The shadow of the bear has encompassed the local stock market and the stage is all but set for a steep decline in 2006. The short rally that followed the sell-off in early November 2005 did not last and the more often than not first quarter run-up has so far not happened in 2006.

Chart of the course

The Jamaica Stock Exchange (JSE) main index started the year at 104,510.39 points and has not since seen that level. The first two months of 2006 saw the index down 7.3% compared to a 1.4% gain in the comparative period last year. The advance/decline ratio tells the same tale, year-to-date Feb’06 at 8:29 against 30:8 at Feb’05.

The market’s direction is clearly signalled by the point-to-point (1 year) change at February 2006. There the main index is down 15.2% with the advance/decline ratio at 7:32 reinforcing the view that the correction is more than an aberration.

Tip to tail

The winners and losers on the point-to-point measure show the biggest winner with a gain of 30.3% and the loser at 93.7%. It is of interest to note that shares in five of the seven winners are highly illiquid and most of the losers have recently posted disappointing results.

There is very little in the near term to turn the tide of the market. The Jamaican economy is under severe strain, the merchandise sector is losing margins (see recent results of Grace Kennedy and Lascelles DeMercado) as it is unable to pass through price increases. With the budget around the corner and election in the air, the market will likely remain on the slippery slope for this year and the next.