PSEi 30 6,700: The Return of the Bull Market or Bull Trap?

  

We can chart our future clearly and wisely only when we know the path which has led to the present—Adlai E. Stevenson

 

PSEi 30 6,700: The Return of the Bull Market or Bull Trap? 

Would a breach of the Philippine PSEi 6,700 level lead to a sustainable bull market? Or does this represent a bear trap?

Figure 1

 

The mainstream has used this symmetrical triangle chart to predict the "return" of the bull market.   The kernel is:  that an upside breakout from it should spur a sustained uptrend. (Figure 1, upper chart)

 

Yet, they omit to spell out the probability of its success.  Certainly, some breakouts could become self-fulfilling, but others don't.  And like thumbprints, a price chart is distinct from another.

 

Next, seeking patterns in charts to support a prejudice could be about attentional bias—"the tendency to prioritize the processing of certain types of stimuli over others."

 

Lines can be drawn to fit into one's predisposition.  The PSEi 30 chart has broken out depending on the base used.

 

Also, since charts are supposed to incorporate all available information, does this include the issue of managed pumps?

 

And there is the agency problem, selling investment themes to boost institutional income rather than helping savers generate optimal returns.

 

Sure, index managers may find support from the local version of the Sovereign Wealth Fund, Maharlika Investment Fund, but funds for market placements are also limited.

 

Has the recent ramp to 6,700 been spontaneously driven by market forces, or have these represented "engineered pumps" by politically motivated entities?

 

Last week, pre-closing "dumps" on 4 of the five sessions shaped the path to 6,700. "Pumps and dumps" occurred in three of the four sessions. (Figure 1, lower diagram)

Figure 2

 

Ironically, despite marginal foreign buying, the average daily mainboard volume increased 13.8% from Php 4.14 billion to Php 4.7 billion.  (Figure 2, topmost window)

 

Foreign inflows accounted for Php 646 million, with foreign trade making up 49.7% of the weekly aggregate gross volume.  The inclusion of foreign money should have boosted volume considerably.  Instead, turnover remained subdued, implying the local institutions unloaded. (Figure 2, middle chart)

 

Figure 3

 

Though breadth was negative for both the PSEi 30 (13 decliners, one unchanged) and the PSE (466 decliners, 398 advancers), the PSEi 30 closed +.32% higher, pushing year-to-date returns to 4%. (Figure 2, lowest window and Figure 3, upper chart)

 

Retails have barely been present in the thrust to 6,700.

 

The biggest weekly push to the PSEi 30 emanated from the financials and services, particularly ICTSI. (Figure 3 lower graph)

Figure 4

The market cap of the top 5 issues (SM, SMPH, BDO, BPI, and ICT) climbed to an all-time high, backed by the three bank financials (BDO, BPI, and MBT) and ICT.  (Figure 4, top and bottom charts)

 

And pumps on the financial bigwigs of BDO and BPI have barely spilled over to the rest of the banking industry.  Security Bank and Union Bank have recently been sold off.

Figure 5

 

Moreover, trading volume has supported selective price gains. The volume of the Sy group of companies or BDO relative to the mainboard has been climbing (Figure 5, top and bottom graphs)

 

This week, the top 10 brokers accounted for 58.7% of the mainboard volume.

 

This concentrated activity points to institutional entities pushing up the big caps.

Figure 6

 

Of course, non-bank financials have been instrumental in supporting the PSEi 30.  From the BSP, "Moreover, the other financial corporations’ claims on the other sectors, particularly the private sector, grew as the sector extended more loans to households and increased its holdings of equity shares in other nonfinancial corporations." (bold added)

 

In Q3, the slowdown in the sector's buying led to the PSEi 30's cascade. Non-bank financials have also shifted from buying "banks" (Q4 2022 to Q2 2023) to "other non-financials." (Figure 6, top chart)

 

Finally, though the path to PSEi 30 6,700 may be selective, it depicts the loosening of monetary conditions.  The PSEi 30 has risen on the back of higher inflation (2015-2018) and (2020-2022). (Figure 6, bottom graph)

 

That said, recent advances in the PSEi 30 could foreshadow the return of inflation.

 

With systemic debt piling up, do current conditions support the return of the bull market or bull trap?

 

We offer a different view:  we are likely witnessing "blowoff" phases in several global markets in the face of mounting speculative leverage, anticipating low rates to sustain it. 

 

Markets have ignored several critical risk areas like China, global commercial real estate, escalating geopolitical tensions, and more.

 

Once this FOMO hits the wall, expect a test on the recent lows.

In the meantime or in the short-term, anything can happen.