEi. 
TEL soared by 145% in a single year! Tel had two vertical runs. The biggest climaxed at the close of 1993. Yet when the rally sputtered, TEL gave back almost ALL of the spectacular gains!
Remember the same template from past to present 
Here is more
1987-1989 
Same story in 1987 and 1989. Recall that these were the post balance of payment crisis and the post Marcos era were Philippine stocks were at the cheapest! 
Yet TEL succumbed to boom bust cycles! Violent upside (always at the climax) morphed into equally violent downsides. At the end of the day, almost every single point of gain had been wiped out in both episodes! 
Have you noticed--at what period--or when TEL preserved its acquired gains? The answer, that’s when TEL moved up or built up their gains INCREMENTALLY! 
So again we see the same lessons in AC applied to TEL. 
That’s unless of course, “This time is different”
Hope is not a good strategy

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