7:10 pm  Thursday  3 June 2010  Philippine Stock Exchange Index  3355.23 (+2.0%)

We had an unexpected breakout today.  I noticed a sharp rise in the price of MER which was the biggest contributor to the rise of the index today adding 11.1 points.  SMPH added 8.39 points and TEL 6.86.  Ayala stocks  AC, ALI, BPI and GLO together piled up 14.14 points.  All other index shares either added to the rise or did not affect it except for GMA7 and MBT which together took away 1.6 points.

What this looks like to me is that institutional fund managers are buying the market and not just individual stocks.  AP, AEV, DMC, RLC and URC are following through their recent strength.  What looks to be catching up with the rest of its family is DGTL.  If you recall, the strength in the prices of URC and RLC spurred a lot of enthusiasm for JGS.  It appears that DGTL has opened up the imagination of those closely following the Gokongwei group.

I was thinking that the index would be hitting resistance at the 3330 level, buy today’s 66 point rally takes all the bets off that number.  We are poised to take this market to the next level.  It may also be that institutional investor confidence is returning given that the presidential proclamation by Congress is now close at hand.

The movement of MER may be indicating another M&A deal, possibly the SMC group eventually selling out their position.  That remains to be seen.  What is impressive is the movement of SM, SMDC and SMPH together with their cousin CHIB.  In spite of the roller coaster ride in the market over the past few days, these shares have been rock steady and have slowly but surely gone forward.  I was recommending positions in SMDC for a while even though it was a little pricey.  There are some investors who are bullish in Henry Sy companies, and it looks to me that they are coming out of the woodwork.

Personally, I would not be chasing the market despite this break-out.  I am betting that this is a false break because MER may have skewed the movement of the index.  While my long-term view is positive and my general outlook is constructive, I think there a number of investors and traders who may want to raise cash by taking some profits on these strong performers.  I think that prices will not yet run away except for those that are only catching up.  I think we will see some sideways movement since many are still looking to Wall street to gauge if the global picture has indeed turned positive.

As a strategy, I would not recommend getting out of positions at all.  Any selling should just be trained at raising cash for new purchases.  In other words, those who are looking to take profits in some stocks ought to rotate into newly rejuvenated counters.  If the global picture improves, our market could put down another 200 points over the next 3 months simply because valuations are not at all demanding and the domestic economy may still pull out a few surprises.

8:50 am  Friday 4 June 2010 (update)

The markets overseas appears to be shaking off the fears that the European Sovereign debt crisis brought about in the month of May.  This first week of June seems to be drawing people back to the market. Many U.S. analysts are thinking that the market could rise from what are seen to be oversold levels.

Our PSEi did not fall as much as the global markets did.  This week has actually been spectacular for local stock prices.  I think we will end this week even with higher prices as support prices for our favorite stocks have moved higher.  I think it is a good time to pick up some EDC below 5 and PNB around 30.  There is also a good chance that BPC and MPI may rise further.  MER will likely maintain its strength.  DMC, AP and AEV have very strong support at these levels.  SM, SMDC and SMPH should not be ignored either.  I would not be surprised if MBT challenged 60 very soon.

6:00pm  Tuesday  1 June 2010  Philippine Stock Exchange Index  -  3266.62  (-0.19%)

Over the weekend, I watched the final show of my good friends, The APO Hiking Society. They had decided among themselves that after 40 years of performing together, it was a good time to go while they were still high in their popularity.  This was not the first time they had planned to call it quits, and I was around the few times they had planned a farewell concert and made a performance of it.  This time around, I was sure it was the last show, and the guys had given the show all they had in order to leave their adoring audience a memorable curtain call for the performances forty years.  I had been their friend all these years, and I knew that they really meant it.

The stock market just like show business can be just as fickle.  Stocks have to play to an audience and attract their attention.  Stock prices can reflect their true value, but they can be over or under valued from time to time.

The Philippine market has been rallying for over a year now.  In fact, in comparison to the developed markets, the local market has been performing better year-to-date.  Nevertheless, investors have been quite wary on account of the sovereign debt crisis in Europe.  The fear stems from the possibility of contagion similar to what happened in 2008, a debacle from which many are still hurting.

The question bothering a number of investors is where is this market going.  We saw exceptional GDP numbers last week.  As investment professionals, it is something that we cannot ignore.  The 7.3% growth rate were met with doubt by a lot of skeptics.  If these figures are not verifiable against other measures, then I would probably join the ranks of the skeptics.  But seeing a54.9% growth in electrical machinery, as exports of semi-conductors and electronics products to the US and China boomed, then we can have comfort that the growth was solid.  Recall as well that we have had 4 months of above 40% growth in exports.  First quarter  Meralco sales were 14.2% higher compared to the same period last year, and OFW remittances were 7.0% higher compared 2009-Q1.  Both these figures affirm that the GDP release was indeed credible.

With such a strong GDP growth, the question is how fearful should we be of global contagion.  According to a recent update from Morgan Stanley on the European sovereign Debt Crisis they wrote: ” From a credit perspective Asian financials are beneficiaries as the operating models are intact, capital/liquidity is on average strong, but the regulatory trend is nonetheless credit friendly.” The chart accompanying the statement showed that the Philippines had loan to deposit ratio of roughly around 60%.  The significance of this is unlike the Asian contagion which resulted into capital inflows and bank funding dried up in the Philippines, there is enough funding in the hands of domestic banks to provide the necessary finance to companies operating in the country.

From years of observing the market, I had always seen that it is the availability of cash that drives stock prices particularly when fundamentals support their value.  While I do not foresee an immediate rally in the making, I similarly do not see this market crashing the way it did two years back.  What I am expecting is for the range of 3050 to 3330 to work itself out until good or bad news develops.  So far, I think much of our fears are already in the price.  It is even important in the near term to have a visible view of how your favorite stocks trade.

It is probably best to be counter-intuitive in approaching prices, meaning avoid strong prices and seriously consider weak ones.  A good trader should not be chasing prices these days, and if prices of strong stocks drop, have the boldness to pick them up.  Watching enough of price movements should give an investor or trader a good feel of what is going on.  After all, just as I was totally entertained last saturday, a good show is always worth the money.