Bloomberry Had a Last Minute Surge of 7.62%; To Gap Down Next Trading Day

Enrique Razon-led Bloomberry Resorts Corporation (BLOOM) had a literal last minute surge of 7.62% on heavy volume amounting to a value turnover of Php1.52 billion last February 15, 2019. Remember that it was announced back in February 8, 2019 that Bloomberry would rejoin the Philippine Stock Exchange Index (PSEi) after a 3 year hiatus and replaced beleaguered Ramon Ang-led Petron Corporation (PCOR) effective on February 18, 2019. It was well stated in different major news articles that the date of the change was February 18. Why then did BLOOM surge not on February 18 but on the close of February 15? The effectivity date means that on that date, the change has already been made. In another words, at the start of February 18, BLOOM should already be part of the index while Peron should already be out. This also means that the actual changes (rebalancing) would be made at the close of the trading day prior to the effectivity date which in this case was February 15. This means that all of the institutional funds that passively mirror the index will have no choice but to dump PCOR and buy BLOOM at any price just to be perfectly aligned with the index exactly at the closing of February 15. Why at the close of February 15 and not sooner? Passive funds are mandated to mirror the index (constituent stock, weight, and price) to the exact letter. Buying (BLOOM) and selling (PCOR) at the close of February 15 will allow these index funds to get BLOOM at the same price (and one price) compared to the price where it will start on the open of February 18. They actually cannot sell PCOR and buy BLOOM before because the constituents of the index has not formally changed yet. If they do, they will endure an ‘error’ that goes against the funds’ mandate. Why then did PCOR already decline (and BLOOM jumped) on announcement day whereas the actual rebalancing will still be a week after? This is so because other ACTIVE funds like say Philequity Fund and the like have started to buy BLOOM in anticipation that PASSIVE funds will have no choice but to buy on rebalancing date. In short, they bought on announcement, ahead of the rebalancing day so they can sell on the passive funds that will buy later on. Short of an arbitrage play which has not played out well as of late. Although at times, surges both to the upside on index additions and downside on index deletions can occur (remember when SM fell by 10% to Php600 in one day only to reverse the following day? https://www.facebook.com/BloombergTVPh/videos/ron-acoba-march-13-2017/1928461877390566/). In my opinion, the fact that this ‘arbitrage’ play hasn’t been working to expectation in the last several index rebalancing made active funds commit lesser amount of money into it (bought less in anticipation because it wasn’t working) which was actually why it worked this time around because there were less active funds that were selling (compared to the inflows from the passive funds) on the close of February 15 which made it easy for the passive funds to push the stock at the end of the day. Note that the mentioned inflows and outflows from index rebalancing are only temporary and they always do reverse and ‘normalize’ the following day. By the way, another rebalancing, this time with the MSCI Philippines Index, is scheduled this February 28 where ICT is expected to receive inflows from passive funds due to a 1.5% weight increase.

What do I mean that the inflows and outflows from the index rebalancing are only temporary? Following the 7.62% last minute surge in BLOOM, you can expect it to drop like a rock as it opens on February 18. Regarding PCOR, you can expect it to rally as soon as Monday opens. Nonetheless, BLOOM’s uptrend is still intact and following a highly likely pullback on February 18, it may later move along its trend before it reaches for its next resistance at Php13.60, assuming a trend break does not happen.

BLOOM write-up from the Trading Edge Equity Advisor:

January 31, 2019

Bloomberry Resorts Corporation (BLOOM) has risen by 28% since it broke out from a short run inverse head and shoulders pattern last December 14, 2018. Moving forward, it seems that the stock may continue to run high. As you can see, the stock has just broken past the resistance of a bullish pennant pattern. Given its break above Php11.00 on better-than-average volume, the stock may then reach for its next hurdle at Php13.60. Note, though, that a stop loss trigger must be placed below Php11.00.

BLOOM write-up from the Trading Edge Equity Advisor:

December 3, 2018

Bloomberry Resorts Corporation (BLOOM) may likely stage at least a modest rally in the interim. As you can see, the stock has just broken past a downtrend resistance line that connects its July and October peaks. This plus a presence of a bullish divergence between its price and RSI indicate that the stock may bounce and reach for its immediate resistance at Php9.00 to Php9.35.

… Unbeknownst to many, its breakout from the above downtrend line which validated a bullish divergence actually marked the start of its ongoing bull run.

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