But for us practical traders, the key issue now is at what point is $DD is clear sell?
Let me posit some basic observations. After more than 20 years of trading and trying to decipher the moods of the Philippine capital markets, I actually have not come across anything quite like $DD.
Not sure if this is worth a serious concern, but clearly we have a rather combustible situation where on one end, you have that oozing sex appeal of an Anne $DD Curtis-Smith, and on the other end, this fast growing market of retail stock market investors (i.e madlang people newbies), clicking those online buy buttons for the first time, but clearly fueled by OFW and BPO incomes globally and now threading into PSE waters.
Just to highlight my point, in the past two months, I have accepted stock market speaking engagements at least 5 times, some with BPItrade.com and twice with Utrade.com in Cebu. And in every class, almost 40% are newbie stock investors who have yet to figure out how a P/E multiple is computed for each stock.
But focusing on $DD, let me share the following observations during the past week when Anne $DD Curtis-Smith rose from P4.95 to P10 in 7 trading days. From here we can perhaps draw some conclusions.
1) Many investors who were in the P4.95-P10, sepcifically the astute stock market investors, sold significantly. In my case, I sold 35% of my $DD holdings above P9 to switch some to $MEG. Yet, we were mostly absorbed by the market at the P9 level, which is a good sign for now but clearly highlights the concern why anyone would be buying at almost 4.5x $DD's IPO price.
2) Clearly what was happening, as an analogy, is that the smarter dudes from Baclaran got off the bus in Shaw Boulevard, but many more were also getting into the bus in Shaw.
3) Obviously the smarter dudes (i.e. because their $DD average cost was lower mathematically they are for illustration purposes, defined as the smarter ones) sold some, but this doesn't mean they will not come back into the $DD trade again. This same pattern happened around the P3.85 and P4.42 level of $DD. The smarter dudes who got it at below P3, sold above P4, only to come back again on the bus when it started to move towards P4.95 and especially when that initial P4.42 high was breached.
4) So $DD is a simple read: for now we just have to allow as many to get off the bus below P10 and new people (madlang people) to get in. Given the tightness of $DD, this takes around 3 to 4 days where you get that slight sideways movement with volumes shrinking fast.
At this stage, perhaps let's ask – What is my point?
My point is this, $DD forms this tight sideways consolidation at higher and higher levels as smart buyers get off the bus and the madlang people investors take their place.
But since the madlang people investors who help tighten and take out the smarter buyers at those higher levels are not "valuation driven" this pattern could recur again and again, like a vicious cycle.
Say for example, enough madlang people take out the smart sellers of $DD at P9.50 to P9.90/ share, in a short time all those smart sellers are gone and $DD starts to move up again, say past P10/share. When the smart investors see this, on purely technical merits they then join the ride again because any trader worth his salt rides the momentum if it presents itself.
It is like Anne Curtis-Smith who can't really sing, but so what, the madlang people love her. So she sings in the biggest venues and its packed; just like our $DD is packed at breakout points with massive volumes, courtesy of the madlang people.
On this note I have to disagree with those insinuating that $DD is "manipulated." Those who say that do not actually understand how capital markets work. Clearly, $DD's daily volume is so big that I do not see any local group capable of manipulation.
What I am seeing, and which is what I am trying to drive at is that the "smarter guys" get off the $DD bus, but jump back in when the $DD bus starts to move higher. So it's like the madlang people and the smart buyers together stampeding towards $DD again and again, in a recurring "jump out, bus stop consolidation where smart investors go down and more madlang people ride the bus, bus moves, the smart dudes jump back in, and at higher points, jump out again taken out by the madlang people at higher and higher levels, and so on – like a vicious cycle."
So from a trading viewpoint, it is the best of both worlds: smart stock traders jump back in the $DD wagon because of momentum and are taken out at the pauses by the madlang people who ensure the bus keeps moving even if the valuations are no longer supportive.
So for now we just enjoy this ride till the $DD "bubble" will burst and the last fool is holding the bag, perhaps later rather than sooner. Thanks to the madlang people and their numbers, the dragon dance can go on for quite some time. – Rappler.com
Tony Herbosa is managing director for Corporate Finance of the Center for Global Best Practices. He was connected with PNB Capital & Investment Corporation as president and CEO and with Punongbayan & Arraulo, where he set up the first P&A/Ernst & Young Corporate Finance practice in the Philippines in 2001. Tony is active on Twitter for stock market newbies: @Tony88981.