Do not trust the catalysts

RIgHt up there with “bargain hunting” and “profit-taking” is the phrase “lack of catalyst” to describe stock-market movement. all buying is bargain hunting in that no one ever bought an issue believing that it was not a “bargain” or that it would go lower tomorrow.

The idea that selling—and prices going down—is profit-taking after prices have moved higher is also false. Maybe the selling that made prices drop was not profit taking. Maybe it was selling those issues that did not move during the uptrend.

By definition, a catalyst is an “agent added to a process to make a chemical reaction happen more quickly.” Say, you have a severely clogged kitchen drain. You pour some lye in the drain and add water to make the lye react and “burn” through the clog. But if you add the catalyst of hot water, the lye burns even quicker to unclog your drain. The “heat” is the catalyst to speed up the reaction between the lye and the water.

Certain events can become a catalyst for the process of moving stock prices higher—but not all the time. Hot water will always make lye work faster. But if you noticed, the recent good inflation numbers had no immediate positive effect on stock prices.

Read these headlines, please: “Philippine troops clash with Abu Sayyaf militants.” “Accenture to lay off half its work force in Manila.” “Investors rank Philippines 4th most corrupt in AsiaPac.” “China sends former warship to patrol contested Spratly Islands.” “Philippines: Thousands of Women Marched to Demand Full Employment.” Those news stories coming on successive

If you cannot trust the catalysts to do what you want when you want them to, what can you trust? You should always trust your own judgment just like you do in a personal relationship or with a new job. But always keep your resume updated. You’ll never know. When buying a stock, that is called your “cut-loss price.”

days certainly do not seem like much of a catalyst for local stock prices to go higher.

Yet that was the immediate background on the 3 percent move higher for the Philippine Stock Exchange Composite Index (PSEi) between the close on Thursday, March 19, to the close on Friday, March 20, in the Year of Our Lord 2009. And Friday, March 20, 2009, started the move on the PSEi from 1,780 to its recent daily historic high of 9,058 on January 29, 2018.

As much as we would like stockmarket prices to react to a catalyst, it does not work that way. The catalyst for the market going down 2,000 points from the January 2018 high to its November 2018 low was higher inflation, higher interest rates and a weakening peso. But just like how the lye needs time to work—even with a catalyst—stock price movement is also a process.

Actually, it would have been nice to have the PSEi drop 2,000 points in one day and get the decline over and done with. But “higher inf lation, higher interest rates and a weakening peso” are also processes that need to work themselves out.

On November 13, 2018, the PSEi reached bottom at 6,843 and started going higher to the current level around 7,700. Looking back, we know that the peso began strengthening and inflation began coming down. Even with inflation still cooling, the peso relatively flat and oil prices almost exactly where they were one year ago, the PSEi has retreated from its 2019 high.

If you cannot trust the catalysts to do what you want when you want them to, what can you trust? You should always trust your own judgment just like you do in a personal relationship or with a new job.

But always keep your resume updated. You’ll never know. When buying a stock, that is called your “cut-loss price.”

E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stockmarket information and technical analysis tools provided by the COL Financial Group Inc.