I have no idea how things may turn out next week. But given how things have been evolving, the Philippine Stock Exchange will most likely witness another volatile week.
I am no fan of charts. That’s because charting has mostly been about history, also price trend perspectives can change based on selected timeframe/s, price trends can also be interpreted depending on indicators and patterns used (therefore dependent on the chartist's subjective bias), and most importantly, charts can be manipulated. Charts also provide an undeserving comfort of knowledge through inadequate assumptions and theory.
But since price charts are most frequently used tools by professionals, the industry and by the retail participants, I just can’t disregard them. To understand the market is to comprehend the thought process of the majority.
For now, let me don the hat of a chartist.
The two year chart of the PSEi has shown what seems as a critical breakdown last week.
Two straight weeks that accrued to a 5.6% loss appears to have substantially altered the tide of theballgame.
First, the PSEi has dropped to August to October 2015 levels. The present decline appears contiguous to themid October downdraft which was disrupted by a sudden 4.88% two day pump attributed to the resurgence of the OFW remittance growth and to the Philippines’ leadership's visit to China.
Two, 2016 appears to have engendered a minor head and shoulders pattern.
If the pattern holds true to its predictive abilities, then this suggest of sustained cascading of the Phisix. The pattern posits a target of 6,200-6,500.
Third, the two year chart of the Phisix appears to have been broken once again. It was infringed in December of 2015 which led to the 6,084 low in January 21, but swiftly bounced back when global central banks launched a campaign to save the markets with NIRP. This coincided too with the BSP’s silent stimulus.
The PSEi soared back to 8,100 level in less than half of the time its predecessor accomplished in 2014-2015.
If the past will rhyme, then 6,500 to 6,600 would be the target. That’s if the breakdown from the two yearpattern will be confirmed by lower lows.
Lastly, the recent breakdown appears to reinforce what could be seen as a major double top. In short, recent price actions appear to fortify the likely scenario illustrated by the two year bearish picture.
The current momentum seems to reaffirm historical episodes of reversion to the mean. Vertical price actions eventually give way or succumb to what I reckon as “Newton’s Law” where most of the gains, if not all of them, would be negated.
Worst, it could be more than just negation but sustained downfall.
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