Slicing the tops

10:30 am  Thursday  3 June 2010

We will likely see some enthusiasm in the market following the 2.25% rise in New York’s DJIA.  This comes after a 2.34% two day decline of the same index.  The Market is really fickle reacting to almost any daily indicator.  It appears to me that the global investor, unlike for most of last year, is not taking any long-term view of the markets.  While the volatility (VIX) in the U.S. has come off a bit, it does not appear to be moving lower in the coming days and, perhaps, even weeks.

Most market participants have seen that when New York sneezes, the rest of the financial world catches the cold.  we saw that a few times these past few months.  The latest discomfort was the European sovereign debt crisis, but that is looking to be addressed.  The latest news is that Greece is privatizing part of its national railway and its postal system to raise cash in the government’s coffers.  A drastic and unpopular fiscal austerity measure is being adopted which will probably stave off threats of Greece being booted out of the currency union.  Spain and Portugal have been very positive in their response to the call of fiscal prudence among all European Monetary Union members that the impression being created is that a new era of fiscal union is developing in the continent.  Of course, things will not change overnight but what is important is that investors have something positive to expect.

In the U.S., the impression appears to be that emerging markets are presently overheated.  This is why the Shanghai index is having difficult time lifting itself from the doldrums that it has been having for almost a year now.  Nevertheless, smaller markets like the Philippines have not really seen a deluge of investments coming from the global players.  The PSE, while seeing average daily value turnover at higher levels compared to years 2009 and 2008,  has not reached trading volumes seen in year 2007.  We can be pessimistic and say that the market will not be as robust or we could be optimistic and adopt a view that we are still on our way to 2007 trading volumes.

In the near term, I think that the PSEi will remain inside 3330 which was the high we saw at the end of April.  While there would be bursts of optimism, I find it difficult to see any strong stimulus to push the market into break out levels.  Yesterday, it was the index stocks that lead the gainers.  I think the same will happen perhaps for another trading day or so, but if we do not break out of the 3330 level we may just pull back a bit.  In that case, it may be wise to lighten up on index stocks and put some weight on special situations.

One situation seems to be happening in DGTL.  The market share of GLO has been eroded by DGTL.  Some investors do not favor the telco sector because it is not seeing any growth for the time being.  DGTL, however, is growing but at the expense of GLO.  Perhaps, there is momentum in their earnings stream as a result of these gains in market share.

The merger story at PNB continues to make this stock a good proposition.  It looks closer at hand today than it was a few months ago.  In the power sector, EDC might be worth a punt since it is trading below the middle of its trading range.  MPI is in the same position in the range.

Essentially, my message is that if people agree with me that we are going to stay in this range, then it would not be advisable to add to positions.  Rather, it would be good to top slice on positions and keep the cash for possible dips.