Gus Cosio says so

Ideas on the Philippine Stock Market

Food for thought

11:15 am   Tuesday     23 February 2010    Philippine Stock exchange Index     3018.46     (up 2 points from the open)

From what I am hearing from traders, there seems to be some worries as to where this market is going.  The last few days saw the index assault past the 3000 level only to see selling above that level.  Undoubtedly, 3000 is a resistance level and the next one is 3100.  Again, I will go back to the basics and try to put this market in perspective by taking a look at individual stocks.  One stock that had a big move in the last month was SM.  This stock was trading between 300 to 320 since July 2009 but early this month, it broke out of that range and is now trading a range between 355 and 370.  MER which had gone through the stratosphere in the middle of 2009, broke through its 170 support and is now ranging between 150 and 170. TEL which was trendless in the last six months finally established a higher trading range between 2500 and 2770.

These are index heavy weights together with AC, ALI, BPI and MBT and they influence sentiment quite heavily.  The sentiment for TEL and SM have definitely become a lot more positive while that of MER and possibly AC have turned sluggish.  This is why the index has not been to negative in spite of the volatility in other markets.  The fundamentals on the heavy weights have remained firmly intact while the other smaller index stocks particularly those involved in the power sector have been relatively well supported on the downside.

It can get quite boring when markets are ranging the way it has over the past weeks.  Actually, we even got a scare when the credit crisis in Greece broke out and the index almost broke support at 2800.  What gives me comfort that we are working this range between 2800 and 3100 is that the individual stock fundamentals are strong.  Of course the broad market will react to macro economic disruptions.  The dry weather and El Nino for instance would bring down agriculture production, but for a soft drink bottler like PIP, this hot weather normally brings extraordinary high sales.  Likewise, there will be worries for power companies like AP because the hydroelectric dams are hitting critical levels, but when the rains come in June, AP is bound to have a bonanza from high WESM prices.  AP is probably the strongest stock in the power sector.  You should use any weakness in its price to buy some.

I am seeing that DMC has broken out of its range also.  DMC is the cheapest infrastructure stock around.   I believe MPI should be following soon because its values have also stabilized and it now looks cheap.  Of course the mines will always present good trading opportunities, but you have to find good information sources to trade that sector.  What I am pointing out is that if we stick to fundamentals, we’ll be alright even if we see occasional declines in the market.

Two stock have caught my eye lately – SMPH and BPC.  With SM trading at higher levels, I think that SMPH should be catching up soon.  As for BPC, it looks like some accumulation is going on in the stock.  The scuttlebutt is that they may finally get a creditors agreement on their legacy debts.  Also, this is the parent of FPH which has been on the rise and the grandparent of FGEN and EDC which have also been quite buoyant.  Some food for thought.

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February 23, 2010 - Posted by | Financial markets in Asia

11 Comments »

  1. Hi Sir Gus!

    I have been following MPI stocks lately and I have observed that after breaching the 2.5 mark it “stabilized” at the 2.70-2.75 level. I also noticed that the volume of shares traded today was significantly higher than the past week. Is there something going on with the company? Is it poised to start an uphill climb in the next few days?

    Thank you very much!

    Comment by Anthony | February 23, 2010 | Reply

    • Anthony,
      Among technical analysts, the theory is volume precedes price, i.e. when volume goes higher than normal, the price is likely to move up. Logically, rising volume is indicative of greater interest in the stock where a lot of buyers are taking over from those who are profit taking from buying the stock lower. You are quite astute to conclude that MPI could rise in the next couple of days. Of course there is always the macro view and over all sentiment to contend with. Do not forget that.

      Comment by Gus Cosio | February 23, 2010 | Reply

  2. Hi Sir Gus,

    Quick question: How does one interpret large cross sales / block sales on a stock that is priced higher than the market? Should it even mean anything? Or are there instances when it means something and can guide us when investing? Would appreciate your thoughts on this.

    Thanks in advance!

    Jet

    Comment by Jet | February 23, 2010 | Reply

    • Jet,
      Normally a block trade like this is not available to the broad market. These are negotiated trades and are normally for very long term investor who seek board seats, or in some occasions, part of an M&A activity. Some traders attach some value on these block trades but unless you know exactly what is happening you could get killed. Not too lona ago the was block sale of MER at 300 so many were speculating that there would be other buyers at 300 so they kept on buying at prices above 200. As it turned out, the 300 transaction was the last block trade and the buyer already finished his demand. Look at where MER is now.

      Comment by Gus Cosio | February 23, 2010 | Reply

      • Thanks, sir Gus! 🙂

        Comment by Jet | February 23, 2010

  3. Hi Gus,

    It’s me again. Is it advisable to buy 3rd liners? Do you? What’s your take on ani, cpm, ore ,and ni? Are these stocks manipulated?

    Comment by mark | February 23, 2010 | Reply

    • Mark,
      You must understand by now that I approach the market more like an investor rather than a speculator. I will only touch 3rd liners if I receive sound information because more often than not, people get sucked into these stocks on pure rumor, devoid of any fundamental backing. ANI, CPM, ORE, and NI were all listed by way of introduction. This means that there were no shares around except those in the hands of the sponsor. Tell me then, if supply is controlled tightly, would it not be easily manipulated?

      Comment by Gus Cosio | February 23, 2010 | Reply

  4. You have to have a stomach of steel if you want to dabble on third liners… it’s like riding the roller coaster, but mind you, it keeps the adrenaline going… 🙂

    Comment by Mike Nacua | February 23, 2010 | Reply

    • Mike,
      There is nothing wrong in trading 3rd liners as long as you understand that it is like a roll of the dice. If that is what turns you on, hey it is your money. It’s like paying for entertainment.

      Comment by Gus Cosio | February 23, 2010 | Reply

  5. Gus, its me again! Have you heard of Robert Kiyosaki’s “Rich Dad Poor Dad”? I remember when he stated that the big “gains” are on those low priced stocks. And oh, what can you say about Kiyosakis principles?

    Comment by JimBoy | February 23, 2010 | Reply

    • Jim,
      Frankly, I haven’t read his book. You have to predicate that statement about those low priced stocks because it would really depend where it is coming from. For example, TEL was cheap at 1800 last year and it is now 2600. A stock like LC was o.23 last year, it is still 0.23 today. Stocks are about value and if you think the stock price is way below its value, then you should buy it. That in fact is my view on PNB. FYI, this time last year PNB was only around 10. Given the fundamental research that I’ve seen, I can park my money on the stock because it’s price is 22 but I think it’s value is around 50. In that sense Kiyosaki may have a point.

      Comment by Gus Cosio | February 23, 2010 | Reply


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