Wednesday, 22 February 2012

Is the stock-market rally for real?

Business Mirror

IT cannot be said for certain that a crisis brings out the best in people. However, during a time of chaos we do tend to think in very simplistic terms. Everything appears as an “either/or” situation. Fire and ice, right and wrong.

It is easier to lead people by shaping the discussion in those terms because it leaves little room for considering other options. Every action movie usually comes down to the Rambo-like hero saying something like “Either come with me or you are going to die.”

Leaders in the West, particularly in the US, did not present to the public any options for dealing with the three-year-long financial meltdown. It was “Do it our way or the economy will collapse.” “We must spend taxpayers’ money to bail out the banks or the financial system will fail.”

Never in my adult life have I seen the political and economic discourse framed this way with such intensity. And it looks to be nearly universal and global.

During times of crisis, it is natural to look to the authority for proper advice as the doctor when ill or the pilot on the airplane. However, when the extent of our personal analysis is “That sounds right to me” and no further, society is in desperate trouble.

Into popular usage is the term “sheeple” to describe a group or an individual who follows a certain line of thought and opinion without critical examination, research, or analysis.

The first mention of the word “sheeple” in print was in 1950. The Wall Street Journal first reported the word used as a label in 1984 to describe taxpayers who blindly accepted how the government was spending their money.

Left to their own devices, sheep are stupid mammals. Take away the fence of their pen and they just stand there. They are easily led. On ranches, sheep willingly follow the Judas goat to the slaughterhouse. Judas goats are banned on sheep ranches in Europe but not on their political farms.

I fear that too many stock-market investors sometimes have a “sheeple” mentality. Take initial public offerings (IPO), for example.

On stock markets around the world, IPOs have an unpredictable track record, marked by great inconsistencies. Yet, investors keep coming back to IPOs expecting a pot of gold. They listen to and believe the company excitement and do not do any research about it. My advice is to buy them all or buy none. Or do some research to pick the winners.

Splash Corp. came in 2007 at about P9. It now trades at about P1.88. Cebu Pacific had a recent IPO at P130 and it has dropped to P75. Calapan Ventures started at about P2.60 and now at P2.30. Puregold started at about P12 and has risen to P22. Philex Petroleum has gone up from about P7.50 to P10.50.

But, none of the above numbers actually mean anything. The winners could have all been bought within days of their IPO at a premium of 5 percent or 10 percent on the way up. The losers were all lower than the IPO price within two weeks of the first trading day.

A recent IPO in the US, Facebook application provider Zynga has doubled since its December 2011 listing. But you could have bought it at the IPO price a month after the first trading day.

You do not have to be one of the stock market “sheeple.” You, too, can be a real expert.

The big question now for investors: Is the PSE in a bull-market rally or will the recent jump in prices soon come to an end? If you have been in the market since June 2011, then you know enough to make that call. You tell me. These are some of the signs of a bull-market rally.

All industry sectors go higher.

Negative headlines and bad news are ignored. Price breakouts have higher follow-through and when you bought on dips, you made money.

There are so many stocks making price breakouts that you are confused which ones to take advantage of.

Stock prices are rising on increasing volume. The pullbacks are on lower volume.

And, perhaps, the most important way to recognize a bull market is that you ask yourself why this or that stock is up so much today without any news. Sometimes no news is good news. Positive sentiment and investor confidence are powerful forces that can continue longer than you might expect and have a bigger impact than most investors understand.

Is the stock-market rally for real? Your call. If you say, yes will buy and prices will continue to rise. Say no and sell and the rally is over. You will decide the direction of the market.

E-mail to and Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by Inc.

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