Market thoughts - April 19, 2008

After about a month and a half since the last post; the Philippine Stock Exchange Index (PSEi) has dropped below (and since then has failed to rally and stay above) the key 3000 level. It even touched a low around the 2800 level a month ago.

The PSEi tried briefly to break above the 3000 level during the first days of April but it failed to sustain its momentum. Since then; the market has drifted with a lower bias and seems to have currently found a base at 2900. Investors continue to remain in the sidelines and volume turnover remains relatively low.

This week, the Dow Jones Industrial Average (DJIA) posted the biggest weekly rise (4.25%) since February. Last night (April 18), it rose more than 220 points to end at 12849.36. Despite the huge 1st quarter loss ($5.1 bn) posted by Citigroup, the stronger than expected results from Google had the US equity market advance strongly.

Even as the credit crunch worries linger; there may be optimism that investors are beginning to look through them. Some analysts' data ( the S&P earning yield compared to the bond yields........ and the Market Price to Earning or P/E Ratio of around 14.8 times which is an 18 year low) suggest that the US markets are relatively still on the "cheap" side. Some Dow Theory adherents also see a buy signal since the DJIA was able to close above its February 1 closing high of 12743.19. Then again; it is also worth noting that the 12743.19 may be merely a resistance since the high reached by the DJIA is around 14279.26 and the effects of consumer debt is still being felt all around.

On the local front; companies listed in the Philippine Stock Exchange (PSE) are mostly doing well. Just check out the dividend updates that are being given out. It has largely been an issue of confidence. The record oil prices and the rising rice prices has not helped any and has been weighing down the market. Any rally can be sustained if the 3000 level is broken convincingly accompanied with volumes. It is worth watching if this will happen soon. Any more prolonged "drifting" of the market will continue to keep investors on the sidelines and increase chances of a further steep drop.