To paraphrase Kahneman, what makes our narratives true isn't their accuracy, but the speed and ease with which we all accept them—Peter Atwater
In this issue
PSEi 30 7,300: A Product of Pre-Closing Pumps; The Crucial Differentials between 4Q 2020 and Today
I. PSEi 30 7,300: A Product of Pre-Closing Pumps
II. The Chronology of Operation PSEi 7,000
III. PSEi 30 7,300: The Crucial Differentials between 4Q 2020 and Today
IV. PSEi 30: Rotation Towards the Big 6 Powers Latest Run-up to 7,300
PSEi 30 7,300: A Product of Pre-Closing Pumps; The Crucial Differentials between 4Q 2020 and Today
I. PSEi 30 7,300: A Product of Pre-Closing Pumps
Figure 1
In a follow-up to the other week’s 4.44% return, the PSEi 30 sprinted to a 10-month high this week backed by a 1.06% advance.
Unknown to most, the 7,300 level was entirely a product of cumulative pre-closing pumps.
The 5-day pre-closing pumps, which totaled 97.54 points or 1.33% this week, signified over 100% (128%) of the week’s advance. (figure 1, upmost pane)
Or, without these marking-the-closes, the index would have closed lower. Perhaps, much, much lower.
Except for rationalizations by media, how is the much-ballyhooed boom from the vaccine-related reopening related to this?
These ubiquitous pre-closing pumps established the steep slope of the index that crafted the two interim patterns: an accelerated uptrend channel and a rising wedge. The PSEi 30 presently sits at the resistance level of these formations.
The thing is, over the short term, charts of the PSEi and their members provide meaningless clues. That’s because the index managers fundamentally draw up these charts.
II. The Chronology of Operation PSEi 7,000
Nevertheless, to extend our explanation of last week, please find the chronology of the events that constitute the mechanics of OPERATION 7,000. (Figure 1 middle pane)
1. The March 2020 trend line (which emerged from the BSP’s rescue) broke twice (at the end of July and on the second week of August).
2. High-flying ACEN and CNVRG replaced laggards DMC and FGEN in the PSEi 30 on August 16th.
3. Echoing CNVRG, GLO rocketed, TEL followed. Other non-PSEi 30 telcos failed to keep with their peers.
4. Resonating ACEN, AP zoomed, tagging parent heavyweight AEV. The leash effect partially revitalized FGEN.
5. In tandem with these, ICT spiked, the PSEi challenged 7,000. (3-6 Figure 1, lowest pane)
6. The PSEi broke the 7,000 level but didn’t hold. These high-flying issues exhibited signs of exhaustion.
7. By October 5th, the Big 6 joined the push. The PSEi 30 finally crossed over the 7,000.
8. The PSE announced the inclusion of WLCON on October 11th, JFC flew.
9. The bidding mania spilled over to BDO on the same day, triggering the pumps on the financial issues of the index.
10. Ever since, the PSEi 30 climbed from the alternating pumps of the expanded list of high-flyers and the big 6.
In short order, the share prices of the high-flyers rocketed beginning mid-August, while the share prices of the top 6 heavyweights provided the upside fulcrum to the Index this October. The recent strength of the latter filled in on the signs of exhaustion exhibited by the former or the high-flyers. The entire transition (from high flyers to the big 6) signified a process.
Figure 2
The contributions of the high-flyers and the big-6 to the PSEi 7,300 are showcased by their charts respectively.
Needless to say, this week’s pre-closing pumps in aggregate were instrumental in boosting the share prices of the heavyweights that heaved the index to 7,300.
One may ask, might all these represent a coincidence? Perhaps. But including the institutionalized regular end-session pumps, these seemingly concerted events signify a seeming pattern from a series of binding purposive actions.
At the end of the day, whether coincidence or by design, the mounting distortions from the institutionalized marking the closes abets the gross mispricing of the stock market. The BSP’s historic zero-bound and QE regime signifies its primary fuel.
III. PSEi 30 7,300: The Crucial Differentials between 4Q 2020 and Today
People see charts and look for similarities or patterns in price formations. From that point, these observers project outcomes and payoffs.
But yes, price watermark levels provide attractive incentives for the cheering echo chambers.
In lieu of econometrics used by statisticians and economists, chartists use various indicators and oscillators, mixing them to create a scenario. Some use this to reinforce their biases.
And because technical abstractions provide an aura of intellectualism, the average participants readily embrace these tools assuming their efficacies. Such technicalities provide an intellectual disguise for "expertise."
Unfortunately, bereft of the spectrum of probabilities, these tools lack measures of effectivity. While one pattern may fulfill its desired outcome, it may not do so on the others. No one bothers to see how and why it differed or how this pattern performed relative to the probabilities of previous incidences.
Besides, the mainstream provides no theoretical explanations on the likely effects of institutionalized end-session pumps on price pattern formations of the PSEi 30 index.
More importantly, because of the variability of the underlying conditions, historical price similarities represent an inferior metric for analysis.
Figure 3
As proof, there are considerable differences between the run-up to the 7,300 in the 4Q 2020 and today.
In 2020, the dash to 7,300 started from October to November.
Because of fading volume, the rally ran out of steam. The index plateaued by December to January 2021 then began to descend hereafter.
And because of the intense retail exposure in 2020, volume was not only significantly higher than today, but market breadth also supported the run-up.
The 4Q 2020 ramp represented a faint shadow of a genuine bull market (2009-2012). (Figure 3, second to the highest pane)
Today, while the index bears a robust appearance, again, mainboard volume lags its 4Q 2020 predecessor (Figure 2, middle pane)
Likewise, the average daily trade and traded issues pale in comparison to 4Q 2020. (Figure 3, upmost left and right pane)
Further, the 7,300-level have little support from the market breadth of the PSE as sellers dominate the margins. (Figure 2, lowest window)
And such strength is an illusion because the bull market is limited to only select composite members of the PSEi 30. The skewed distribution of the index also magnifies its performance.
As such, the inferior health of market internals only highlights the limited participation of the retail segment.
Or, in examining the charts of ALL the listed firms, the bull market covers only a handful of issues outside the PSEi 30.
And like 4Q 2020, foreign money participation remained on the sidelines as today. (Figure 3, second to the lowest pane)
The process of elimination suggests that only sectors inundated by the BSP’s liquidity, particularly the financials and the government, may have constituted the forces behind the present selective price ramps at the PSE.
Despite the massive liquidity injections by the BSP in 2020 through early 2021, the growth of M2 savings deposits appears to have stalled. (Figure 3, lowest pane)
IV. PSEi 30: Rotation Towards the Big 6 Powers Latest Run-up to 7,300
Figure 4
There’s more.
Behind the run-up to 7,300 in the 4Q 2020 were the heavyweights of the real estate sectors, and secondarily, the holding firms as signified by the expanding share of markets caps.
In essence, aside from increased retail participation that powered the broader market, the biggest market cap issues stewarded in the index higher. The charts of the top 6 heavyweights illustrate this dynamic.
But then, the PSEi 30 benchwarmers were sidelined.
Since the 4Q 2020 model failed to sustain the run-up, a new paradigm was required to remedy the previous flaws.
As noted earlier, this time, primed as leaders were the energy producers, TELCOs, and ICTSI.
The benchwarmers took the lead role while the principal players or the Big 6 assumed the supporting role.
As proof, SM's 4.34% advance contributed substantially to the PSEi 30's weekly gains of the week and the push towards 7,300 as the parabolic rally of the leaders faded.
As of October 22, the share of the free float market cap of the big-6 remains at 52%.
Except for BDO and SMPH, it was the week of the Big 6. SM was supported by JGS, ALI and AC.
Since the (private and public) financial system may have engineered the current rally, how much more liquidity reserves do they have to sustain it?
Curiously, while financials are supposed to benefit from this reopening, we read that some banks have tightened anew in the Q3. If so, how will this boost liquidity?
With the sustained inflation of the bubble in everything worldwide, in the meantime, anything is possible.
Yours in liberty,
The Prudent Investor Newsletters
No comments:
Post a Comment