Disclaimer: Views do not reflect those of the blogger’s employer.

As mentioned in my previous blog entry, there seems to be more reason for the market to be bearish near-term than bullish most especially after the news came out that Greece has 98% chances of declaring default in the next 5 years. However, a favorable leading indicator data of the US could provide us a bit of comfort.

With these uncertainties in mind, anybody with exposure in the stock market could only achieve gains by having the ability to pick up stocks with a predictable sideways movement. Perhaps a favorite example for this strategy would be Lepanto (ticker: LC). Shown below is a three-month chart of Lepanto Consolidated Mining Company.

As shown in the graph above, the share price of Lepanto went up to as high as 170% from second week of July until today’s close of 1.35 a share. Of course no one can claim that he had seen this coming. This was driven by the developments pertinent to Lepanto’s deal with South Africa’s Gold Fields.

However, the more interesting part is how the stock managed to reach as high as 1.80 during the last week of August, translating to a gain of 260% assuming you accumulated the stock by the end of June. It became the local stock market’s drug, that caused the people to be “at high”. What even made it amusing was the fact that Lepanto reached 1.80 even if its underlying commodity dropped during the last week of August, as shown by the Gold chart below.

However, as I pointed out, Lepanto seems to be a “trading play” pick these days. Last Thursday, it went down to as low as 1.22, which is 2 cents away from its next support (red line of the first photo). The market participants just did not allow this to happen. While the rest of the mining stocks dropped as a result of the foreign funds’ selloff, Lepanto just had its own behavior, practically anybody could do several day trades. As of today, it closed at 1.35.

Note that this is my first serious attempt to try to come up with a technical analysis of any stock, so make sure that if you rely on my analysis, please realize that this is an amateur technical view of mine.

The stock just seemed to have stayed away from 1.20, so unless there will be a major selloff, I see the stock to keep its trading band with 1.20 as support. Assuming last week’s trading band will hold, the next resistance could be as high as 1.40 (yellow line with circle at the bottom of the first graph). During the briefing of Calapan Ventures, I asked some stock brokerages regarding their trading play on their stock. They all made significant buying of the stock yesterday. So there can still be some trading opportunities anywhere between 1.20 and 1.40.

If by any miracle or connivance, the stock breaks 1.40, perhaps we can still see another return to 1.80. Beyond 1.40, the trend channel is really wide, with a ceiling price of 2.00 a share. Though it might be improbable in the near term given the market condition, it is definitely not impossible.

However, I saw one potential challenge to breaking 1.40: the stock’s weekly RSI. It already dropped from the theoretical weekly RSI oversold levels as shown below.

Nonetheless, this stock really seems to be the best trading band stock in the market today. Other picks of mine include Jollibee and Meralco, although I need to review the situation of Meralco. Today, it went to as high as 270 per share, but it closed at 255 a share following the selloff done by JP Morgan.

Disclaimer: Views do not reflect those of the blogger’s employer. Also, the analysis made on this blog entry were formed as a result of the blogger’s research and communication with his colleagues and various industry practitioners. Though the blog entry serves as a mosaic of the blogger’s efforts, most of the credit goes to those who took part in the exchange of ideas.

To the few followers of my blog, my sincerest apologies for not being able to sustain blogging. I have been busy with work and some other extra-curricular activities.

Last July, I was given a bigger allocation to trade for an equity portfolio. I was excited to trade because being given an allocation connotes trust. Lo and behold, the market betrayed me, thanks to the smurfs! Haha.

At the time that I started trading the increased allocation, the market dropped significantly, as shown by the chart below.

My proprietary portfolio’s simple return stood at -2%.

It’s been difficult trying to improve my marked-t0-market returns, as uncertainties in the fiscal position of Greece and other PIIGS countries remain in danger. What even made it a bit troublesome on my part are the following:

1. Last Tuesday during the joint gathering of various association of investment professionals, BSP Governor Amando Tetangco presented the central bank’s responses to mitigate the adverse impact of the developments in the US and Euro Area. In his presentation, though he made it clear that the Philippines was able to build some isolation amidst global market surprises, he made a statement that the Philippines is still coupled with the US cyclically due to strong financial, investment and trade linkages. I remember that his strongest basis for this is the historical trend of interest rates. Also, he named five channels that have served as buffer for the Philippine economy vis-a-vis external risks: trade, remittances, investments, BPOs, and financial markets. The BSP governor easily identified the following risks to all these channels. He emphasized that the US and Europe represented 30% of Philippine exports and 57% of OFW remittances. He also mentioned that 75% and 7% BPO receipts of the Philippines came from US and Europe, respectively.
2. Asian Development Bank also came up with its revised GDP forecasts, which translated to lower 2011 GDP numbers in most economies that they cover, including the Philippines. While ADB made it clear that the economy will still be steadfast because of positive business sentiment, high manufacturing capacity utilization (above 80%), and solid domestic demand, they made some qualifications on their economic optimism: a) that the government follows through on this plan and on reforms of the past year and that the PPP will kick-in and follow its forecast period, and b) the uncertainty about the global economy raises risks on their forecasts. Personally, I don’t feel the current administration actively addressing the global uncertainties in order to shield our country.

Funny that after the BSP Governor gave his speech, yields of the Philippine treasuries went up significantly for two days.

At the start of the year, everyone was looking at the Philippine Stock Exchange index reaching 5,000 by the end of 2011. With these developments, I do not know anymore. Lucky we even reach 4,400.

Looking at the charts below, in a situation of economic uncertainty, the major indices tend to be mirrored by the PSEi.

 

No one really knows what will happen with the fiscal situation of Greece, but in my opinion, it is really just a matter of policymakers devising the best sugarcoating of the situation.

However, looking at the US in isolation, assuming you view the glass half-full and you trust how the leading indicator is computed, perhaps there can be an improvement. Shown below is a parallel chart of the YOY change in the US leading indicators and the US GDP YOY (credit goes to my colleague).

If we assume that the leading indicators are accurate “advanced diagnostics” of the US economy, perhaps the US GDP situation will improve. However, the leading indicators for the month of August have not been published. Heck, even most of the components of the leading indicators at this point are outdated at least for more than a month. Also, it is hard to believe if the Dow Jones is significantly influenced by the leading indicators. My colleague and I have not a way of translating the daily index level of Dow into a meaningful comparable data relative to the Leading indicators. Lastly, even if the US economy improves just a little bit, we still have to review the economic situation in the Euro Zone.

My 2 cents: the securities markets will still remain uncertain. It seems that we need clearer signs at this point. For my proprietary equity portfolio, it seems that I only have no choice but to limit my exposure on stocks that have trading bands or trading upside, but I have to blend it with low beta stocks. I’ll try to work on some stock picks in the coming days.

 

DISCLAIMER: I AM FAR FROM A STOCK MARKET EXPERT. I’VE HAD TONS OF MISSES AND WRONG SHOTS. I’M JUST SHARING MY MARKET HITS.

If you’ve managed to take positions from the market’s drop during the last week of May, then you would have enjoyed generously high returns by now. In fact, if you listed all of the index stocks in a dart board, and if you just threw five or six darts to the board and tapped the stocks where the darts landed, you would probably earn a return that could at least be at par with the index. Year-to-date earnings of the index as I write this stood at roughly 4.2%. Of course I did at least almost twice as the index, haha.

In my very short exposure in the equity capital markets, and in my one year experience of being a part manager of my employer’s proprietary portfolio, one thing that I’ve learned is to always buy stocks on sale provided that you are a value investor. I managed to do this especially during the months of March and May on the following stocks: Atlas, Philex, San Miguel (I’ve been saying that since they had a secondary offering at PHP110 per share), Aboitiz Power, PNB (yup, I kept on buying at PHP59-60 and selling at PHP62-63), RFM, SMDC, JFC (similar to PNB, I kept on coming in at PHP85-86 and selling at PHP89-91), and RCBC. Of course I had a lot of misses and early selling decisions, including Security Bank and Aboitiz Equity Ventures. My most fantastic experience was/is with San Miguel and Atlas. For the case of San Miguel, I bought during the secondary offering, and sold at PHP119, and came in again at PHP126.30. Today, SMC closed at PHP130, haha. For Atlas, I managed to came in lucky at PHP16.94. For my personal trades, I sold at PHP19.

For the case of mining stocks, I have two additional simple rules:

• if you believe the mining company has a story (i.e. it has more existing mines than exploratory sites), and if you believe in the prospects of the commodity they are mining, go for it! Nevermind the periodic drops, just average your costs down.
• though there is really no perfect correlation, it is typical for the market to view commodities as a hedge in case the other investment instruments drop. If the underlying commodity goes up, more often than not, the stock of the company that mines the underlying commodity also goes up.

However, there are also serious reasons as to why you should be cashing in more than 50% of your equity exposures at the moment:

• the threats in the US and Europe, particularly in Greece, remains uncertain
• ghost month is fast approaching. So far, no matter what the level of the index is, it has been consistent in dropping during the month of August. Shown below is a historical 12-month chart of the index for all years (source: IGC Securities).

My two cents: cash in at this point and nevermind your potential forgone income, except on bullish industries like power and construction. But buy some stocks that have moved way slower than the index, including Nickel Asia and Semirara.

There are also some stocks that seems to be on sale now, both in terms of price and valuation multiples. So far, my recent picks include Nickel Asia, RFM (thanks to my colleague’s excitement over this stock) and BDO. I think Nickel Asia is just a rocket waiting to be launched into outer space, haha.

If the market starts to drop for let’s say 3 or 4 consecutive days, then I’ll start buying again. If a 3 days drop-1 day up-x more days drop behavior happens by August, I’ll definitely take positions and average my costs down.