4:00pm   Thursday   June 25, 2009   PSEi  2467.56 (+2.14%)     PHP/US$ 48.20

I was away yesterday to do some personal errands.  When I came home and checked the PSE website in the afternoon, I saw that the market had rebounded 45 points, although it did not impress me because it lacked volume.  However, today, I am seeing a different story.  I’m seeing a market that has kept its resilience in spite of a five day pull back.  Yesterday, I thought the move was just a bounce.  Today, headline stocks, in fact the 3 largest capitalized in the PSE – TEL, ALI and AC – led the most actively traded list.

What does this tell us about what lies ahead?  I think it shows that investors are very much inclined to taking greater risks at this point.  Reading the news from New York overnight, the U.S. Fed chairman – Ben Bernanke – said that the “pace of economic contraction is slowing” and noted that financial markets had generally improved while consumer spending had shown signs of stabilizing.  Such pronouncement only indicates that the U.S. central bank was no longer worried about deflation which to my mind was the greatest threat to the global financial markets.

Given such a backdrop, I am inclined to agree with the lot of domestic investors who are driving this market.  It is looking to me like a market which will, at worst, allow investors to break even on their money.  That to me is a risk/reward proposition that is tough to ignore.

Nevertheless, one should not neglect the need for a trading strategy.  Recklessness of any sort, be it in driving a motor vehicle or managing money, only results in losses.  By putting available market information in perspective, we will be able  to identify reasonable buying levels and appropriate price regions where to take profits .  While I would put an 80% weight that the longer term (12 to 18 months) trend  is up, I think that the short term trend will be range bound, i.e. that individual stock prices will be kept within a band. This is simply because the global and domestic economies are still tottering.  What sparks a sustained break-out in prices is the prospects of very strong underlying growth in corporate earnings.  Right now, no matter what crystal ball or tea leaves I look at, no images of such strong growth appear.  What is apparent, however, is the willingness of investors to bet on growth.

Fortunately, there can be greater returns to be squeezed from a portfolio when the market is in a trading range.  One only has to be both diligent and patient in following the the highs and the lows of the range.  Frankly, the conditions that we are in today will truly reap for us who keep involved in the market an invaluable lesson in portfolio management.  It’s what my dad referred to as the “school of hard knocks,” and there is no better teacher than the experience we get when we wear our hands out.  One thing for sure though, our brains do not wear out.


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