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[ANALYSIS] It’s the ghost month! Forecasts on the stock market’s true direction

Den Somera

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[ANALYSIS] It’s the ghost month! Forecasts on the stock market’s true direction
This time of the year is down. But don't fret.

Obviously, the market is currently moving sideways since it recently made that remarkable rebound some weeks ago. It fell below its longtime support level of 6,400 then made an amazing breakout from its immediate resistance point of 6,600 on an interesting comeback play the week later.  

To be more precise, the market fell below its support level when it settled at 6,379.03 at the close of trading of the 27th week. Exactly a week later, at the end of the 28th week, it closed some 24.79 points higher at 6,624.79 from its longtime resistance level of 6,600.  

On the 29th week, the market attempted to climb higher. All it could do was to establish a session’s high record of 6,698.04.  

Needless to say, this was almost 100 points higher from its technically rendered previous resistance point and now its new support line.  

Since then, the market is bobbing up and down within several points from the 6,600 level.  Its true direction has become quite obscure.  

Based on both technical and fundamental considerations, the resulting character of the market’s direction can be explained. The 400-point run-up has brought along opportunities for profit taking.  There was enough margin created to play with.  And because the market continued to be plagued by old uncertainties and lack of fresh leads, market participants had chosen to play swing trading.  Short term trades like swing trading could produce initial false signals that may obscure the true character of the market’s direction.  

Swing trading involves making trades for the short term. It is different from day trading, for as the term denotes it involves holding a position for just one day or less, as in a few hours or minutes. Swing trading typically takes a couple days, weeks or sometimes up to a few months in order to profit from an anticipated price move. 

Market’s true direction

It did not take long for the curiosity on the market’s true direction to sparked some discussions among market insiders this week.  

If you will remember, right after the market fell below 6,400 on the 27th week, Trading Economics came out with the forecast the market may “trade below 6,300 by the end of this quarter.”  It also added, the market may “hit 6,000 in 12 months’ time” based on its global macro models.

Trading Economics is the US firm that provides market information for 196 countries including historical data and forecasts for more than 20 million economic indicators, exchange rates, stock market indexes, government bond yields and commodity prices.

Jofer Gaite, the president and chief trader of Westlink Global Equities, Inc., believes the market may just take a “rest” in the meantime. It will not drop to as low as what Trading Economics is forecasting. Instead, he estimates the market will continue to move sideways within several points below or above 6,600.  

This will continue until some new leads may come out to serve as catalyst for the market to ride on to resume its upward direction.    

Market strategist and chief trader of H.E. Bennett Sec., Joel Dela Peña, agrees with Gaite, but has more to say in the market’s continued climb. A more potent driver should rise to counter lingering uncertainties like the country’s inflation outlook.  

While inflation seems to be cooling off, the Philippines remains to have the highest in the region. Per his notes, latest inflation data in the region are as follows: Vietnam, 2.06%; Thailand, 0.23%; Taiwan, 1.75%; Singapore, 4.5%; Malaysia, 2,4%; Japan, 3.3%; Indonesia, 3.08%; and Hongkong, 1.9%.  

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Along with the seasonal impact of the “Ghost Month” this August, he believes the market may correct all the way down to 6,450 or 6,400. He added, however, the market may remain to move within the support-resistance range of 6,400 to 6,700.  

Joey Roxas, president and chief trader of Eagle Equities, Inc., believes as well the market will take a pause starting this week, especially that the ghost month of August will soon start on August 16.  Seasonally, this time of the year is down. Like the other two, he believes as well the market still has what it takes to move up given new leads.   

Stockbroker Rene De los Reyes of Abacus Capital & Investment Corporation shares a new dimension that gives out a new breath of fresh air in the market’s outlook until the end of the year.  

While he cannot say when the next breakout will happen, he expresses confidence this will happen.  The next target is 6,800.  The immediate support will still stay at 6,400.  When forced to make a fearless forecast, the answer is that this may happen as early as September or little later before the end of the year.   

The basis for his positive outlook comes from their firm’s study on the market’s ten-year price-earnings multiple (P/E ratio) performance.  They have observed the market’s P/E ratio to have always shown some kind of mean-revertive behavior, as in coming back to the level when it started the year.  

According to data, the market shows a pattern of a relatively high P/E ratio at the beginning of the year, then lose track along the way before climbing back to its original higher P/E ratio towards the end of the year.  

In terms of forward P/E ratio, too, it is now the cheapest among markets in the Southeast Asian region, according to De los Reyes. Lastly, the market’s earnings yield has turned more superior to the 10-year benchmark on bond yields, he added. If you get his drift, buy on dips. 

I believe that the market is on a consolidation or in an extended period of basing or base building that may have started even before the run-up on the 28th week. 

This “resting” period has been as well accompanied by the classic signs of light volume and flat to choppy price range of a consolidation. As this is happening just remember that “the longer a market or stock stays in consolidation, the stronger the breakout tends to be as bears get blindsided.” –

(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. Moreover, 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 writer at  

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