RABBITS IN THE HAT by Gus Cosio

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.