Stock Market Weekly: Slight upward bias amid interest rate decision 

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) surged by 2.13% to close at 6,850.16 (+142.91 points). Investors digested the lower-than-expected January 2024 Philippine Consumer Price Index (CPI) inflation at 2.8% (December 2023: 3.9%; estimates: 3.1%) and the resilient labor market as unemployment eased to 3.1% (November 2023: 3.6%).

The positive sentiment continued due to strong foreign buying (PHP 2.3 billion) ahead of the long weekend. This is despite the increase in global oil prices, with Brent and West Texas Intermediate (WTI) hovering at USD 80/barrel and USD 74/barrel, respectively.

WHAT TO EXPECT THIS WEEK

This week, we expect the PSEi to trade sideways with a slight upward bias as investors await the following: (i) the Bangko Sentral ng Pilipinas’ (BSP) interest rate decision, (ii) the results of the MSCI and FTSE rebalancing review, and (iii) more earnings and data releases.

On the international front, the market is anticipating the US inflation print for January 2024, which is projected to come in lower at 2.9% (December 2023: 3.4%) and is considered a key factor in determining the US Fed’s next course of action.

Furthermore, fuel price rollbacks may partly lift investor sentiment, as gasoline prices are expected to fall by PHP 1.00 to PHP 1.20/liter, diesel by PHP 0.40 to PHP 0.60/liter, and kerosene by PHP 0.45 to PHP 0.65/liter.

Resistance: 6,700/6,600

Support: 6,900/7,100

ANALYSIS

The PSEi surged by +2.13% w-o-w to close at 6,850.16, extending its winning streak for the third week. The benchmark index continues to trade above key moving averages (50-day, 100-day, and 200-day). However, it is currently hovering overbought conditions with the technical indicator RSI at 70.3. Hence, a potential pullback may ensue. If the PSEi continues its ascent, it can retest the next resistance levels at 6,900 and 7,100. Otherwise, it can retrace the next support levels at 6,600 to 6,400.

STOCK CALLS FOR THE WEEK

Converge ICT, Inc.* BUY ON PULLBACKS | FMSEC TARGET PRICE: PHP 13.30

In our recent company report entitled, “A problem shared is a problem halved”, we highlight that the master facilities provisioning agreement (MFPA) with DITO Telecommunity Corp. will result in expanded coverage and increased redundancies, while generating cost savings and reducing capex requirements.

This will effectively allow CNVRG to shift their focus to customer acquisition and retention to help them achieve their four-year target of 4 million subscribers. CNVRG is currently consolidating and forming a potential wedge reversal pattern with an implied upside of up to ~27%. However, we prefer accumulating on pullbacks and adding on breakout for a more favorable risk-reward ratio. Traders can accumulate on pullbacks at identified support around PHP 9.00. Take profits at PHP 10.35 and set stop-limit orders below PHP 8.28.

Bank of the Philippine Islands* BUY ON PULLBACKS | FMSEC TARGET PRICE: PHP 123

BPI formed a double bottom pattern and rallied by as much as 13% since our last Trader’s Playbook report entitled, “Merger with RBank approved,” hitting our profit-taking target. BPI’s uptrend was on the back of robust full year 2023 earnings performance.

Market interest remains strong for BPI as trading volume picked up by 15% m-o-m while the average daily value was at PHP 226.9 million. Currently, the stock is trading above key moving averages (50-day, 100-day, and 200-day). However, BPI is hovering near overbought levels with the technical indicator RSI at 65, hence, the stock is ripe for a pullback.

Those with profitable positions are advised to secure gains by implementing trailing stops. Meanwhile, those who plan to buy can accumulate BPI once the stock pulls back around the 100-day MA to PHP 105 support levels. Set stop-limit orders below PHP 96.60 and take profits around PHP 120.75.

D and L Industries, Inc.* BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 8.73

DNL’s Chemrez Technologies is seen to be one of the primary beneficiaries of the government’s move to increase the biodiesel blend from 2% to 3%, which would mean that demand would automatically go up by 50% upon the regulation’s effectivity.

In terms of price action, DNL formed a double bottom chart pattern from October 2023 to January 2024. A double bottom pattern is a classic technical analysis charting formation that represents a major change in trend and a momentum reversal from a prior downtrend in the stock movement.

This may signal a bullish reversal for the counter after trading on a downward channel beginning February 2023. We advise accumulating once DNL breaks above its 200-day MA of PHP 6.85 to its immediate resistance of PHP 6.90 on high volume. Take profits at PHP 7.88 and set stop-loss orders at PHP 6.30.

KEY DATA RELEASES

1.) US CPI y-o-y for January 2024 on Tuesday, February 13, 2024 (estimates: 2.9%; Dec 2023: 3.4%)

2.) BSP Overnight Borrowing Rate on Thursday, February 15, 2024 (estimate: no change in rates)

3.) PH Overseas Cash Remittances y-o-y for December 2023 on Thursday, February 15, 2024 (November 2023: 2.8%)

4.) US Initial Jobless Claims as of February 10, 2024, on Thursday, February 15, 2024.