Stock Market Weekly: Investors to take their cue from SONA

WHAT HAPPENED LAST WEEK

Last week, the local bourse sustained its trajectory of gains for a fourth consecutive week. It was fueled by dovish guidance from US Fed Chair Jerome Powell, who said that the Fed may not wait for inflation to decline to 2.0% before easing policy rates. The market continued to rise throughout on optimistic earnings expectations.

WHAT TO EXPECT THIS WEEK

The market is expected to move cautiously with a downward tilt. Investors will take cues from President Ferdinand “Bongbong” Marcos Jr.’s third State of the Nation Address (SONA) later today where he is expected to share key updates on the economy as well as the administration’s priority legislations and projects.

Investors will also consider the mixed changes in pump prices – diesel and kerosene should roll back by PHP 0.30/PHP 0.60 and PHP 0.60/PHP 0.70, respectively, while gasoline is seen to rise by PHP 0.20 per liter.

More companies are expected to release their 1st half 2024 results in the following weeks. On the foreign front, market participants will weigh in on US President Joe Biden’s withdrawal from the election race as he nominates current US VP Kamala Harris for the upcoming elections.

Resistance: 6,800 / 7,000

Support: 6,700 / 6,500

ANALYSIS

The PSEi surged by +2.16% w/w to close at 6,791.69 points. The benchmark index extended its winning streak for the fourth straight week, breaking above the 6,700 key resistance level. The local bourse is currently hovering above the 50-day, 100-day, and 200-day moving averages (MA).

However, it is currently trading at an overbought level with the technical indicator RSI at 70. Hence, the market may pull back as traders may potentially take profits in the short term. If risk-on appetite continues, the market may retest the next resistance around 6,800 and 7,000. Otherwise, if risk-off sentiment dominates, the market may revisit 6,700 to 6,500 support levels.

STOCK CALLS FOR THE WEEK

First Gen Corp. – BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 28.8

In terms of technical analysis, after hitting a year-to-date high of PHP 20.50, FGEN declined by as much as 14.5%, retesting its support around PHP 17.60. Recently, FGEN exhibited a symmetrical triangle pattern formed by a descending trend line and an ascending bottom trend line. There is a potential to reverse its current trend once it breaks out of the upper trend line and 50-day moving average (MA). Accumulate the stock should it break out of the 50-day MA (~PHP 18.25). Set a stop loss limit order below PHP 16.79 and take profits around PHP 20.99.

Cosco Capital, Inc. – BUY | CONSENSUS TARGET PRICE: PHP 12.00

Since our last trader’s playbook on COSCO in December 2023, the company rose by around 12%. At current levels, the stock has a potential for a sustained uptrend if it maintains its critical support level at PHP 4.50. Although the stock is currently trading below key moving averages (50-day, 100-day, and 200-day), its position near the 52-week low and the formation of lower highs suggest a promising buying opportunity.

Therefore, investors can accumulate a small position that they can build upon. Accumulating COSCO at current levels is advisable. Set stop limit orders at 8% below the average purchase price and take profits when the price rises above 15% of the entry price.

Cebu Air, Inc. – BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 56.7

From the technical front, 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, 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 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. PH Budget Balance for June on Wednesday, July 25, 2024 (previous: -PHP 174.4 billion)

2. US Initial Jobless Claims as of July 19, 2024 on Thursday, July 26, 2024 (previous: 243k)

3. US Durable Goods Orders for June on Thursday, July 27, 2024 (previous: 0.1%; estimates: 0.3%)

4. US Core PCE Price Index for June on Friday, July 27, 2024 (previous: 0.1%; estimates: 0.1%)