PSEi 30 6,950: Desperate Times Calls for Desperate ICT-SM Led SY Group Pump; The Quest for Better Absolute Returns

 

The problem is not people being uneducated. The problem is that people are educated just enough to believe what they have been taught, and not educated enough to question anything from what they have been taught—@ProfFeynman

 

PSEi 30 6,950: Desperate Times Calls for Desperate ICT-SM Led SY Group Pump; The Quest for Better Absolute Returns

 

An organized four-company pump pulled the Philippine PSEi 30 back to 6,950

 

The Philippine PSEi 30 closed the week up .33% to nearly recover the 6,950 levels, which slipped from profit-taking during the early innings of the week.

 

Through seven weeks of consecutive advances, the headline index's YTD returns swelled to 7.63% (as of March 8th) and 16.44% from troughs of October 2023.

 

Understanding the foundations of the recent rally is imperative for comprehending the stock market cycle.

 

1. Only a few issues have been responsible for most of the gains of the PSEi 30. 

Figure 1

For instance, ICT share prices have gone totally vertical!  Its % share of its free float market cap has also gone parabolic! 

 

Up by an astounding 9.4% this week, ICT etched a new all-time high last Friday as it toppled BPI for the fourth spot as the largest PSEi 30 company!   Its market cap share has gained 16%, while YTD returns delivered 25.5%!  

 

However, ICT's share prices have diverged from its 2023 financial performance. 

 

Although ICT may have contributed by about 15-18% of the PSEi 30's YTD gains, it couldn't do it alone.  

 

And so, a series of orchestrated and rotational price pumps have also incited an upside spiral of share prices of other market cap heavyweights—primarily financials.

 

But since financials were on a weekly recess, recovering the PSEi 30 to its early March levels required help from other PSEi 30 mainstays. 

 

And thus, the SM-led Sy group (the top 3 heavyweights) assisted.

Figure 2

It is no surprise that pre-closing (3) pumps and (2) dumps governed the outcome of the headline index. (charts from Technistock)

2. Market internals Diverge with the Headline Index

But the general market didn't seem to agree with the index managers.

Figure 3

Decliners dominated the PSEi 30 breadth (19 down and two unchanged).  (Figure 3, upper chart)

 

The average change was a 1.19% deficit.  It showed signs of exhaustion, but index managers wouldn't allow it.

 

The week's performance was a deviance from the overall market sentiment.

 

Decliners also prevailed over the broader market with a 507-414 in the former's favor.  

 

Though reportedly bolstered by an aggregate foreign buying of Php 1.73 billion, mainboard volume growth remained anemic, if not lethargic. 

 

Nonetheless, the easing of global financial conditions has intensified the leveraged speculative mania.

 

The Indonesian JKSE reached an all-time high (ATH) this week to join the ranks of the five national benchmarks in Asia-Pacific, which set a new milestone in 2024. (Figure 3, lower image)

Figure 4

3. Concentrated and Organized Pumps 

Circling back to the local market, mainboard volume remained outrageously remote from its predecessors (2021, 2022 and 2023). (Figure 4, topmost visuals)

 

Yet, an elite crop of (top 10) brokers (mainly institutional) dominated or continued to control a substantial share of mainboard volume. (Figure 4, middle window)

The trading volume of the Sy Group accounted for 24% of the main board volume.

The top 20 most active issues corralled 83% of the main board volume.

 

Evidence from UC bank loans exhibits that the lending growth to the financial industries appears to have resonated with the PSEi 30's performance. (Figure 4, lowest chart)

 

Does this indicate intra-industry margin trade?

4. The Impact of Market Distortions

 

This compilation of evidence suggests a "cartelized" market rather than an economically functional one. 

 

The degree of distortions could be symptomatic of massive skeletons in the closet in the balance sheets of mainstream companies. 

 

Think about the 4-year Php 48 billion "budget overrun" by one of the largest telco firms here.  

If the supervising authorities can't balance the order for the minority shareholders, the industry and the economy, why should we suppose that markets are pricing capital effectively?

 

If so, what are the repercussions of sustained and intensified distortions of capital market pricing and misallocations?  A bull market?  Or a bubble bust?

5. Quest for Better Absolute Returns 

Our goal as an independent analyst is to understand the genuine conditions of the marketplace so we can make prudent choices from the underlying risk conditions to generate better absolute returns.

 

We could have a broader scope of market forensics.  

Unfortunately, our access is limited to ungated (free) resources.  We could broaden our perspective to see monthly foreign participants and brokers per issue.  If available, the cumulative number of cross-trades and more. 

 

We could also see the depth of participation and general market sentiment via the aggregate number of issues (and components) above or below their 50-day, 100-day, or 200-day moving averages, the periodic price highs and lows, and more.

We certainly could use more data to expand our analytical horizons, which we can use in our assessment in the context of probabilities, behavioral finance, financial theories, and more.  

But then again, we are limited in resources and workforce (single analyst, data encoder, and agent/trader).

 

However, unlike the mainstream, this free subscription site aims for objective, value-free analysis, unconstrained by the agency problem (conflict of interest).  

We don't write to push for implicit sales goals or promote the interest of political or politically connected institutions—which is why there have been NO takers of the PSE's short selling (yet). 

Neither do we rely on confirmation bias themes to get "likes." 

Writing helps this free market acolyte learn more and work to improve on portfolio management, which I have been sharing with you for years.   

 

Anyway, thank you very much for listening.

 

The Philippine PSEi 30’s Push to 7,000: Low Volume Concentrated Pumps, Gaming the Index, and "Blow-Off Tops"

Be careful here – deteriorating internals matter. The condition of market internals is precisely the same hinge that – in market cycles across history – has separated overvalued markets that continued to advance from overvalued markets that collapsed through a trap door. That’s not to say that stocks must collapse immediately; market peaks are a process, not an event. That’s also not to say that market internals could not improve, which wouldn’t relieve extreme valuations, but could very well defer their immediate consequences—Dr. John P Hussman

 

In this issue

The PSEi 30’s Push to 7,000: Low Volume Concentrated Pumps, Gaming the Index, and "Blow-Off Tops"

I. PSEi 30’s Push to 7,000: Desperately Seeking A Bull Market

II. PSEi 30 Almost Reached 7,000 on Lethargic Volume—Despite Foreign Inflows

III. PSEi 30 7,000: Gaming the Index with End-Session Pumps and Dumps

IV. PSE: Concentrated and Organized Pumps on Lack of Retail Participation

V. PSEi 7,000: Price Pumps Concentrated on ICT and Banks

VI. PSEi 30’s Version of "Blow off Tops," the "Rising Wedge," and the US Tech’s "Mother" of All Bubbles!

The Philippine PSEi 30’s Push to 7,000: Low Volume Concentrated Pumps, Gaming the Index, and "Blow-Off Tops"

 

The thrust to PSEi 30 7,000 can be described as a low-volume, concentrated, and organized institutional pumping, with several "blow-off tops" in the making.

I. PSEi 30’s Push to 7,000: Desperately Seeking A Bull Market

 

The establishment has been seeking desperately to inflate a stock market bubble.

 

The thing is, inorganic rallies tend to devitalize market structure. Bear markets slide down the ladder of hope. 

 

Three critical factors depict the underlying health of the alleged renascence of the "bull market."

 

First.  Despite the winning streak in 7 of 8 weeks in 2024, sluggish volume remains the dominant feature of the PSE.  The depressed volume reinforces the long-term underlying trend.   At the same time, lackluster volume manifests unhealthy or divergent breadth or the distribution of gains and deficits.

 

Two.  End-session pumps and dumps continue to shape the PSEi's 30 daily outcomes.

 

Three.  The PSE continues to be plagued by the concentration of trading activities that have led to increasing market pricing contortions or mispricing. 

 

Figure 1

The PSEi 30 closed the week up .58%, extending its winning streak to 7 in the eight weeks of 2024, increasing YTD returns to 7.2%—one of Asia's leading performers. The Philippine bellwether ranked fifth in the region as of February 23rd. (Figure 1, topmost graph)

 

Buoyed by global financial easing, 15 of the region's 19 national indices closed higher in the week YTD, with an average return of 3.2%.

 

This week, the equity benchmarks of Japan (Nikkei 225) and Taiwan (Taiex) joined the group of national equities that has recently carved all-time highs (ATH) like supposedly "unstoppable" Pakistan’s K-100 and India’s Sensex.  Australia's AU200 seems next in line.

 

The once laggard Philippine equity markets now want to "keep up with the Joneses."

 

Let us deal with this in detail.

 

II. PSEi 30 Almost Reached 7,000 on Lethargic Volume—Despite Foreign Inflows

 

Surprisingly, inertia in mainboard volume has accompanied the push towards the PSEi 30 7,000. (Figure 1, middle window)

 

Yet, mainboard volume includes cross (or intra-broker) trades, which account for about 5 to 10+% of the total.

 

Rapidly rising prices should have enticed the public to redirect excess savings to the stock market, but instead, there has barely been growth in the daily (or even weekly) mainboard volume.

Figure 2

It seems no coincidence that lukewarm growth in universal-commercial bank loan growth and M2 savings have coincided with the general trend of the PSEi 30's recent bear market and the long-term slowdown in volume. (Figure 1, lowest chart; Figure 2, topmost graph)

 

Yet, could rising PSE eventually echo with improved bank loan growth and liquidity in the coming months?

 

And it seems odd that the increased foreign fund flows—while boosting the index levels—have barely contributed to the total turnover growth. (Figure 2, middle pane)

 

In 2024, the PSE reported Php 11.09 billion of fund inflows or about 5.3% of gross volume (as of February 23).   These inflows occurred in 7 of the eight weeks.  Foreign trades accounted for 49.23% of the total turnover.

 

Increased foreign trades are likely symptomatic of mounting leveraged carry trades on the backdrop of a weak Japanese yen, Chinese yuan, record low Malaysian ringgit, and others alongside global financial easing.   

 

But the irony is, why the seeming deficiency in the expansion in volume given the streak of foreign inflows?

 

Were these foreign funds—for real?  Or were these part of the international satellites or affiliates of PSE-listed firms owned by the elites?   

 

Why were local institutions selling their "appreciated" holdings of select PSEi 30 firms to these international trend-following institutions? 

 

Aside from volume and price levels, market breadth would have been more potent from these supplementary inflows.

 

III. PSEi 30 7,000: Gaming the Index with End-Session Pumps and Dumps

Two.  Gaming the PSEi 30.

 

As recently explained, if the PSE wanted to improve the efficiency of the capital markets and the economy, it would work to ensure an effective market pricing process.

 

Instead, not only do we get inert volume, but the PSEi 30 levels have been determined by relentless (pre-closing) pumps and dumps via increased volatility of share prices of select market cap heavyweights. 

 

These were the biggest daily (pump and dump) movers during the last two weeks. (Figure 2, lowest diagrams)

Figure 3

 

Although the weekly % share of the top 20 traded issues has risen in 2024, it has slowed recently.   Last week's 81% average (daily) remains significant despite the 2024 average of 83%, meaning some of the volume has spread to the broader market. (Figure 3, topmost pane)

 

IV. PSE: Concentrated and Organized Pumps on Lack of Retail Participation

 

Three.  Concentrated trading activities.

 

The good news is that though some trading activities have spilled over to the broader market, most of the trading actions remain in the hands of the top 20. 

 

Further evidence of this is the bounce in the weekly average of the daily traded issues, which recently hit a one-year high but partly retraced this week. (Figure 3, middle chart)

 

While this may partially signal the perking up of retail activities, the overall turnover and other market internals suggest otherwise. 

 

Instead, the rise in traded issues indicates active trading of institutional accounts spreading to the broader market.

 

Figure 4

 

Aside from the volume slack, the weekly averaged daily trades remain in the doldrums, as the output per trade has bounced in 2024, which suggests increased wholesale transactions (by institutions). (Figure 3, lowest graph: Figure 4, topmost graph)

 

Market breadth remains tilted towards decliners.  Oddly, weekly declining issues were ahead (5/8) in 2024.  The aggregate spread in 2024 was a negative 10 (favoring decliners)—despite the 7.2% increase in the PSEi 30! (Figure 4, middle window)

 

The paradox showcases the participation vacuum from retail activities.

 

Meanwhile, the top 10 (mostly wholesale or institutional) brokers continued to corner a substantial 57.42% of the mainboard volume in the week ending February 23, but slightly lower than the YTD weekly average of 59.32%. (Figure 4, lowest graph)

 

V. PSEi 7,000: Price Pumps Concentrated on ICT and Banks

 

Figure 5

 

The PSEi 30 continues to be driven by the top 5 market heavyweights as their share slipped from a record 48.5% to 48.3%, primarily from the partial pullback of the parabolic ICT.  (Figure 5, topmost chart)

 

Aside from ICT, institutional trades have been rotating towards banks. 

 

The market cap share of the banks—consisting of three PSEi 30 banks—hit an all-time high on February 23, as trades shifted from near-record BDO and BPI to MBT. (Figure 5, middle window)

 

Possibly echoing the Q4 2022, Q1 2023, and Q2 2023, Other Financial Corporations (OFC) were the primary buyers of bank shares.  Could they be today's buyers?

 

Ironically, the rotational manic bid on banks comes amidst slowing profit growth (2023) and a rising liquidity gap, which is unlikely to diminish substantially anytime soon.

 

And the panic bids have barely spilled over to the non-PSEi banks, with former members Security Bank (-.14% YTD) and Union Bank (-10.63% YTD) hardly recovering from their recent lows.

 

Such selective outperformance could mean attempts at bolstering the PSEi 30's facade.

 

By the way, BDO (9.27%) has supplanted SMPH (9.24%) as the second-largest free float market cap share in the PSEi 30 (February 23).

 

Once again, the distribution of the market cap share of the PSEi 30 resembles the power law, with seven of the thirty issues commanding a considerable heft. (Figure 5, lowest chart)

 

The market share of the top 10 issues accounted for 71.23% of the PSEi 30 (as of February 23).

 

Yes, the market cap share of other issues contributed to PSEi 30's recent rise (GTCAP, MONDE, BLOOM, and CNPF), but these played a minor role.

 

VI. PSEi 30’s Version of "Blow off Tops," the "Rising Wedge," and the US Tech’s "Mother" of All Bubbles!

Figure 6

The concentrated pumps have led to "parabolic" or extreme upside price actions.

 

Despite the PSEi 30 below 7,000, three issues broke records in 2024 (ICT, MER, and CNPF), while BDO and BPI are at a hair-breadth distance from all-time highs.  (Figure 6, topmost charts)

 

As a side note, even at extended overbought levels for some issues, there should have been a few entities who would take on "shorts." Ironically, there have been ZERO takers for the PSE's "short sell" program!  (I haven't seen any since the PSE began posting the daily short sale on its website)

 

The latest bidding shift to Metrobank, which spilled over to GTCAP, demonstrates the rotational pumps to buoy the PSEi 30.

 

Please observe that intense daily pumps have been directed at a few market cap heavyweights, accompanied by the complimentary push on the other top 10 issues to "power" the PSEi 30 higher—on low volume.

 

Like the artificial peak of 9,041.2 on January 26, 2018, driven by select elite issues (9 record highs that year with little broad market participation), concentrated and organized pumps eventually wear down. 

 

Though agnostic on chart patterns, the PSEi 30 bears the shape of a "rising wedge," which could mean an eventual reversal unless a new formation takes over.  

 

Aside from fundamentals, the recent developments in the PSE's internal structure hardly support a sustained upside momentum, which seems to support the "rising wedge" pattern.

 

Nonetheless, forcing an upsurge in the "markets for the big boys" hardly constitutes organic and spontaneously rooted market pricing, which worsening distortions translate to the mounting risk of a market bust.

 

After all, Philippine BVAL treasury yields continue to rise and have recently steepened across the curve.  Rising yields translate to losses in fixed-income security holdings.  It could heighten inflation risks and escalate liquidity and credit-related strains on an economy swimming in debt.  It could spur higher HTM holdings for banks. (Figure 6, middle pane)

 

In closing, this incredible US tech chart outperforming global tech, which has not only soared way past its long-term average but likely forged a "tailed-event," depicts the extent of intensifying leveraged hyper-speculative activities. (Figure 6, lowest graph)

 

Some would call this a "blow-off top."   

 

It also looks like the "Mother" of all bubbles.

 

Yet, when the US market sneezes, the world markets catch a cold.