Entry 139.80 to 140.20, TP 144.00
Why is it unwise to dump your shares in local equities while historically ghost month August is known to be a period of consolidation? The chart of the PSEi is actually telling us that the index is closer to breaking out of historical high 8140 than dropping down. Considering all things remain, no war breaks out in the Korean peninsula or anything of that sort, we are seeing the index to push all time high really soon.
I plotted out in the chart when the PSEi hit all time high and when it went back to retest it. The significance of the retest is not only how many times 8000 has been touched but also how often and how soon the market went for it. The first time the PSEi hit 8000 was on 3/30/2015 and it dropped back down below 8000 on 4/16/2015. The second retest was on 7/14/16, that means it took more than a year for the market to go back to 8000.
The market flirted longer this time, about a month. After dropping down on 8/18/16, it took the market less than a year go back to 8000. This time the market has been flirting around 8000 for more than 3 months already. Each time the market pulls back, it only takes a few weeks for it to go back and touch 8000 again.
The movement of the market is showing bullishness. A lot of people may view it as hesitation. Yes, that’s certainly the “feel” of the index but given the pattern of behaviour, it is actually showing more aggressiveness than weakness. This means that traders and investors should consider holding on to key bullish issues than taking profit because prices may fly as soon as the PSEi takes out 8140.
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Market has again flirted with the 8,000 for the past two weeks only for us to find it pulling back again. Last week’s pullback seems to be telling us that the breakout won’t be anywhere soon.
Some traders may view our pullback toppish-looking but given the economic fundamentals that we have, we see a definite breakout to happen within 6 months time. Aughost is just around the corner. Will the market breakout in a time when most people least expect it to happen? If not, the quarter-end bulls will most likely be the one to push it beyond 8,000.
Short-term, we may see deeper corrections even to as low as 7,100-7,500. Long-term the market is generally locked in a huge consolidation.
The most important principle to remember is that the more times the resistance is touched, the more significant it is and the more powerful the resulting move will be. 8,000 isn’t a tough resistance to break. The market has touched it and flirted around it for a couple of weeks 3x times in the past 2 years. I believe the strong breakout of 8,000 is just a matter of time.