Gus Cosio says so

Ideas on the Philippine Stock Market

Home on the range

10:10 am  Tuesday  15 September 2009  Philippine Stock exchange Index  2829.17 (mid session)

In the last 20 trading days, would you believe that we’ve had 10 down days against 9 up days in the index.  A month ago, on August 14 – a Friday – the index closed at 2850.  Yesterday, September 14 – a Monday – the index closed at 2821.73.  We’ve had a month when we saw quite a bit of positive activity on a number of stocks yet the index was relatively flat.  That’s because index heavyweights TEL and MER had declined significantly during the period while MBT, BPI, and AC were relatively unchanged.  The stocks that had gone better were the property stocks as well as a smattering of smaller index component stocks and some theme stocks.

Yesterday’s 48 point decline may be quite worrisome to a few investors, but I suppose many are looking beyond the short-term.  I think as a matter of asset allocation, investors are still convinced in putting more weight in equities.  The problem is that many are trying to time their entry even if they have longer term views.  No fault in that except that unless they establish a buying program, they could be left buying at high average prices.  As a rule, when an investor is convinced of both a stock and the market, he should immediately take a small position and program succeeding buys to stay below or at the current market price.  That means to buy when there is weakness in the market.

If one were to look back one month, he would do better if he bought only on down days.  A good example is AC.  On a weak day, AC goes down to 300 and dips even below to 297.50.  On strong days, it goes up to 315 and even as high as 322.50.  If you were to have bought only on down days, your average would be closer to 305.  In fact if you were a range trader, you would have been able to come in and out of the stock twice in the past month with an average of Php15 gain at every turn.  If you were trading MBT, you would have turned around once and would be looking to buy again now.  MBT ranged 36.50 to 40 during the period.  FLI would have given you two trades between 0.95 to 1.05.

The key to this kind of trading is to choose the stocks that you are comfortable with – stocks whose fundamentals you are happy with – then identify the ranges.  For those that are not used to buy on weakness programs, playing the trading range is very good training.  You will be able to season your nerves and learn the money management of trading.

Anyway, my current outlook is for the market to ease  a little more in general.  It is imperative, however, that you watch the individual stock because, as we have seen in the past month, the market may not be going anywhere, but a few winners will still be around.

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September 14, 2009 - Posted by | Financial markets in Asia

5 Comments »

  1. Great advice! How should I go about identifying the ranges though? Should I base it on the highs and lows of the previous month?

    Comment by Nicole | September 15, 2009 | Reply

    • Hi Nicole, You mentioned to me that you surf Bloomberg on the web. You can go to charts and look at the open-high-low-close chart. If you look at Ayala Corp., you’ll notice that there were 4 occasions when AC traded above 320 (Aug. 4, 24, 28 and Sep. 11); there were also 4 times it traded at 295 or below (Aug.12, 18 and Sep.2, 3).
      The range, therefore, for this period was 295 to 325. The key to trading the range is to buy when the base is not breached and wait. When the top is not broken, sell then wait again. MBT may have a range developing. You may need to look at a few charts before you gain comfort in the range.

      Comment by Gus Cosio | September 15, 2009 | Reply

      • I have actually switched to Reuters since you mentioned it, and I’ve found their website a lot easier to work with, and that their reports and news releases are a lot more comprehensive then Bloomberg’s. Their iPhone/Pod app is also quite useful.

        Thanks for the tips! I’ll make sure to do that with all the stocks I’m looking to trade.

        Comment by Nicole | September 15, 2009

  2. If you are using Reuters, you can use a candle chart. I look at slow stochastics as an indicator for entry at close to oversold levels.

    Comment by Gus Cosio | September 15, 2009 | Reply

    • Wow, this is great. Thanks Tito Gus!

      Comment by Nicole | September 15, 2009 | Reply


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