Stock Market Weekly: PSEi may be due for a relief rally

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) dropped by 166.56 points to close at 6,195.26 (down 2.62% week-on-week), tracking the weak global markets. Bearish investor sentiment prevailed as:

(i) the peso continued to depreciate versus the greenback, trading near the record low of PHP 56.45 to the dollar on Wednesday;

(ii) the Bangko Sentral ng Pilipinas (BSP) raised interest rates by 75 basis points (bps) in an off-cycle meeting on Thursday, with BSP Governor Felipe Medalla saying that further hikes are still on the table in the scheduled Monetary Board meeting next month;

(iii) US inflation for June 22 reached 9.1% (consensus estimate: 8.8%), the highest since 1981 and will likely result in further Fed rate hikes; and

(iv) China achieved a slower-than-expected GDP growth in the second quarter of 2022 at only 0.4% year-on-year (consensus estimate: 1%, actual for 1Q2022: 4.8%).

Top index performers were Monde Nissin (MONDE) which was up 8.1%, Emperador (EMP) up 6.5%, and Meralco (MER) up 3.7%). Index laggards were Ayala Land Inc. (ALI) down 12.9%, Ayala Corp. (AC) down 10.5%, and GT Capital (GTCAP) down 10.3%. The index breadth was negative, with 12 gainers versus 17 losers. The average daily turnover value was PHP 4.6 billion. Foreigners were net sellers by PHP 2.6 billion.

WHAT TO EXPECT THIS WEEK

The market is expected to bounce after Wall Street rallied at the latter part of the week following better-than-expected US retail sales growth. Moreover, big pump price rollbacks (diesel: PHP 2.00 to PHP 2.20 per liter; regular gasoline: PHP 5.30 to PHP 5.50/L) due on Tuesday, July 19, may ease investors’ concerns on inflation. However, gains may be capped as global recession fears continue to weigh on sentiment. The European Central Bank and Bank of Japan interest rate decisions on July 21, 2022, Thursday, will be closely monitored by the market.

STOCK PICKS FOR THE WEEK

Ayala Land, Inc. (ALI) — BUY

After dropping by over 12% last week, ALI’s share price is now trading at oversold levels and near its COVID-19 low of PHP 19.44 in March 2020. ALI tends to rebound when it hits oversold levels. Keep in mind though that ALI is still on a downtrend, so setting tight stops is recommended. Bargain hunters can accumulate at current levels and set stop limit orders below PHP 21.50. Take profit at around PHP 26.00/ PHP 28.00.

Metro Pacific Investments Corp. (MPI) — BUY

Business units Meralco (MER), toll segments (NLEX, CAVITEX, SCTEX, etc.) and Maynilad, all gave positive guidance. MER’s sales volume growth targets are expected to be at 5-6% this year. The toll segments’ traffic volume exceeded expectations, and Maynilad’s water supply will improve amid the La Niña season. Accumulating MPI once it breaks above PHP 4.00 is advisable. Set cut loss below PHP 3.65. Take profit at around PHP 4.50-P4.60.

AbaCore Capital Holdings, Inc. (ABA) — SET TRAILING STOPS

Despite its current uptrend, the price is showing signs of bearish divergence, making the probability of a pullback more likely. Taking profit at the eight-day exponential moving average price (EMA) or 9-day EMA is advisable (currently at PHP 1.64 – PHP 1.65). Next support levels are at PHP 1.40/ PHP 1.25.

PSEi TECHNICAL ANALYSIS

Resistance: 6,400 / 50-day moving average price (MA)

Support: 5,700 / 6,180

The market has once again retested the 6,180 level as selling pressure persisted last week. Net foreign selling came in higher at PHP 2.6 billion. A break below 6,180 opens up the possibility of retesting the year-to-date low of 6,054, which, if breached, may then result in a retest of 5,700.

TRADING PLAN

Continue setting stop limit orders. Slowly accumulate once the PSEi breaks above the 50-day MA (currently at 6,482).

KEY DATA RELEASES

July 21, 2022, Thursday
– European Central Bank interest rate decision (consensus estimate: 25 bps)
– Bank of Japan interest rate decision (no change in rates estimates)