stock markets

[ANALYSIS] ‘Sell in May and Go Away’

Den Somera

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[ANALYSIS] ‘Sell in May and Go Away’
I recommend to trade cautiously, maintaining a healthy mix of growth and value stocks that could command higher prices when the market breaks out from its current range – as we hope so after the month of May

With the market’s trading results last week, I could not help but wonder whether the above old market saying, which characterized trading behavior in the US since 1945 – and, hence, may have somewhat molded local thinking, too – continues to ring true until the present time.  

To recall, after losing some huge grounds on May 8, the market started to make unstoppable headways from Tuesday to Thursday, May 9 to 11, albeit in small daily gains.  

If the trend continued all the way up to the closing hours of trading for the week, the estimated immediate resistance level of 6,600 or so has been indeed cleared, at the same time, established as the market’s new support level. This development could have been as well the market’s fascinating story on its 19th week of trading for the year.  

But disaster struck: By the close of trading of Friday, May 12, the market fell and dropped instead to 6,578.15 with a huge loss of 97.31 points or 1.46% for the day.  

Looking closer, this was due to the selloff on large cap stocks by locals, who foreign investors took advantage to became net buyers for the day with a value turnover equivalent to 55.08% of total market transactions.

At this point, it leaves you wondering whether the market has indeed lost its footing to breakout from its estimated immediate resistance level of 6,600 or dismiss the fall as it was just a few points away, and continue to think that said resistance level is now its new immediate support level.

Good and bad news

On the local front, we had several good leads to sustain the momentum of the market. To start with, we had several favorable breaking news on first quarter corporate results. For those who may have missed it, International Container Terminal Services, Inc (ICT) reported that its first quarter net income grew 8.7% to US$154.61 million, while its gross revenues from operations rose to 8.3% to US$572.55 million. SM Prime Holdings, Inc. (SMPH) also reported that its consolidated net income grew 27%, while consolidated revenues rose 20% to P28.7 billion. San Miguel Food and Beverage, Inc. (FB) reported that its consolidated net income increased 8% to P9.9 billion, while its consolidated revenues rose 12% to P93.2 billion.

Unemployment rate, according to the Philippine Statistic Authority (PSA), eased to 4.7% in March.  Underemployment, on the other end, was also reported to have fallen to its lowest level in 18 years.  Net foreign direct investment (FDI) was also reported to have increased by 13% to US$1.05 billion in February from US$926 million in the same month last year. The Bangko Sentral ng Pilipinas (BSP) also commented that this was the country’s highest level in 14 months.  

The PSA further reported that agriculture and fisheries production grew by 2.1 % in the first quarter, equivalent to P426.69 billion. This was a reversal from the 0.3% contraction in the first quarter of 2022 and the 1.0% decline in the fourth quarter of 2022.   

Adding more spice to build confidence in the market was the interesting piece of news from the World Bank, which stated that the country is on track to becoming an upper-income country in the next few years.  

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Of course, there were also some not so good news. To mention some, the country’s factory output was reported to have slowed down in March to 2.2% from 5.2% in February amid decreased activity in manufacturing of beverages, chemicals and base metals, among others.  

The government may launch a retail dollar bond offering on the 3rd quarter of this year, with the offer size of around US$2.0bn.  In this connection, from the report of the Bureau of Treasury the country’s outstanding debt as a share of GDP has inched up to 61.0% as of the end of March.  Historically, the debt-to-GDP “has averaged 55.40% from 1990 until 2022 . . . it reached an all-time high of 74.90% in 1993 and a record low of 39.60% of GDP in 2019.”  Born out of the “European Sovereign Debt Crises” experience, a government’s debt-to-GDP should be below 60.0%, to be considered healthy.  

Growth forecasts continue to be not so good, too. As said, it may slow down towards the end of the year.  This was confounded by the latest statement of the International Monetary Fund (IMF), which said that Philippine GDP may fall likewise within the 5.5% to 6.0% range in 2024.

Fearless forecast

When you look at the results of the first three trading days of this week, you will notice that the market continues to trade within a range of less than 100 points below 6,600 and by another 100 points or so above it.  

To be precise, it closed at 6,523.15 on Monday, May 15, down 55.00 points or 0.83% on a very large volume (due to transactions in the Services sector) and relatively low total value turnover of P4.14 billion.

Curiously, foreign investors played the same modus the way they did it last Friday of last week. They managed to accumulate more stock positions on the basis of the selling weakness of local investors. They were net buyers for the day with a value turnover equivalent to 53.99% of total market transaction.

On Tuesday (May 16), the market traded higher with additional 65.75 points or 1.00% when it closed at 6,588.90 on a total volume of 2.70 billion shares (again, due to the high volume of transactions in the Services sector) on a comparatively bigger total value turnover of P5.18 billion.  Accordingly, this was fueled by optimistic expectations that the BSP would consider maintaining interest rates in its upcoming policy meeting on Thursday (May 18), amid slowing consumer price trends, in particular.  

Foreign investors remained net buyers again but on a minor scale. They also generated a very thin value turnover equivalent to 37.55% of total market transactions.  

The market breached 6,600 again when it closed at 6,635.11 on Wednesday, May 17, with a net gain for the day of 46.21 points or 0.70%, which to some quarters was the market’s way of pricing the BSP’s expected decision to maintain interest rates.  

With total volume still extremely high for a total value turnover of P4.34 billion, it looks like both local and foreign investors are confined in the trading of second and third liner stocks for their growth values.  Foreign investors ended as net buyers again with a market participation equivalent to 55.41% of total market transactions.

Therefore, the market seems to be on some technical consolidation process, that it may continue to be ranged bound within 100 to 150 points.  Likewise, I feel that more positive developments in the next month or so may prevail to dictate and support the market’s direction.  

In this connection, I would recommend to trade cautiously, maintaining a healthy mix of growth and value stocks that could command higher prices when the market breaks out from its current range as we seasonally hope so after the month of May. –

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 author at  

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