September 25, 2020

THE ANALYSTS are still at odds as to whether stock prices will get any lower with predictions broadly rooted in either fundamental or technical data.

Senior Business Reporter at the Jamaica Gleaner, Steven Jackson says a lot of people who are looking at the profit and loss margins of companies under the fundamental perspective will “actually miss what is happening” and conclude that the market has bottomed out.

He said fundamentally the expectation is that a number of companies which suffered huge losses in the first quarter due to COVID-19 will improve going forward.  However he argued that there are at least three reasons to suggest the market will fall further when looking at the numbers from the technical point of view.

1. Head and Shoulders

 A head and shoulders pattern describes a specific chart formation that predicts a bullish-to-bearish trend reversal, and is formed by a peak (shoulder), followed by a higher peak (head), and then falls and hovers at levels equivalent to the first shoulder.

Jackson said the momentum of the indicators suggests that it is moving from the second shoulder towards lower levels.

2. Historical data on bear markets

Secondly, in the local context, he said over the same 25 years, the minimum time it usually takes a bearish market to get to the bottom is 15 months, with the market now at least three months away from that timeline.

 “We are in month 12 if you track it from the peak of the market from August 2019 and if you track from March when we had our first COVID-19 case we are in month 9,” he said.

3. JSE performance tracks economic growth 

Jackson’s third reason for believing the worst is yet to come relates to the JSE’s tracking of economic growth.  He reasoned that when gross domestic product (GDP) peaked at 2% back in 2018, the market was also peaking, and he believes the market will again follow the trend of the economy which plummeted to -2.3% in the first quarter.

“Clearly it is a signal that we are not yet at the bottom,” he concluded.

Fundamental View

Meanwhile, Co-Founder of Caribbean Value Investor and Host of Beyond the Stock Price, Devrhoid Davis, said he remains a fundamentalist and is not anticipating another “significant drop” in the market.

He said now that some normalcy is being returned, as efforts continue to have the country live with COVID-19 and barring no other shocks like natural disasters, he is “not seeing an incentive for companies to sell shares significantly lower than where they are now”.

Senior Wealth Advisor at Ideal Portfolio Services, Orick Angus, agreed with Mr Davis, reasoning that while there has been a level of resistance especially around the main market, he believes, “it has bottomed out from a fundamental standpoint”.