7,400 Again!
A week back the PSE soared to 7,700, from a two day 4.88% ramp, which resulted to an astounding 3.53% weekly meltup. This week, fortunes radically changed. The PSEi suddenly regressed back to 7,404 from this week’s 3.21% quasi-crash.
And this week’s bloodbath had been considerably MITIGATED by a FURIOUS last two minutes afternoon delight PLUS marking the close pump.
Except for the last two minutes in Friday’s October 28 session, the PSEi traded not only below 7,400 but hovered close to 7,312.
In other words, without the manipulation or blatant price fixing, the PSEi could have traded at the October 13 low levels of 7,312.18 (or at least below 7,350)
From a chart perspective, the PSEi even broke the 200-day moving averages, but had to be pumped up back to the support level. This shows why I am no fan of charts, as they seem to suggest that price manipulations are incorporated as a reflection of "all relevant information".
Moreover, the incredible escalating accounts and degrees of volatilities showcases instability and has most likely signified as symptoms of an inflection point.
Also, this week’s meltdown marked the EIGHT time for the threshold 7,400 to have been touched.
7,392.2 or rounded to 7,400 as I have recently noted represents the May 15, 2013 milestone. So despite the populist din about G-R-O-W-T-H, the Philippine benchmark remains stuck at 7,400 for 3 years and over 5 months!
Yet in three years, the 7,400 watermark has provided a meaningful risk-reward distribution ratio.
In two ramps past 7,400, the bellwether returned 9.8% (April 2015) and 9.5% (July 2016), or an average of 9.65%.
On the other hand, in two accounts where the benchmark traded substantially below 7,400, losses were at 22.45% and 17.8%, respectively, or an average of 20.125%.
This reveals of a blueprint from the past two years. It shows that positioning at 7,400 has a risk-reward ratio of 2:1. Or for every peso that may be gained from positioning at this level, an equivalent of php 2 may be lost.
In short, the distribution of returns at present levels would imply for the larger losses relative gains!
Of course, bulls may spin this to suggest that at least higher lows or reduced degree of losses in 2013 vis-à-vis 2015-16 could mean a better risk reward distribution.
However, as I have pointed out numerous times here, price actions should not be seen in singular dimension.
For the local benchmark, in 51 years that covered 2 secular cycles and the third one still unfolding, vertical price runs have almost always suffered from Newton’s Third Law of motion—For every action, there is an equal and opposite reaction—or a variant of “reversion to the mean” applied to price actions. Or pumps equate to dumps. Or from boom to bust.
Besides, stocks have not just been about prices but, more importantly, about discounted stream of cash flows from a convergence of cycles shaped by real economic activities. As the most expensive in Asia, such would signify a symptom of credit financed excessive or destabilizing speculation anchored on delusions. Ergo, a bubble.
And as for Newton’s Law in action, the charts of Meralco, Globe and GTCAP reveals of various advanced phases which these stocks have presently been experiencing.
Now let us shift from stocks to politics.
Below signifies an incredible excerpt on the government’s economic agency, the NEDA’s position on the political mega deals from China: [Legislators urge: Not so fast on China megadeals Interaksyon October 30, 2016] (bold added)
The MOU with China Road and Bridge Corporation is for the Fort Bonifacio-Ninoy Aquino International Airport Bus Rapid Transit project, while China Harbour Engineering Company signed for the Subic ClarkRailway project.
According to NEDA, the MOUs were, so far, merely for feasibility studies that are not binding on any party.
Ronaldo Tungpalan, NEDA Deputy Director General, added: "It's therefore not a contract. It is non-binding, and, in fact, at the official level, my discussions with my Chinese counterparts is that this does not in any way bestow prior rights upon the company who will do the study because we are, we will be, going through a competitive selection process."
After the feasibility study, Tungpalan said, the proposal will be brought before the Investment Coordination Committee and then presented to the NEDA board. Once approved, that's the time the project will undergo competitive bidding.
"From approval to bidding to monitoring and evaluation, I think you have sufficient safeguards, transparency from the different agencies that would be privy to this. So it's not something that one implementing agency like the BCDA can keep to themselves, because they have to go through the approval process.
A BCDA statement said: "If, at the time of public bidding for these projects, these companies are deemed ineligible based on our strict procurement qualification rules and regulations, then these companies will not be qualified to participate in the bidding."
Two things here.
One, incumbent cabinet members appear to be in a state of confusion. They have been desperately trying to shore up or provide patchwork on the president’s tenuous position by countering or contradicting his claims.
Two. The NEDA just did NOT get the memo. Like the war on drugs, political mega deals with the Chinese government will be beyond the scope of edicts, legislation and mandates—or even the constitution.
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