The Great Unwinding?

Greetings readers! Sorry for not being able to post last week. I think I stayed too long in the office last week and just wanted to enjoy my weekend. Hehe.

In my previous post I mentioned that the blue chips were about to run out of steam and that it will pave the way for the second wave and third wave - the second liners and the basuras will be moving up soon. After my post, the market went up to a new high and then had some pretty big corrections along the way. Proof positive that the blue chips are not the place to be in at this point in the game.

Positive earnings news in the US were doused by the US government hounding Goldman Sachs and the looming default of Greece. Locally, a lot of companies have started publishing their quarterly results as well.

If you are a first time stock investor, I would like to advise you that if you read in the papers that XYZ company booked revenues and / or net income of so and so, DO NOT buy the stocks of XYZ company. You should learn from this stock market cliche - buy the rumor, sell the news. In the US, very good earnings serve as catalysts for propelling stocks higher. Locally though, it's another story.

This is perhaps because local companies are not so generous with their dividends. You see, in the US it follows that when a company reports "blowout earnings", a dividend is not too far away. Since investors anticipate that a particular company would distribute dividends, he/she will buy the stock now, driving and pushing up the stock price.

Locally, dividends aren't that common. The only way most Filipinos earn in the stock market is through stock price appreciation. Some people call it capital appreciation.

That's what I did (buying XYZ company because I was impressed by the earnings) when I started investing in stocks about 6 years or so back. I do not want you to do the same mistake I did. Of course, this should form part of your decision to buy the stocks of XYZ, but not right after earnings have been reported. The price will most often decline from its high.

When it's settled at a comfortable support price level, then you can start accumulating.

Let's try to acid test my hypothesis last week that you shouldn't be in blue chips. The following are their closing prices. Prices were sourced through PSE website.

April 8 April 23
ALI 13.75 13.75
AC 347.50 347.50
SMPH 9.70 10.00
TEL 2490 2445
GLO 1015 970
SM 392.50 397.50
BDO 43.50 41.50
MBT 50.50 50.50
BPI 45.50 45.50


The property stocks may have been buoyed by the prospects of the launching of the REIT product later in the year. Filipinos will then gain access again to a new investment vehicle. This is certainly good news because now, we have another avenue to multiply our wealth.

This data table of course does not mean that there were no trading opportunities in between. During the correction for example, ALI fell to 13 in April 20 and 13.25 April 21. So technically speaking, you could still have earned money if you were able to sell today.

Of course, there's that downside risk so why would you buy during the week of April 8? Sometimes there's a thin line between taking risks and being foolish.

The darling of the traders this week would have probably been CPM and ORE. CPM went from 3.25 last week to 3.65 this week. ORE on the other hand went from 1.56 last week to 1.90 at the close of today. Amazing huh? Yes, but it could go both ways, that is why I never want to make a recommendation for these sort of stocks. They're far too risky for the newbie traders.

At this point, the money will most likely be in the basura stocks. VLL today was a good daytrade so for those who grit their teeth today, they were rewarded handsomely. I didn't join the fray though so congratulations to those who did! Opportunities like this do not come so very often.

I still think that the market will correct soon, if not next week, then the week after next. The key thing to remember is - Don't give in to greed!