The nervous and the strong willed

7:20 pm  Thursday   17 June 2010   Philippine stock Exchange Index  3313.52  (+0.1775%)

What do we think is the market telling us when it is as volatile as it was over the last 3 trading days.  Tuesday was a price surge arising from stability and strength in the major markets.  Wednesday saw the market opening very strong and rising by 47 points but closing up 29 points only.  Today, Thursday, the index closed 5 points higher but had changed directions practically every quarter of an hour.  The breadth of today’s volatility is quite sanguine, however.  The difference between highs and lows was 15 points.

I think that participants is trying to gather conviction.  Many stocks present very good valuations but prices have come up a lot for many of them, particularly in the power and banking sectors.  With the threats coming from overseas, it is not surprising that players want to pocket their profits.  Looking at stocks like DGTL and JGS, for instance;  these stocks have lagged for sometime until traders realized that they were cheap to comparable counters.  They have had sharp rises over the past few weeks that profit taking is very tempting.  The same argument can be made for  a number of other stocks notably those that have power and infrastructure, stocks like DMC and EEI.  Looking further, I think that the market is base building at these levels considering that the second quarter is about to close.  Earnings reports will be just over a month away and it may be worth the wait for both new buyers and sellers.  Anyway, it looks to me that we have a market that is nurturing some pent-up demand, so I am comfortable that prices are still headed better.

MEG seems to have shaken off the anxiety coming from the last installment of their rights issue.  It should resume on its march to 1.60 to 1.75.  Third liner RFM has seen some buying surges.  I guess the company will try to recover at some point, but I will be careful with this stock as many had been burned badly in the past.

There was a large cross of MBT today at 56 for around Php 1 billion.  I heard that they were foreign funds who changed hands on the stock.  I view this as good support for the stock where a profit taker was met by a big buyer at these high levels.  It give credence to my view that MBT is headed to my 70 target as well as to my notion that MBT can be used as a proxy for the entire Philippine market.

In the international scene, Spain which is one of the so-called troubled sovereign borrowers was able to raise 3.5 billion euros ($4.3 billion) of 10-year and 30-year bonds at yields lower than the prevailing market rates. The bids were as much as 2.45 times the securities on offer, assuaging concern that it would face difficulty meeting bond repayments.  I think things may be normalizing in Europe already.   Most European stock markets are up as of this writing.  In Asia, The Hang Seng has been steadily climbing and while the Nikkei was down slightly today, it remains up for the week.  I can’t help to think that the nervousness that has gripped the equities market last week has been eased and the outlook has become brighter.

I think we should be ending the week on a positive tone.  I think the recent volatility is simply telling us that positions have passed from the nervous to the strong willed.  That could make the support at this level of the index very firm.