News / Inter Market Analysis

Focusing on Direction By Fitz Aclan August 21, 2008

What is really fascinating about the market is that it is constantly in flux. One moment, you are filled with optimism as you see crude oil prices dropping. The next moment you are worried again about the problems in the US credit market. One day the market goes your way, the next day you are watching it go in the opposite direction.

To me, this state of flux is the very reason we need to keep a close tabs on the charts and pay attention to the technicals of the market to get a “clear” picture of the prevailing trend and how it will change later on.

If you look at the technicals of the market, for example, you can see that the resistance at 2,850-2,900 (recent high) was actually a major trend line resistance level. This has been a major blocking wall for the local market since the start of the US subprime crisis last year.

If I were to count how many times the market respected this trendline resistance level since last year, I would say that the index has tested (and failed to break) it more than six times already. Now that’s a lot!

It is likely that the market will continue to test this resistance level and eventually fail to break through it. Of course, we know what this means, disappointment for many investors including myself.

While it’s true that crude prices have declined substantially (US$112/bbl as of this time), the deteriorating US economy is really putting a big strain in the market, something that is difficult to ignore now.

The biggest issue now will be the impact of the rising unemployment numbers in the US and how it would affect consumer spending. As you may well know, this is a segment in the US economy which has been relatively resilient in the past quarters and if for some reason it would be affected by the recent layoffs, then the US economy can actually worsen from where it is now. In any case, of all the numbers in the list of US economic indicators, consumer spending is something which the market will watch closely.

On the technical side of the PSEi, the 2,900-3,000 will be closely watched from hereon. We believe the support level for the PSEi is at the 2,500-2,600 level. Expect the market to consolidate at those levels and move sideways from there.