9:30 Thursday  20 August 2009  Philippine Stock Exchange Index   2760.89 (pre-open level )

Unlike the previous day when the market opened weak but closed stronger, trades on Wednesday opened with a surge in prices of the popular front liners.  However, as the day wore on, people started to take profits which either limited their upside and some issues like AC, GLO and MER even closing lower than the open.  The case for consolidation is becoming stronger which I view as healthy for this market.

The U.S. market continued to claw its way higher though not with the strong conviction we saw in late July.  I try to follow the VIX which is the futures price of the volatility of the S & P 500 index.  What I’ve noticed is a bottoming out of the futures prices from the 24th of July.  Market professionals interpret this as avoidance of risk moving forward.  This means that in the next few weeks, we are likely to see some consolidation of significant proportions in the U.S. and probably in the major markets.  As I write, we are already seeing the signs of a major correction in China and Hong Kong, the heavy weight markets in this region.  When the swells in the ocean get bigger, it is the smaller boats that rock the most.  Unfortunately, in Asia-Pacific, the Philippine Stock market is one of the smallest boats.

All is not lost yet.  This market has been fueled by potential mergers and acquisition activity and there seems to be more activity yet to come in this sphere.  Another factor would be the mining sector which is being driven by expectations that commodity prices have bottomed out which is also the reason for merger activity in this sector.  the key then is to avoid or take profits in the large cap issues and start taking hard looks at these wonderful small caps that are making good profits and are even facing good growth prosepects.

The tactical move that investors must do is to preserve cash while the consolidation is going on because I believe the trend to higher prices is still intact.  I am one who believes that we are just in the first leg of a very long stock market rally in this country.  Of course, the ride will not be smooth because nobody is that lucky.  There will be periods of nervousness, but remember, no pain – no gain.


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