Stock Market Weekly: Nearing overbought conditions 

WHAT HAPPNED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) gained by +2.39% week-on-week (w/w) to close at 6,648.23 (+155.48 points), extending its wins to a third straight week. The market traded mostly in the green as investors digested dovish comments from Bangko Sentral (BSP) Governor Eli Remolona, Jr., who reiterated that the central bank could begin its easing cycle as early as August following softer domestic inflation data in June.

Furthermore, positive sentiment was supported by cooler-than-expected June US inflation data, which came in at 3.0% (May 2024: 3.3%; estimates: 3.1%). This boosted bets of a September rate cut by the US Federal Reserve, with Fed President Jerome Powell signaling a less restrictive stance amid growth risks.

WHAT TO EXPECT THIS WEEK

This week, we expect the market to trade sideways with a downward bias. As the PSEi nears overbought conditions, with the technical indicator RSI at 63.05, investors could initiate some profit-taking amid the absence of positive catalysts for the week ahead.

The market will closely monitor the developments on the political violence that erupted in the US amid the failed assassination attempt on former President Donald Trump during a campaign rally in Pennsylvania.

On the domestic front, traders will digest automotive sales data released by the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) and the Truck Manufacturers Association (TMA). Auto sales fell by 2.9% m/m in June amid slower demand as well as supply chain constraints.

Resistance: 6,700

Support: 6,400 / 6,500

ANALYSIS

The PSEi sustained its ascent, gaining by +2.39% w/w to close at 6,648.23 pts. The benchmark index extended its winning streak for the third straight week, breaking above the 6,500 key resistance level which is a confluence of the 200-day MA, 50-day MA, and 38.2% fib.

The local bourse is currently poised to retest next resistance levels, but gains may be limited by the 100-day MA and 6,700 levels, while RSI nears the overbought region at 63.05. If risk-on appetite continues, the market may retest the next resistance around the 100-day MA and 6,700. Otherwise, if risk-off sentiment dominates, the market may pull back around the 6,500 to 6,400 support levels.

STOCK CALLS FOR THE WEEK

Bank of the Philippine Islands | TRAILING STOPS | FMSEC TARGET PRICE: PHP 120.00

BPI declined by ~16% following the rebalancing of the FTSE indices last June 21. Since then, it has risen by more than 13% from the bottom and is currently nearing resistance levels around the PHP 125.00 area.

In addition, the counter is trading above key moving averages (50-day, 100-day, and 200-day), signaling strong bullish momentum. Despite this, it is advisable to implement trailing stops or take profit to secure gains. Traders who accumulated according to our call should implement trailing stops or take profit near the resistance level to secure gains. For long-term investors, we have a fundamental target price of PHP 120.0 (-1.23% downside from the recent close).

Universal Robina Corp. | BUY ON BREAKOUT | FMSEC TARGET PRICE: PHP 145.00

URC recovered by ~24% from oversold levels and its 52-week low of PHP 89.10. It is currently trading below long-term key moving averages (MA) (100-day and 200-day), but above medium-term MA (50-day). In addition, a downtrend resistance line has formed, connecting points from January 8, 2024, to June 10, 2024.

A break above this line may send URC higher. Thus, accumulating once URC breaks above this line is advisable. Accumulating once URC breaks above PHP 109.80/ PHP 110.00 is advisable. Set stop limit orders below PHP 101.00 and take profits at around PHP 126.3.

For long-term investors, we have a fundamental target price of PHP 145.0 (+38.5% upside from recent close).

Cebu Air, Inc. | BUY ON BREAKOUT | CONSENSUS TARGET PRICE: NO CONSENSUS TARGET PRICE

CEB recently dropped to a 52-week low of PHP 26.0 following its exit from the Philippine MSCI Small Cap Index. It is currently trading below key moving averages (50-day, 100-day, and 200-day), signaling that the counter is still in a downtrend.

However, the recent price action indicates potential bottoming as it consolidates and establishes support between PHP 26.0 – PHP 28.0. In addition, it is forming an ascending pennant pattern of which a break of the resistance may send the stock upwards in the near term.

Thus, it is advisable to accumulate the stock on breakout. Accumulating once CEB breaks above resistance at PHP 28.4 is advisable. Set stop limit orders below PHP 26.17 and take profits at around PHP 32.65.

KEY DATA RELEASES

1. Overseas Cash Remittances y/y for May 2024 on Monday, July 15, 2024 (April 2024: 3.1%, estimates: 3.0%)

2. US Initial Jobless Claims as of July 13, 2024, on Thursday, July 18, 2024 (previous: 222k)

3. Overall Balance of Payments (BOP) for June 2024 on Friday, July 19, 2024 (May 2024: USD 2,000 million).