Stock markets can be like tsunamis, the change in the current is not seen as it moves out of site until it’s time for all to see what’s been happening. That is one reason investors are often advised to invest in stocks with good prospects long term.
There is no certainty when markets will move in one direction or another. Since profit drives stock prices, one only has to wait on the pay day from growing companies, which will surely come. What does this have to do with the local stock market? Many investors wrote off any chance that the local market would have any recovery after the spring decline of 2014 that saw the All Jamaica Composite Index falling to 76,344.27, coming against the strong demand for foreign exchange, not aware of the market’s history.
A critical point, investors in local stocks should note, is that the best times to start buying stocks is during the summer months. The Jamaican stock market bottoms and starts to move upwards in more summers than at any other time in its history, this goes back to the start of the creation of the market index, back in the early 1970s. For 2014, prices on the Jamaica stock market declined a bit from its earlier 2014 high, with several stocks hitting 52 weeks’ lows into the early summer months, with the main market hitting a low on June 23 and the junior market on August 4.
2014 developments| The average person may look to changes in the market indices to guide them in what is happening in the market. And yet others will wait until the news headline say stocks are rising. The problem with this approach is that indices movements cloud what may be important shifts in values and prices and when the main news highlights what is happening in the market much of the gains are gone, making it riskier to invest. From the end of August to September 19th in 2014, the all Jamaica index rose by 1 percent while for August it remained flat. The Junior Market index rose 3 percent towards the end of September, but was flat for August. But something else was happening that bode well for continuation of an upward move of the market, more importantly, upward move for some stock prices. In September up the 19th the all Jamaica index rose on 53 percent of trading days, while for the junior market it was 60 percent and with the month not ended the ratio could improve. In August the ratios are 42 percent and 48 percent respectively. The advance decline ratio tells a far better story than the indices movements. The main market had only 7 days when the advance decline ratio was negative and so far for September, that number is just 4 with 7 trading days to go before the month ends.
Interest Rates| Rising interest rates drive money out of stocks into other investments, the reverse is also true falling rates drive money into stocks to position for better returns in the stock market. Interest rates on government Treasury bills have been declining since May 2014 and flows in the forex market are buoyant with the local dollar remaining stable. Technically, the main market is seeing the short term moving average on the verge of crossing the medium term moving average, a bullish sign. Importantly, many listed companies have posted some attractive results for 2014 that is supportive of an upward push in their stock price. These are positives that will help the market.
Few investors picked up the above signals, it was not until April 2015, when newspaper reports of an investment forum was reported that the wider public became aware of the bull market that had its genesis from 2014 and was up 21 percent to the end of March from the June 2014 low.
The above was posted on September 23, 2014 and is reproduced with slight modifications.