- Written by John Mangun / Outside the box
IF you are thinking about investing in the Philippine stock market, you have about a week or two to decide whether to get onboard or not. This will probably be your last chance.
Last year, as the stock market was climbing to its historic high, I wrote that there were two possible scenarios: The Philippine Stock Exchange Composite Index (PSEi) would climb to 8,000 and then go on to 10,000, or it would fail to reach 8,000 and then fall below 6,000. The second forecast became a reality.
The PSEi reached a high of 7,403 and then retreated to its 2013 low of 5,562.
If, in the next week or so, the PSEi can break and hold the 6,000 level, then it is on track for a move back to its historic high in approximately 200- point increments. That move to the high will take between three and six months, and I am inclined to believe it will be the shorter, rather than the longer, time frame.
However, if the market does not move above and hold 6,000, then all bets are off and a fall below 5,500 is more than likely. But let’s be optimistic and assume for a moment that 6,000 is coming. When the market reaches its historic high again, the same scenarios forecast in 2013 will come into play: We will go much higher or the market will move considerably lower this year to below 5,000.
Before you start trying to figure out why this is all going to happen, remember that predicting stock-market moves is almost like predicting the weather: You look for conditions to come together, and make a forecast based on those conditions. Maybe it is going to rain because of global warming or “global cooling.” Probably the god of thunder had a fight with his wife. What causes the circumstances is not as important as understanding what the results could be.
The stock market has several factors that forecast that once 6,000 is taken out, then the next critical area is 6,300. The move to 6,300 will be more difficult than the subsequent move to 6,800. After 6,800, going to 7,400 will actually be the easiest move of all.
As more large clouds form and grow darker with moisture, predicting that it is going to rain is easy.
Why is this your last chance to invest in the Philippine stock market?
As stock prices go higher, it becomes psychologically more difficult to buy shares. The issue you could have bought at P3 is now P4, and all you are thinking about is the move from P3 to P4, not the potential move from P4 to P6. In 2012 RFM Corp. shares moved from P1.25 to P2.50 in three months. Robinsons Land Corp.’s shares went from P12 to P18 in the same period.
Of course, not all stocks are going to do that, but when the people at Malacañang’s press office start talking about the stock market, we remember that we should have bought when they were silent.
The other reason that this is the time to buy if we are going higher is more disturbing.
As there are many factors that lead us to believe that the stock market will hit or come near to its historic high, at that point there is the concern that 7,500 could be the top level for several quarters in the future. Again, if the market cannot reach near 8,000, then we are going to see a strong decline to the 5,000. That is not a roller-coaster ride you want to be on if it happens.
The greatest enthusiasm or euphoria tends to come at stock-market highs, where there is also the greatest financial risk.
As I wrote earlier, there are many external factors that could wipe out any positive stock-market sentiment very quickly. Right now the sentiment is cautious, as it should be at the beginning of an upside stock-market move. That is the point of maximum financial opportunity.
As time progresses and if the potential negatives do not materialize, sentiment and psychology will become even more optimistic. Buying will become stronger and prices will go higher, up to a point.
Normally, the positive economic and corporate results for 2013 should project a favorable stock market for 2014. This year I am not convinced, for several reasons. This year we will take it quarter by quarter and no longer. Therefore, if you are going to invest in stocks, do it now. Then re-evaluate in three months. The first quarter of 2014 may be the time for the best market action for the year.
E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.
- Written by John Mangun / Outside the box
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