[ANALYSIS] Winning the trade by doing your homework

Holiday breaks, especially “long weekends,” are good market breathers. They obviously give market players the needed break to recharge, as in to recover, the energy to power strong trading plays into higher levels. 

The above claim, however, may not entirely apply as to the supposed positive impact of the “long weekend” after Malacañang declared February 24 a special non-working holiday (to mark the 37^th anniversary of the EDSA People Power Revolution) while the Department of Labor and Employment had declared the next day, February 25, (the actual commemoration date), a regular working holiday. These incongruous acts of government certainly rendered the market’s weakness even more so.

Short by one trading day, the 8^th week ended based on its Thursday close by another loss of 93.12 points or 1.37% compared to previous at 6,685.90 of the PSEi. Daily average value turnover for the week was P4.03 B only. This is almost half of the preceding week’s daily average value turnover of P7.43 B – an indubitable sign that there was less money that came into play in the market.  

Foreign investors, who became net sellers for the week, appeared to have significantly contributed to the bearish bias of the market as they accounted for 48.25% of total market transactions. In previous weeks, their trading activities never went beyond 40% of total market transactions. Needless to say, the same bad economic news continued to drive down market sentiments. 

Last Monday, February 27, the PSEi continued its fall as it again slipped by another 66.56 points or 1.29% from previous at 6,599.34. However, volume and value turnover are markedly higher at 893.2 million shares and P7.54 B, respectively.  

The further fall of the market appears to have been fanned out by the direction foreign investors took as their trading activities accounted for almost half of total market transactions. They were net sellers for the day.    

Tuesday, February 28, was entirely out of normal.  It’s not because the market surprisingly bucked its current downward trend, which certainly was not the case, for it closed again lower compared to previous by another 43.14 points or 0.65%.

Total volume and value turnover unbelievably rose to 1.74 B shares and P21.18 B, respectively.  They were triple from that last week’s daily average volume and value turnover. Or, even for this matter, that of the market’s year-to-date stats.   

Big selloff

Talking to Joey Roxas, president of Eagle Equities, the big jump in volume and value turnover was largely due to the big selloff in ACEN Corporation shares (ACEN) and that Globe Telecom, Inc. shares (GLO), and buy-in to Manila Electric Company (MER) shares and Synergy Grid & development Phils., Inc. (SGP) shares by foreign investors (who accounted for about 73.20% of total market transactions) as the first two stocks are soon be taken out and replaced by the last two stocks from the MSCI Philippines index.

MSCI is the acronym of Morgan Stanley Capital International. It is “an investment research firm that provides stock indexes, portfolio risk and performance analytics, and governance tools to institutional investors and hedge funds.” To be included in the index is a big star for a traded stock. It serves as a big incentive for investors to invest in the stock. Being removed from the index, on the hand, is a great disincentive for investors to invest in the stock.  

MSCI indexes are reviewed and rebalanced twice a year, in May and November. This is to make sure the index still accurately reflects the composition of the underlying equity market it is measuring.    

Smart’s woes

Market strategist and chief trader of H.E. Bennett Sec., Joel de la Pena, said PLDT share prices also contributed to dampen market. Smart Communications, Inc., its wholly owned subsidiary which is offering wireless and digital services, might be adversely affected by the result of the present government’s policy for the registration of mobile phone owners. According to him, “the market is apprehensive of a lower subscriber base arising that the resultant purge of inactive or maverick SIMs in its subscriber list; less subscribers, less future revenue.” 

But the market seems to have settled down with the trading results of Wednesday, March 1.  The PSEi slightly rose by 50.93 point or 0.77% higher from previous. Total volume and total value turnover aggregated to the market’s more normal daily average of 715.80 million shares and P7.0 B.

All counters were up except for the financials and industrial sectors with services standing out to have the biggest transaction, possibly showing that the spike in trading transactions last Tuesday were just the result of normal rebalancing moves by both institutional and individual investors alike in response to the changing market environment.

“Winning the trade even before starting it” is one of the main principles of stock investing. This is how one should think – and act – when entering a trade in the market. This is because it doesn’t make sense, much more useless, to enter the market without believing that you will win and make money out of it.  

Likewise, winning your trade even before starting it is not a matter of soliciting” sure-fire” market tips.  This is rather done by following the often repeated like a broken record text book advice to “do your homework.”  What this means is that, like the lion, study your target company, its products, financials, share-price market performance, its economic moat or its comparative advantage against competition as it was simply called during my student days, and most importantly, the reputation and competence of its management.     

Again, this knowledge must be used through a skill you should develop like the lion does out of its hunting experience.  

Fortunately for you, you are not a lion who is confined to learning through experience only.  You can read and learn to apply a trading system that suits your personality and mental make-up to “Winning the trade even before starting it.” We’ll go over trading systems next time. – Rappler.com

The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise. The public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity. You may reach the author at densomera@yahoo.com