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9:15am  Tuesday  1 September 2009    Philippine Stock Exchange Index   2884.18 (Friday close)

It’s great to have a long weekend.  There’s time to catch a round of golf, party with friends, visit my folks, spend time with my  wife and kids, and, when all is said and done, sit back and appreciate what life is really all about.  I equate the quality of my life with the people around me and doing the things I enjoy doing.

Fortunately, market watching is one of them.  A long weekend also gives you time to surf through all sorts of information on the net and one article I stumbled upon was saying that a relatively obscure index – the Baltic Dry Index (BDI) – is signaling caution in the market despite recent strengths of the major indices.  This index was very strong in March 2008 (11,771) but precipitously tumbled dramatically to its historically low levels (673) in  December 2008.  That was like a 96 percent drop the message  of which was world shipping traffic had almost gone to a standstill.  It gradually improved to 4291 in the beginning of June but has recently dropped to 2388 settling around 2410 last Friday.

I think these are very important numbers because one-third of our economy is still oriented toward exports and a large number of the world’s maritime fleet are manned by Filipino seamen.  If global shipping does not recover again, there might be a shift in investor sentiment away from economic optimism.

Going to factors that directly affect our market, there are clouds looming in our horizon with China and Hong Kong showing strong signs of weakness.  China stocks sank 6.7 percent to a 3 month low on Monday and the Hang Seng lost 1.86% as well.  Japan with renewed optimism about its election failed to buck the Asian mood.  The long weekend was actually good for us because the Philippine stock market did not have to react to the weakness of Asian markets.

Overnight, Monday, the U.S. market closed lower but aound 50 points from the Dow’s day lows.  Traders have been looking for a major correction in the U.S. so it does not come as a surprise considering the sell-off in China.  I believe that most major markets will be consolidating over the next few weeks, a development which will not spare the Philippine market.

On individual stocks, I’d like to look at Ayala Corp. (AC).  I noticed that over the last 2 weeks, traders have been using AC to buy or sell the market in general meaning if they think that the market will surge, they buy AC.  Unfortunately, when they see the move, they quickly sell AC as well.  I think this trading sentiment currently prevailing in the market is true of most blue chip issues simply because these were the main beneficiaries of the strong 4 month rally that we’ve seen.  Strategically, I would avoid them until I have comfort that the consolidation theme has played out.

Fortunately for players, there ar other themes that are moving which are away from index stocks.  I noticed a small break-out in PNB, AGI and ISM last Friday.  That should be worth watching.  I see a buy on weakness on EEI which to me remains fundamentally strong.  I also see opportunity in LC for a mining play since fundamentally, LC has the largest mining resource among its peers and the commodity play will always be around.

Having said that, I think you will realize that I see this week as a very volatile week for all markets including the PSE.  It is always difficult to time the market that is why it is important to be in stocks that will likely continue the trend after this expected correction.  Let’s hope this will be a September to remember.

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