Thursday, 28 August 2008

PSE Trading (Extended Version)

Today, the Philippine Stock Exchange (PSE) has issued a notice that it will extend its trading by 2 hours (2pm to 4pm) in 2009. This is said to coincide with the new trading system that they will implement (click here for the said item).

Is this good news? Before I answer that, let us try to recall what happened when they tried to extend trading back in 2002. If I remember it correctly, the reason the PSE extended the trading back then was to entice more foreign funds to place their money here. Extending the hours was supposed to address the problem of having different time zones at the same time. After eight months of extended trading, the PSE came up with the same result but with longer hours. In short, it was a useless endeavor. They reverted back to the usual schedule of trading at 9:30am to 12:10pm.

But times are different. The PSE board of directors seem to be more aggressive in capturing a bigger audience to place their money into the equitites market. This is also quite evident with the more frequent roadshows the PSE has been conducting in the provinces. They have also opened themselves to partnerships (official or otherwise) with different entities involved in stock market education, like my friends in Absolute Traders. Clearly, the PSE has a long uphill battle to capture even 5% of the total population. It was noted in a study that out of the nearly 80 million Filipinos, only some 400,000 individual accounts are trading the stock market. I'm not even sure if all those 400,000+ accounts are unique or some happen to be multiple accounts of one investor. So, optimistically, exposure of the stock market to the Filipinos is very minute. A little over 0.5% of the population plays the market. This is very disturbing since other developed nations have a substantial portion of their population playing their own market. The U.S. is said to have around half of the people trading, that includes ordinary housewives. In Hong Kong, even taxi drivers know how to trade stocks. So why can't we do it?

Probably we have to bring ourselves back to reality in order to answer the why. First of all, we have to see how our demographics are. A typical Filipino worker takes home minimum wage. As we all know, minimum wage isn't even enough to get by in Metro Manila. They would need to borrow money somewhere to make ends meet. Second, the typical Filipino is not educated enough about the stock market. Third and probably the hardest problem the PSE has to deal with, is that the local stock market's image is that of a rich man's club. I'm not surprised that many see the stock market as something that only rich people can get involved in.

The PSE is doing its best to address the last problem as this has been there since time immemorial. But I feel that they're not doing enough. They still need to be more aggressive in changing their image and educating the public. C'mon, we don't even have 1% of the population playing the market!

The second problem is currently being addressed by a number of groups and individuals. Ateneo has a tie-up with PSE to include market education into their curriculum. Different entities like Absolute Traders have been educating the public about the stock market in their own way. Slowly but surely, the PSE is getting help from different places.

It's the first problem that is almost impossible to solve right now. It's a socio-economic problem where the saying becomes true: the rich get richer while the poor get poorer. It is one problem every regime that has come and gone have tried to solve but to no avail. I think it's more proper to say that it's a problem they try to solve when it's election time but it gets ignored once they sit in Malacanang. When the Philippines gets to elect a government sensitive to this need and conscientious enough to do something about it shall we see lives improve.

Anyway, I'm digressing from the subject at hand. Going back to the question, is extended trading good news for the PSE? I sure hope so. All things being equal, we expect that there should be an increase in capital that's involved in the market. But that's not a realistic situation, it's an ideal one. I fear that we are just going to repeat what happened back in 2002. But as I said, things are different now. 2002 was in the midst of a long bear market. Interest definitely wasn't there. Currently, we're in a bear market too but not as bad as 2002. Traders are wiser now.

I wish the PSE good luck with this move and I hope it becomes successful. Seriously.

Tuesday, 26 August 2008

Mr. BIG

Aside from the usual victims that were the result of the financial mess in the US, or what we normally call their economy, another sector badly hit is the retail sector. It's actually a vicious cycle if you think about it. Oil rises, it hits the sectors that immediately need oil, like airlines and trucking. Since they bear the brunt of the sudden impact of oil price hikes, they have no choice but to pass the burden on to their customers. All that trickles down to the consumers.

If the consumers also feel the worsening economy through their decreasing purchasing power, they have no choice but to cut back on the usual expenses. That translates to lesser expenditures in the retail sector. So why the heck am I talking about the retail sector? Because I found one stock in this sector which could be bucking the trend; this is Big Lots, Inc. (NYSE:BIG).

Taking a look at the 10 year chart, it has been badly beaten for most of the decade. It has moved sideways under $20 for the duration of 2000 to 2006. If you look at how it has performed, it has somehow created a big rounding bottom. Not only has the volume confirmed that this is the pattern for that time, but the MACD also confirms that all that 7 years were nothing more than a consolidation. In preparation for...?

It is very probably that this was a big preparation for what it has been doing for the past 2 years. It is not under $20 anymore but it has ranged from a high of $36.15 to as low as $12.40. More interesting is the formation it has made. From the looks of things, it has created an inverse head & shoulders pattern with an upward sloping neckline. The MACD has followed the movement of the pattern.

So what do we have in store here? If you want to trade this and we base our target from the inverse H&S, our target is around $56.50. That's a projected profit of 58%. This will probably materialize in 8 months' time max. If you're willing to wait longer and want to base your projection on the big cup, then your target would be $61.90 or a possible profit of 78%. But that would also mean that you're willing to wait it out for 4 years.

Slowly but surely, there have been more issues that are showing bullish patterns. The tide for the DJIA may be changing slowly. It may be time to look for issues to go long on.

Saturday, 2 August 2008

Scratch That Itch!

It's been quite some time for many of you since you were able to trade and made a profit. Lately it's either you bought some stock for some reason and it plunged or it's a hands off policy on the market. That trader in you has been wanting to get their hands on some issue to trade again. Well don't give in to that pressure. Especially now when the market hasn't turned around.

Yes, there could be some opportunities that are passing us by. However, you have to think, the chances for us to lose money are greater in these times. So you have to choose, would you rather lose the opportunity to trade or lose the money to trade? I think that's an easy question to answer.

Many say that the bear market will test your patience. Yes, I think that's a valid point. But I think they also miss the more important aspect that will be tested. Your discipline. Many overlook this because greed and fear always come ahead of everything else when the market moves. How many times have we seen this situation or be in it: one of the stocks that you were monitoring suddenly surges upward for no reason at all. Thinking that you're missing the boat, you suddenly call your broker or open your online account to buy some shares. You just have to get some of that and not miss out on the action. Finally, you get your hands on a few shares and you have just proven the old adage, that a sucker is born every minute.

When we let our greed rule our head during trading, we lose all focus on the objective. Our objective is NOT to make money first but rather to make a good trade by finding the stocks which are just about to make their moves and then we get in at the right price. The right price is when it just broke out of consolidation and it starts a new trend. Another problem we have about discipline is that we're not satisfied with small gains when we have them. We always want to have a jackpot in our hands and we want it now! Jackpots come once in a while but never all the time. We need to have that discipline in trading where our first objective is to survive. Never mind if we have a losing trade, but we must remember to keep our cut loss price at a minimum and to keep this tight. Any deviation from your trading plan will spell doom.

So the next time you get that itch to trade, check your discipline first and see if the trade will be worth it. Otherwise, here's some soap for you to wash that itch away.