Stock Market Weekly: Heightened trading activity due to PSEi rebalancing

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) snapped its five-week winning streak after dropping by 0.06% week-on-week to close at 7,052.16 (-4.46 points). The local bellwether started the week on a positive note after huge market-on-close buy flows and foreign buying.

Gains were reversed on Tuesday as profit-taking ensued, but quickly recovered on Wednesday ahead of local GDP data. On Thursday, the index fell despite the higher-than-expected 7.2% 4Q 2022 GDP (consensus estimate: 6.8%), bringing the full-year 2022 growth at 7.6%, its best since 1976. On Friday, it inched up higher as investors cheered the better-than-expected US 4Q 2022 GDP of 2.9% (consensus estimate: 2.7%).

Top index performers were Robinsons Land Corporation (RLC) (+9.7%), AC Energy (ACEN) (+6.2%), and GT Capital (GTCAP) (+5.9%), while index laggards were Wilcon Depot Inc. (WLCON) (-7.5%), Monde Nissin (MONDE) (-4.9%), and Puregold Price Club Inc. (PGOLD) (-3.3%). The index breadth was positive with 17 gainers versus 13 losers. The average daily turnover value was PHP 4.8 billion. Foreigners were net buyers by PHP 1.8 billion.

WHAT TO EXPECT THIS WEEK

We expect the market to trade sideways with a downward bias given the portfolio realignment of index tracking funds ahead of PSEi rebalancing and the anticipated oil price hike by as much as PHP 0.80-PHP 1.00/liter on diesel and PHP 1.20-PHP 1.40/liter on gasoline.

On the international front, investors will be on the lookout for the interest rate decision of the US Fed (consensus estimate: +25 basis points, or bps) amid signs of slowing inflation. The smaller rate hike by the Fed may lift hopes for a soft landing in the US, hence, boosting market sentiment.

Investors will also await more earnings releases from the US as well as from local companies this week. Trading activity is expected to pick up at the latter part of the week ahead of the effectivity of the PSEi rebalancing on February 6, 2023, where UnionBank of the Philippines (UBP) and DMCI Holdings, Inc. (DMC) will replace Megaworld Corp. (MEG) and Robinsons Land Corp. (RLC).

STOCK CALLS FOR THE WEEK

Jollibee Foods Corp. (JFC) — BUY ON BREAKOUT

JFC formed a continuation diamond, a long-term bullish continuation pattern. When the price breaks upward out of the diamond’s boundary lines, it marks the resumption of the prior uptrend.

The measured price target after JFC broke out of the continuation diamond pattern is from PHP 306.00 to PHP 320.00, according to Technical Insight, our automated chart pattern recognition program. Accumulating once JFC breaks above PHP 260.00 is advisable. Set stop limit orders below PHP 240.00. Take profit at around PHP 306.00 to PHP 320.00.

SM Investments Corp. (SM) — BUY ON BREAKOUT

SM Investments Corp. (SM) formed a pennant, a short-term bullish continuation pattern. The measured price target after SM breaks out of its bullish pennant is PHP 1,045.00 to PHP 1,074.00, according to Technical Insight, our automated chart pattern recognition program. Accumulating once SM breaks above PHP 950.00 is advisable. Set stop loss orders below PHP 900.00. Take profit at around PHP 1,050.00 to PHP 1,074.00.

DoubleDragon Properties Corp. (DD) — BUY ON BREAKOUT

The stock broke above its short-term downtrend line in the first week of January 2023. Now, DD is consolidating and is looking to break above its three-month resistance of PHP 7.45. We are of the view that a break above PHP 7.45 will result in a retest of PHP 8.30/PHP 9.00.

As for company outlook, DD is optimistic this year as its Hotel101 overseas will start to generate dollar revenues. Moreover, management mentioned that Hotel101 Global aims to become one of the top 10 largest hotel brands in the world with a portfolio of over 200,000 hotel rooms by 2035.

These will be developed through direct investments, joint ventures with local companies in other countries, and through brand and concept licensing arrangements. Accumulating once DD breaks above PHP 7.45 is advisable. Set stop loss orders below PHP 7.10. Take profit at around PHP 8.30/PHP 9.00.

PSEi TECHNICAL ANALYSIS

Resistance: 7,500

Support: 6,800 / 7,000

While the PSEi broke its five-week winning streak, the recent pullbacks remain to be shallow, further signaling that the bulls are in control. Foreign buying is still strong. The technical indicator MACD (moving average convergence divergence) confirms the bullish momentum, with the MACD line hovering above both the signal and zero lines.

TRADING PLAN

Continue to hold, accumulate more once the market pulls back to 6,800. Stop limit orders below 6,500.

KEY DATA RELEASES

Wednesday, February 1, 2023
– PH S&P Global Manufacturing PMI (Purchasing Managers’ Index) for January 2023 (December 2022: 53.1)

Thursday, February 2, 2023
– US FOMC (Federal Open Market Committee) interest rate decision (consensus estimate: 25-bp rate increase)

Friday, February 3, 2023
– US change in nonfarm payrolls for January 2023 (consensus estimate: 175k; actual for December 2022: 223k)
– US unemployment rate for January 2023 (consensus estimate: 3.6%; actual for December 2022: 3.5%)