Stock Market Weekly: Sideways trading with an upward bias ahead of more corporate earnings 

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) rose by 0.58% week-on-week (w-o-w) to close at 6,913.21 (+39.98 points), marking a five-week winning streak. The local bourse started the week in the red due to profit-taking activity, while investors absorbed the FTSE Global Equity Index rebalancing results, which showed that several names will be removed and downgraded effective after the close of business on March 15, 2024, Friday (i.e., beginning March 18, 2024, Monday).

However, sentiment improved for the rest of the trading week on the back of (i) strong corporate earnings results; (ii) better vehicle sales in January 2024 (+15.5% y-o-y, -13% m-o-m), suggesting continued robust economic activity; and (iii) gains from global and regional peers.

These factors offset the hawkish outlook from the January US Fed meeting minutes, which highlighted concerns about the risks of reducing rates too early and hinting at a delay of rate cuts by at least two more months.

WHAT TO EXPECT THIS WEEK

This week, we expect the PSEi to trade sideways with an upward bias ahead of (i) more corporate earnings releases and (ii) anticipated fuel price reductions of around PHP 0.70 to PHP 0.90 per liter for gasoline, PHP 1.00 to PHP 1.20 per liter for diesel, and PHP 0.90 to PHP 1.00 per liter for kerosene. However, gains may be capped as the market hovers near overbought levels, with the technical indicator RSI at 67.0. On the international front, investors may also take cues from the US GDP Annualized q-o-q, which is projected to come in at 3.3% (December 2023: 4.9%).

Resistance: 7,000/7,100

Support: 6,900/6,700

ANALYSIS

The PSEi inched up by +0.58% w-o-w to close at 6,913.21, marking a five-week winning streak. The bulls continued to dominate as the benchmark index broke above the 6,900 resistance level. Currently, the PSEi is trading above key moving averages (50-day, 100-day, and 200-day). However, it is hovering near overbought conditions with RSI at 67.0. Hence, a pullback is possible. If the PSEi continues its ascent, it can retest the next resistance levels 7,000 and 7,100. Otherwise, it can retrace the next support levels at 6,900 to 6,700.

STOCK CALLS FOR THE WEEK

SM Prime Holdings, Inc.* BUY ON PULLBACKS | FMSEC TARGET PRICE: PHP 35.40

SM Prime Holdings, Inc. (SMPH) ended 2023 with a consolidated net income of PHP 40 billion (+33% y-o-y) – in line with consensus and our estimates – amid improved performance across all its business segments. As for price action, after forming an inverse head and shoulders pattern in October 2023, SMPH surged and rallied by as much as 28% from its multi-year low at PHP 27.70.

Recently, the stock has failed to break above its resistance at PHP 34.80 and is currently retesting its next support levels around the confluence level of the 100-day MA, 200-day MA, and PHP 32.23. For a more favorable risk-reward ratio, take position once the stock pulls back and bounces off the said support levels.

Accumulate once SMPH pulls back around PHP 32.23. Take profits around PHP 37.1 and set stop loss limit below PHP 29.7. For long-term investors, the fundamental target price for SMPH is PHP 35.40 (+7.6% from its recent close).

Ayala Land, Inc.* BUY ON PULLBACKS | FMSEC TARGET PRICE: PHP 34.20

Ayala Land, Inc. (ALI) ended 2023 with revenues of PHP 148.9 billion (+18% y-o-y) and net income of PHP 24.5 billion (+32% y-o-y) – in line with consensus and our expectations – on the back of strong property demand and heightened consumer activity.

After breaking out of the PHP 26 to PHP 30 range in November 2023, ALI continued its bullish momentum, rallying by as much as 53% from its 2023 lows at PHP 23.20. Currently, ALI is poised to retest its next resistance at PHP 36. However, for a more favorable risk-reward ratio, wait for a technical pullback around the 50-day MA or PHP 33.40 before accumulating. Accumulate once ALI pulls back around PHP 33.40. Take profits around PHP 38.41 and set stop loss limit below PHP 30.73.

Robinsons Retail Holdings, Inc.* BUY ON BREAKOUT | FMSEC TARGET PRICE: PHP 57.00

Robinsons Retail Holdings, Inc. (RRHI) posted its 2023 attributable net income of PHP 4.1 billion (-29.5% y-o-y) – below consensus and our estimates. This is attributed to forex losses, equitized losses, and losses from start-up investments. In early February, RRHI dropped to its all-time low at ~PHP 35 on 2023 earnings underperformance.

Since that time, the counter established a key support in the area as it currently consolidates around PHP 37/PHP 35. While the stock continues to trade below key moving averages (50-day, 100-day, and 200-day), there appears to have been a shift on the prevailing bearish sentiment in respect to the downward trend line that it follows.

We advise monitoring the positive momentum and recommend accumulating once RRHI breaks above the 50-day MA, especially for those looking to enter or increase exposure. However, we also advocate for caution if RRHI retraces back to its key support.

Accumulating once RRHI breaks out near its 50-day MA to PHP 38.5 is advisable. Set stop limit orders at 8% below average cost and take profits at 15% above average cost. For long-term investors, our fundamental TP for RRHI is PHP 57.0 (+54.26% upside from the latest close).

KEY DATA RELEASES

1. US GDP annualized q-o-q for 4th quarter 2023 on Wednesday, February 28, 2024 (estimates: 3.3%)

2. US Core Personal Consumption Expenditures (PCE) q-o-q for 4th quarter 2023 on Wednesday, February 28, 2024 (prior: 2.0%)

3. PH Budget Balance for December 2023, on Thursday, February 29, 2024

4. PH S&P Global Manufacturing PMI for February 2024 on Friday, March 1, 2024 (estimates: 51.0; December 2023: 50.9)

5. US S&P Global Manufacturing PMI for February 2024 on Friday, March 1, 2024 (estimates: 50.7; December 2023: 51.5).