Phisix 7,310: A Journey to the Bullmarket or Perdition?

Phisix 7,310: A Journey to the Bullmarket or Perdition?

A journey of a thousand steps, wrote philosopher Laozi in his Tao Te Ching, begins with a single step. A journey typically requires a destination. And the 'thousand steps' must have a direction which may or may not lead to the intended destination. In short, the journey represents an end with every step taken as means to reach this end.  

Randomness, for as a long as such signify voluntary choice of action/s, also represent an end.

This can be applied to the financial markets. Or even to the Philippine equity markets.

Applied to the PSE, the popular desired journey is for the continuity of the bullmarket.

I share that wish too.

But the means to this end matters. And that’s the difference.

That’s because the “destination” requires a careful assessment of the consummation of the series of steps or actions. Will present set of actions, quantitatively and qualitatively, lead to such sustainable outcome?

Let us put this in concrete examples

100% of Last Week’s Gains Courtesy of End Session Pumps!

The Phisix ended the week higher by 42.1 points or by .58% to 7,311.72. For the 1Q and year-to-date basis, returns have expanded to 6.89%. This is what is seen.

But there is the unseen or the ignored.

Yet it was another week where PUMPS (and dumps) dominated the closing bell.

The week characterized the unanimity of closing PUMPs. Or, there were NO end session dumps. Though most of them occurred in the first half of the week, the cumulative number of closing PUMPS which is at 56.02 points accounted for .77% of the previous week’s close!

With pumps contributing 56.02 points (.77%), which is higher than the official 42.1 points (.58%), this demonstrates that over 100% of the week’s returns had been due to end session activities! Or seen from another angle, if these pumps were omitted, the Phisix would have closed slightly down (-13.92 points or -.19%)!

The short of this is: last week’s gains had entirely been artificial. Fake numbers, ergo phony returns. So just how would, the much hoped for bullmarket be soundly sustained if prices are artificial?

And even in days where activities at the PSEi seemed quite refreshingly normal, marked by minimal marking the close, furious pumps and dumps merely neutralized one another behind the scenes!

There has been little realization that these price fixing actions, has meaningfully contributed to violent price actions or price instability

Concentration of Trading Activities and Huge Disparity in Price Performances

Internal market activities clearly demonstrate of the ongoing price instability.

SM’s stunning (+4.65%) surge combined by subsidiary SMPH’s (+1.07%) jump this week essentially weightlifted the Phisix to its closing positive numbers. With a combined 18.16% share of the PSEi 30’s free float market cap (as of March 31), both issues signify as the two largest listed firms.

Peso volume for both issues at Php 4.17 billion accounted for 9.16% of the market’s aggregate turnover. Yet last week’s peso volume was inflated by special block sales at Php 10.251 billion or 22.54% of the total. This entails that outside special block sales, volume of two issues would easily exceed 10% of total trades

As a side note, SM and SMPH posted foreign buying which accounted for 40% and 21% of their respective turnovers.

Meanwhile, the sharp gains by some in the latter half of PSEi 30’s top 15 (upper left window) were merely counteracted by losses in the rest of the market (upper right window).

For the week, in the context of the PSEi basket, decliners edged out advancers 15 to 13 with 2 issues unchanged. So the asymmetry of price changes which favored the heavyweights decided the final outcome. End session pumpsabetted on such dynamic.

With SM near a new record, oddly, only three Sy-owned issues have etched fresh record levels in 2017 even when the PSEi has yet to transcend May 2013’s high at 7,400!

Even more, the Phisix, which has traded in the bandwidth of 7,100-7,400 for the over two months, had primarily been the result of the sustained rotational pumping in the Sy group of companies.

While others have recently joined the Sy group mostly issues within the top 10, e.g. AC, JGS, BPI, ALI and ICT, the glaring deviance in the performance of some of the elite firms relative to the rest of the PSEi component issues has caused the concurrent extended trading range.

This shows not only of the stark division in price performance between the biggest heavyweights and the rest but also the concentration of trading activities to the biggest, mostly index sensitive issues.

Sustained Price Instability

And such fixation on big cap index issues combined with the gaming of the index continues to fuel violent price actions.

Take SM. Since the one-day 9.24% crash last March 10, SM has soared 16.36% in just 15 days (as of March 31) or 1.09% a day! That’s a vertiginous vertical ascent! And SM is just off 1.9% from its record close at Php 710.5 attained last January 25.

Pumps and dumps were not limited to mark on close orders but likewise to intraday activities.

For the week, 7 issues or 23% of the PSEi 30 basket closed over 3% (plus or minus).  To pare down to 2% (plus or minus), there were 12 issues or 40%. At 1%, 19 issues or 63.33%. (see lower left window). Such showcases the excesses in price movements.

And while Sy owned companies have been flirting with new records, and where others have joined them, prices of several companies slumped back to their December 2016 levels or have drifted in proximity to such levels, e.g. GTCAP, JFC, MPI, MEG, DMC, AP, AGI, FGEN, RLC and PCOR (the latter has broken the December 2016 lows).

Price volatility and divergences can be seen in the week’s sectoral performance where price gains of four mainstream sectors were significantly pruned by heavy losses in the property sector (lower right window)

Hence, the upside thrust by a select few has been countered by selling pressures in the others. Or, the bidirectional violent price activities in many component issues has had an offsetting effect to result to a rather tamed or rangebound PSEi.

This implies that for an upside breakout of the index to come to fruition, such requires the participation of the broader PSEi.

Otherwise, if the heavyweights get afflicted by fatigue from the vertical brutal price actions, then they are likely to be pulled down by the latter group. And such which would likely entail of a breakdown of the 7,100.

Taken together, the gaming of the system, artificial or distorted prices, trade concentration, price instability/violent price episodes and diametric performances, would hardly lead to a salutary bullmarket.

Instead, the more measures are undertaken to artificially inflate the index, the greater the accretion of imbalances, thus the larger risks of a systemic blow up.