The Philippine stock market index, PSEi, fell down today to as low as 7537 (more than 3% loss) before closing at 7682, down by 1.42%. The index has been on a downtrend since peaking at 9000 last January. Year-to-date (YTD), the index is down 10.5%, and at current levels, it is comparable to May 2017 values. Almost 12 months of gains lost (unless you traded in and out during those months).
For those still trying to understand why the market has been falling since 9000, some common explanations by various analysts are as follows:
- Foreign outflows. Foreign funds are selling to go back to their home countries that have improving prospects. At the tiny size of our market, moves by institutional funds can really make the market.
- Threats of trade wars, economic wars, tariff wars, and even literal wars (Trump, China, Korea, Syria, etc).
- Rising Philippine inflation and whether it is within BSP’s control or not. Interest rates to increase?
- Local political noise on various issues, previously on tokhang, now about Boracay, endo, China relations, 3rd telco, SC issues, etc. Soon enough it will be political jockeying for the 2019 elections.
- Good effects of TRAIN law not yet being felt in the economy, or will there be good effects at all and not just increased inflation? Threat of more taxation (TRAIN Phase 2) to recover lost revenues due to relaxed income taxes.
Personally though, there will be countless reasons as to why the market has been falling. In fact, word on the street is that for this day, a big foreign fundie (whose broker is First Metro) is trying to exit the market, that is why First Metro is a big seller today on many index names.
So time and again, we can all hypothesize and try to comprehend why the market is acting such, but at the end of the day, these are mere theories, mere parts of a whole. At the end of the day, the market does what the market does. As such, for the market veterans, the “why” is of secondary importance. What’s more important is “what to do” and “how to react” during these turbulent times.
WHAT TO DO
The proper response to this market will vary from one person to another, depending on Juan’s investment OHA (Objectives-Horizon-Appetite). So I hope, if you are invested in the PH stock market, it is clear to you what your OHA is. Otherwise, you should clearly establish your OHA first. Now let me share with you how I react to this ongoing market correction. Caveat emptor. This is not a solicitation for you to buy or sell.
- For my long-term managed funds (retirement, aggressive appetite) enrolled in EIP / cost-averaging in various banks, the monthly investments just continue. In fact, for every big market decline (1.5% or higher), I invest an extra amount through an online facility so that I get to buy more during these price sales.
- For our long-term stocks portfolio (conjugal funds, aggressive appetite), we’re slowly picking and monitoring select index names, but not too aggressive yet as we believe we haven’t seen the bottom of this market correction yet.
- For my stocks trading account, (medium term, aggressive) I am staying mostly on the sidelines for now, being 70% cash at the moment. I’m just keeping the select non-index names where I am already profitable. These names have weathered the storm and did not go down as much vs the 10% decrease in PSEi (Personal Disclosure: PSE: FB, PSE: MWIDE, PSE: WLCON). No index holdings for this fund for now. Of course, trail stops are in place as well so that I do not lose much of my profits.
- Prepare your buying power. When the market recovers (who knows when?), the first names to recover will be the index names.
- For the more experienced traders, there are still ways to make money in this market by focusing on select names with momentum. Day trading, swing trading. But this is very high risk and not for newbies. Not even for the latecomers. If not yet confident, I would advise that Juan should stay on the sidelines for now or do practice trading. Learn stocks charting as well. Remember, “risk management first before profits.”
Let me leave you with some PSEi charts from different time frames.
- Today’s candle formed a doji, which typically signifies a stalemate between bulls and bears. Is that so? Are the bulls now starting to come in? We’ll know in the coming days.
- Is this doji now a signal bar? We’ll know if a trigger bar forms tomorrow and if it will be sustained. The downtrend is always faster than the uptrend so the recovery, if it comes, will take time. No need to have FOMO.
- The index is now below the ichimoku cloud, below the conversion and base lines, which are all bearish signals.
- 50SMA is now below the 100SMA and if the trend persists, the daily chart will exhibit the much feared “death cross” (50SMA is lower than 200SMA)
- RSI is slightly higher despite prices being lower. Bullish divergence? We’ll see.
- Verdict: Wait and see.
- The weekly candle will end tomorrow. It kissed the lower border of the ichimoku cloud where the 200SMA also sits (confluence). If the week closes above this cloud border, the better for bulls, for now.
- Conversion line of ichimoku (blue) is below the base line (red) which is a bearish indicator while the price is inside the cloud which indicates sideways. Will the 200SMA at 7530 act as support?
- Monthly candle is not yet finished (duh) but the ichimoku indicators remain bullish (conversion line > base line; cloud is green, prices are still above the cloud)
- The monthly candle (though not yet complete) is nearing the 50SMA (7460). If downtrend persists, this can be a potential support. Otherwise see you 7400 and possibly near the candle upper border at 7000. Who knows? Again, our job is to predict, plan and react. Not to answer why.
Caveat emptor. Trade at your own risk. Remember, risk management first before profits. Also, remember that fear of missing out (FOMO) on opportunities and possible profits is stronger than our fear of actual loss (it’s our brain playing tricks on us, it should be the other way around right?) So if you feel FOMO, be sure you’re not ignoring the risk of loss as well.
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Photos from Instagram.