Before I give you my analysis of the PSEi, let me share with you all a portion of my psychology on this matter.
Here at Equilyst Analytics, we make investment decisions based on what we see on the market as events unfold (present-tense approach). We avoid making decisions with a strong emphasis on speculations (future-tense approach).
I’m not saying that our present-tense approach always happens and the future-tense approach does not. Both approaches are influenced by uncertainties.
However, the future-tense approach will cause you higher levels of stress than the present-tense approach.
The future-tense approach is a recipe for greediness because of your desire to pinpoint with accuracy what will happen next. That desire will make you vulnerable to the temptation of paralysis-analysis. Sometimes, it can cause you the lack of confidence to execute your plan because you feel that your data is not enough, that your analysis can still be optimized, and that you need to wait some more for additional data. As a result, you become a “researcher” and not an investor or a trader who executes.
Now, let’s talk about my analysis.
The PSEi still struggles to break the resistance near 6,700. The immediate support is at 5,950 as a precursor to 5,420.
While the index is still not completely giving up on the idea of testing the resistance at 6,700, the foreign investors are still not joining the bandwagon by a significant degree. Last Thursday, foreign investors registered a Net Foreign Selling worth P63.15 million.
The foreign investors’ participation is an important barometer in projecting the likelihood of breaking out or down of the resistance or support level, respectively. The index is still under the mercy of the foreign investors’ sentiment. Their average daily participation is between 55 to 65 percent. I say that the foreign investors are still in a wait-and-see mode.
Does history show us that the index never had a chance to break a resistance when foreign investors were bearish? No. There were times when the resistance was broken even when the foreign investors were busy selling. My point is, it’ll be more likely for the resistance to be broken if the local investors’ optimism is supported by the optimism of the deep-pocketed, foreign investors.
Overall, the investors’ confidence to trade the market seems to have improved already when you compare the size of the daily volume of the PSEi since the last week of May 2020 to the days and even weeks prior.
My being a present-tense trader and investor is what led me to developing The Evergreen Strategy in Trading and Investing in the Philippine Stock Market (my methodology in trading and investing). Instead of deciding based on how the main index or sector is performing, I find it better to decide based on the unique movement and individuality of a stock. For the past 20 years, I’ve noticed that some stocks have their own itinerary. Some of them don’t follow the trails of the bellwether index.
Here is the summary of our steps when buying and selling stocks.
- Does the stock have a bullish 10SMACD (all 2 elements) and Momentum Power Indicator (all 4 elements)? Proceed to step 2 if valid.
- Calculate your reward-to-risk ratio. You want to make sure that what you’re vying for is greater than the risk that’s hunting you down. Proceed to step 3 if you’re satisfied with your reward-to-risk ratio.
- Do a test-buy within the Dominant Range our Trade-Volume Distribution chart shows. If your buying power is relatively sizable, buy in tranches.
- Do an upward adjustment on your initial trailing stop if the stock registers a higher price. Keep doing this every time the price goes higher. Never do a downward adjustment on your trailing stop.
- If either or both 10SMACD and Momentum Power Indicator become bearish, decide whether you want to hold your position as long as your trailing stop is intact or reduce the percentage of risk applied in your trailing stop.
- If you can’t decide, check if the True Market Sentiment is bearish, neutral, or bullish. If the True Market Sentiment remains bullish, you may want to hold your position. If the True Market Sentiment is bearish or neutral, you may want to reduce the percentage of risk applied in your trailing stop.
You can use my reward-to-risk ratio calculator and trailing stop calculator on the stock market library of Equilyst Analytics.
The complete video-based blueprint of our Evergreen Strategy in Trading and Investing in the Philippine Stock Market is found in the COURSE tab of your account at www.equilyst.com.
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