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Nothing much has changed since the local market went into its annual Lenten getaway. More than a week after returning from the extended Lenten holidays, the market first re-tested the 5,100 psychological ceiling, then went back to retest the 5,000 psychological floor, and has since gone back to tread water near 5,080. Not much ground gained or given up after all that ruckus.
Speculators and traders are thus left to ponder the lyrics of the Clash’s classic rock anthem: “Darling you gotta let me know: Should I stay or should I go?” Should traders sell now and come back later, or should they just stay put, even buy some more, and possibly suffer from market whiplash? “Should I stay or should I go now? If I go there will be trouble. An’ if I stay it will be double. So come on an’ let me know.”
Traders’ dilemma may be read in those lyrics. The much-awaited market correction might come soon and they stand to lose a trading opportunity if they stay in the market now, made worse suffering a paper loss during the temporary downslide. On the other hand, if they cut their positions now on the chance the correction does occur, they could get left behind if the correction does not happen and they would have to buy back their positions at higher prices. It could get worse if they have to chase prices higher. Should I stay or should I go?
From this writer’s point of view, too many people are currently waiting for the correction to happen, at which point they would either buy back or add to positions. However, corrections tend to be delayed to a later date when too many people are waiting for it to happen. It’s like waiting for Christmas – the days stretch far into the future when one waits for it so anxiously, and it arrives without warning when one does not count the days.
Furthermore, if one were to closely observe the market’s daily movements, one may argue that the market is technically quite strong. The PSE index tends to correct within the day, sinking a few percentage points at the start of trading to mid-day, from which it would gradually climb out of the hole. It never closes at the day’s lows. This resilience is mainly fuelled by the fact that too many people want the market to correct and are waiting to buy at the correction.
As to fundamentals, these remain dichotomized, as they have been for quite some time. Outside the country, the US economic recovery remains fragile, China’s economy appears to be letting off some air, and the Eurozone is in recession. In contrast, the local economy and other parts of Asia continue to chug along, albeit at a leisurely pace as well.
Indicators that would affirm this view of the Philippine economy would include the positive growth in exports in the first months of the year, plus the unexpected budget surplus even before the income tax season rolled in. The latter would thus point to higher value-added tax collections, which, in turn, would mean higher consumption expenditures during the period.
Professionals in the market, again, would rather wait for the first-quarter corporate income results to be announced before making any further commitments in the market. One thing is certain; the recovery will not be evenly distributed across industry sectors. There will be winners and losers, and it would take skill to discern which ones will fall in which category before the earnings season arrives. Those unable to answer this question won’t be able as well to answer the question of whether to stay or go.
Personally speaking, this writer has taken the easy and lazy way out: Don’t do anything. Trading was never an option to begin with. And doing nothing is also a decision, of course. Stay.
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