Gus Cosio says so

Ideas on the Philippine Stock Market

Who trades and runs away?

9:30pm  Wednesday  9 December 2009  Philippine stock Exchange Index  2981.25 (-1.02%)

Unlike the market psychology in the second and third quarters this year, investors are no longer anxious about missing the boat on this rally.  Could it be that this rally is over?

It is important for everyone who wants to trade stocks to understand market behavior.  CFOs of listed companies, for instance, become disappointed when their share price goes down especially if their company is doing well.  I always tell them that the company performance is one thing and the market is another.  Many a layman or even seasoned bankers have a singular view of a company and its stock price.  Is it as if the shares of of a company should just go up and can never come down.   Take a company like PLDT which is very profitable and very well run.  Are we to expect that the price will never come down? It sounds preposterous, doesn’t it; because markets behave with dynamics, and the movement of share prices result from such dynamics.

So it goes as well with the broad market.  Prices are a result of supply-demand perceptions and if demand dies down, those that follow the market’s pulse closely start to sell.  It’s called momentum trading which in essence is following the ebbs and flows of the market.  I think we are at a point when the market is ebbing because it’s flow has run its course just like the surf that has hit the beach.  Now, it has to ebb until the next wave comes and the ebb turns into a flow again.

In spite of what looks to be a market that is starting to trend down, there may be some trading opportunities in MPI and AGI.  Both are looking oversold and AGI just had a volume spike today.  Meanwhile, MPI is close to its recent bottom and my instinct tells me that there is very little supply below 2.50 so this could be a strong support from which the stock could bounce.

For those interested in the FGEN rights, I am of the view that you can wait and trade ex-rights and the trade would be almost the same.  The power stock to watch is actually AP because this downturn could be the opportunity to buy the stock lower.  Earnings of AP are expected to move to a higher plane by Q1 2010.  For MER followers, my fearless forecast is that this stock could touch 180 again which should be a good level to pick it up.

Next week, additional shares and warrants will be listed for MEG.  This will surely be a trading opportunity.  I would suggest that traders start to study how to trade these warrants because they are a very good trading instrument.  It can be very tricky at the beginning but once you get the flow, it can be quite profitable.

In the meantime, one should really avoid reckless trading at this point.  Don’t chase prices.  Re-establish your time horizons and your cut-loss levels just  in case you get your entry wrong.  The time has come for disciplined trading and that means more discerning money management.  Remember, if you still have cash in your portfolio, the game is not yet over for you.

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December 9, 2009 - Posted by | Financial markets in Asia

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