We all want to believe in impossible things, I suppose, to persuade ourselves that miracles can happen—PThe Book of Illusions
Is A Pattern Emerging From Pre-Closing Pumps And Dumps? COVID, Buffet Indicator, PER and Brewing Divergence in Global and Asian/Emerging Market Stocks
Pre-Closing Volatility Pattern; Fading Volume, Minor Bearish Rising Wedge
Figure 1
Is a pattern emerging from pre-closing pumps and dumps?
The record 3.42% dump on Friday, August 13th, which pulled down the index by 3.61%, appears to have infuriated the bulls. Index managers responded this week with frantic low-volume bids supported by three days of pre-closing pumps.
But then, another pre-closing 1.04% dump occurred on Friday that resulted in a 1.27% loss!
This Friday’s dump signifies the third Friday incident in the last four weeks!
Are dumps a cue for the index managers to takeover?
It appears that to make the chart look promising, the managers ensured that the index surpassed the previous highs.
That is, the index erased the 3.36% loss of the other week with this week’s low-volume 4.95% advance, the third-largest weekly gain of the year.
The average weekly main board volume was Php 5.228 billion, or 28.98% less than the previous week’s Php 7.36 billion. But it was slightly higher by 11.9% than the 4.3% ramp on the week of August 6th.
Interestingly, as shown in the above, main board volume declined as the index raced higher helped by pre-closing pumps.
Also, Friday's pre-closing dump may be a reaction to a bearish rising wedge formation.
Unless the actions of the index managers dominate, this chart pattern suggests that we may see a decline this week.
Rising Covid-19, Rising PSEi 30; The Buffet Indicator
While COVID-19 has almost been a dominant talking point of the markets, there is a loose correlation between the PSEi and infection cases. This year, ironically, rising infections have actually been positive for the PSEi 30!
Figure 2
The BSP updated its stock market capitalization page. At the end of July 2021, when the PSEi 30 closed at 6,270.23, the Buffett Indicator (the market cap to GDP) was at 86.46% and 88.68% of the current and real annualized 2021 GDP. By this standard, the PSEi 30 isn’t anywhere cheap.
In 2008, the PSEi found a nadir at 50.6% and 39.65%. But then, because of the clean balance sheets, the BSP’s low rates gained traction and fueled the 8-year bull market for the index. The genuine broad-based bull market climaxed in 2013. At a minimum, the trend lines may act as interim support.
PER Still at Pre-Asian Crisis Highs, Bank Liquidity Drives PSEi Volume, Diverging Global-Asian/Emerging Market Stocks
Figure 3
Despite July’s fall, the BSP’s PER ratio continues to drift at 1996 pre-Asian crisis highs!
Hopes are high that a recovery in the economy would bring down and normalize this ratio. But bear markets slide down a slope of hope, as they say. Surging debt levels and intensifying market manipulations aren’t signs of a bottom. Instead, these are symptoms of denials.
Most importantly, since bank liquidity drives the volume of trades at the PSE, a genuine bull market isn’t likely to transpire unless a structural resolution to the industry’s problematic debts emerge.
Figure 4
The gyrations of the bank system’s cash to deposits and the peso volume at the PSE, from 2008 to date, have been in tight synchronicity, establishing possible causality.
Finally, since the PSE does not exist in isolation, a paramount concern is the fledging divergence in the performance of global stock markets. Will the stock market of the US-led World Index lift the rest to resolve this disparity? Or will Asian and emerging market stocks drag down World stocks?
Good luck to those who think that the Philippines can decouple from global dynamics.
Hope this helps.
Yours in liberty,
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