If you don’t know who you are, this (stock market) is an expensive place to find out—Adam Smith (aka George Goodman)
August 13th Friday’s Largest Ever Pre-Closing Dump, Second Dump in Two Weeks!
Figure 1
Elicited from experts were comments about what caused the steep 3.61% drop of the headline index on Friday, August 13th, the largest of the year.
Some proffered that portfolio rebalancing by some fund managers and or the mounting cases of COVID may force an extension of the ECQ.
Perhaps.
But our compass indicates that Friday’s plunge was not only the biggest ever pre-closing dump that led to the final tally, but rather this incident signified the second pre-closing dump that happened on July 30th—only two weeks ago!
The mark-the-close dump of July 30th could be the previous record.
Friday’s pre-closing selloff shaved a shocking 223.81 points or 94.74% of the day’s 3.61% loss!
An observant person would probably see that the crescendoing volatility of closing pumps and dumps, as well as its frequency. Mounting volatility could be symptomatic of escalating financial stress in search of an exit valve.
The consensus sees as normal such mark-the-close price actions hence its institutionalization. But sad to say that the army of experts appears to be clueless to the basic laws of economics.
And the frequency of pumps makes the appearance that this is beneficial to the marketplace, so it has been easily embraced. But should the recent dumps become dominant, will the consensus change their sentiment? Will it spark an outrage?
We shall see.
Figure 2
Interestingly, the trendline from the low of March 2020, established by the BSP's implicit rescue of the stock market through its liquidity injections, was breached on July 30th. Friday’s markdown confirmed the breakdown of this trend line.
Ironically, last Friday’s selloff rapidly approached a full roundtrip from the low of July 30th.
Because of the rearview mirror effect, some are foreseeing a snapback.
The story goes like this. Supported by several marking-the-close pumps, a fierce recoil from the lows of July 30th pushed the index to the most recent high of 6,666.86 in 8-days for a 6.3% return.
As a side note, such a number would give hexakosioihexekontahexaphobic (fear of 666) people a reason to cringe.
While I am inclined to share this view, my concern is what if the selloff is a symptom of something less understood by the consensus? Given the paucity in volume, what if this episode’s rebound will be much smaller?
At worst, what if there should be a follow thru dump? Could liquidity be tightening in the real economy to have impelled some entities to raise money by selling their equity holdings?
And what if my expectations signify the Gambler’s Fallacy?
The violation of the 2020 trendline suggests that the index may find a new low or could use the recent selloffs as an interim trend.
The most critical factor here will be the mainboard volume—a likely manifestation of bank liquidity.
Nevertheless, current actions exhibit the bear market dynamics at work
Finally, since the advent of 2020, a fledging correlation between the PSEi 30 and the real GDP (in millions Php) has emerged. If this holds, then the forthcoming trend of the PSEi may pave the way for the direction of the real GDP.
