Stock Market Weekly: Downward bias likely as investors await data releases

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) closed slightly lower at 6,615 (-0.20%, -13.20 points) amid the four-day trading week. The local bourse kicked off the week on a high note, closing at its intra-day high of 6,729.57 on Monday, up by +2.13% day-on-day (d-o-d) from the previous week’s close.

However, these gains were reversed as local investors reacted to unchanged rates from the US central bank, reinforcing the expectations of higher-for-longer policy rates. This was despite US employment figures for April 2024 falling short of expectations, with only +175k jobs added (estimates: +250k), a notable decrease from March 2024’s +315k.

On the local front, the Producer Price Index (PPI) showed a slower decline of -1.0% in March 2024 (February 2024: -1.3%), while the Purchasing Managers’ Index (PMI) climbed to 52.2 in April 2024, marking the highest level since November 2023 and surpassing March’s 50.9.

WHAT TO EXPECT THIS WEEK

Looking ahead, we expect the PSEi to trade sideways with a downward bias as investors await major local data releases. Market participants will closely monitor the April inflation print (estimates: 4.0%; March 2024: 3.7%), the March 2024 unemployment rate (previous: 3.8%), 1st quarter 2024 GDP (estimates: +5.9%; previous: 5.5%), as well as a slew of corporate earnings results.

Additionally, market sentiment may continue to be dragged by the rising bond yields and the continued depreciation of the peso. On a positive note, the easing geopolitical tensions in the Middle East is expected to lead to another rollback in local pump prices, with gasoline, diesel, and kerosene prices expected to decrease by PHP 0.20-0.45/liter, PHP 0.50-0.70/liter, and PHP 0.60-0.70/liter on Tuesday, respectively.

Resistance: 6,700/6,800

Support: 6,500/6,400

ANALYSIS

The PSEi inched lower by -0.23% w-o-w to close at 6,615.5. The 6,800 region near the 50-day moving average proved to be a strong resistance as the market retraced and erased its early gains. Negative sentiment may persist in the medium term as the index trades below the 50-day and 100-day moving averages.

The technical indicator MACD remains below the signal line, indicating bearish momentum. If negative sentiment persists, the PSEi could retest long-term support levels around the 6,500-6,400 area. If bulls regain the narrative, the local bourse may retest the 6,800 region.

STOCK CALLS FOR THE WEEK

Bank of the Philippine Islands (BPI) | TRAILING STOPS | FMSEC TARGET PRICE: PHP 123.00

Analyzing the stock’s movement, we observe a firm resistance level forming around the PHP 125.00 mark, coinciding with the emergence of a triple top pattern. The triple top pattern, a bearish candlestick formation typically occurring at the conclusion of an uptrend, signals a potential reversal in BPI’s current trend direction. This aligns with our fundamental price guidance of PHP 123.00, hence, we advise traders with profitable positions to begin taking profits and implementing trailing stops.

AREIT, Inc. | BUY | CONSENSUS TARGET PRICE: PHP 41.50

After hitting a multi-year low at PHP 28.20 last December 2023, AREIT bounced back and gained by as much as 27.57%. AREIT formed a series of higher lows and is currently hovering above 100-day and 200-day moving averages.

For a more favorable risk-reward ratio, it is advisable to wait for the stock to pull back and establish another higher low around the 100-day to 200-day MA before accumulating. Accumulate once the stock pulls back around 100-day MA (PHP 33.6). Set stop loss limits around PHP 30.91 and take profits around PHP 38.64.

Megawide Construction Corp. (MWIDE) | BUY | CONSENSUS TARGET PRICE: PHP 3.33

MWIDE declined by as much as 17% after reaching a year-to-date high of PHP 3.44 in January 2024. The stock has recently closed to its all-time-low around PHP 2.85, reaching oversold conditions.

The stock bounced back and is currently poised to retest the next resistance level. Accumulate MWIDE once it breaks above PHP 3.00 on strong volume. Set stop loss limits below PHP 2.76 and take profits around PHP 3.45.

KEY DATA RELEASES

1.) Philippine Consumer Price Index (CPI) y-o-y for April 2024 on Tuesday, May 7, 2024 (estimates: 4.0%; March 2024: 3.7%)

2.) Philippine Imports and Exports y-o-y for March 2024 on Wednesday, May 8, 2024

3.) Philippine Unemployment Rate for March 2024 on Wednesday, May 8, 2024 (previous: 3.5%)

4.) Philippine GDP y-o-y for 1st quarter 2024 on Thursday, May 9, 2024 (estimates: 5.9%; previous: 5.5%)

5.) US Initial Jobless Claims as of May 4, 2024 on Thursday, May 9, 2024 (previous: 208k)