Gus Cosio says so

Ideas on the Philippine Stock Market

Do I see a stag?

1:00pm  Monday   27 July 2009   Philippine Stock Exchange Index  2732.62 (+2.1%)

If anyone has any doubt that this is a bull market, he or she should probably forget about trading the stock market or any market for that matter.  What we are seeing is nothing less than a raging bull that is fueled by lots of money looking for a home.  Today’s run was one of the strongest yet that I’ve seen.  Investors bought headline stocks across the board while taking profits on stocks like FPH and FGEN.

I was looking at how money flow had behaved since the rally began in March, and what I am seeing is a market that is very light on stock positions.  It appears to me that as prices rose, most players had just been stagging the market, that is, buying positions and then taking profits immediately when the long term holders come in.  As a result, what we have is a rally which has kept a lot of buying power still in the hands of players and the real investors owning stock where they want them.  In my book, that describes a very healthy market.

The question that begs us is how long is this rally going to last or how much more to go before we start stalling.  Putting things in perspective, this rally put on its legs on the third week of March consolidating briefly as the month came to a close.  That move was clearly led by headline stock particularly PLDT (TEL), GLO, ALI, AC, BPI, MWC and FLI.  As the rally gained ground, you see stocks like MER, FPH, EDC, MEG, AGI, MBT and GMA7(GMAP) leading the move.  What I’m pointing out is that the trend was nurtured by different stories emerging from different stocks.  You even have moves from laggards like Pepsi (PIP),PNB,   and eventually RLC and URC.

What I am driving at is this – when a market gains strength, people will look for reasons to participate.  Investors will start to look at buying opportunities.  Buyers will start asking if and why stocks are cheap and eventually become convinced that they are indeed bargains.  It comes to a point, however, when not everything is a bargain anymore.  The tide has risen and every stock trader is looking like a genius.  So, what is going to be the next clever move?

The trader in me says let the profits ride.  What looks good about this market today is that there had been some people taking profits.  This means that money is again available in the wings to pick things up should we see a correction.  Of course, bargains are not as cheap as they were a couple of months ago, but they may still be bargains.  Take for example, AC and TEL;  I think they’re cheap simply because their earnings momentum has returned.  Of course, we need to pay close attention to the 2Q09 earnings report which shall be coming out in the next few days.

I continue to like SCC and DMCI although I’ll just pick one and not both.  I like SCC because of my fundamental belief that energy sources are running out, so coal is going to be higher in price as the recovery gains pace.  I like banks MBT and PNB.  BPI is just too expensive.  Property stocks will also benefit, so MEG, FLI, ALI, AGI, and VLL should all do well.  For those who like small caps, my favorite is SPH which I think will eventually leap forward.

Keep in mind as well that markets do not rally indefinitely.  It is important to keep asking yourself the question at the start of a trading day, “if I did not own this stock, will I be willing to buy it today?”  If the answer is yes, keep it, otherwise, you know what to do.

Have a great week.


July 27, 2009 - Posted by | Financial markets in Asia, Uncategorized

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