Stock Market Weekly: Local stocks may trade lower

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) declined by 1.79% or -120.71 points week-on-week (w/w) to close at 6,605.30 due to weak US economic data and lackluster US megacap tech earnings.

In addition, the US Fed kept its key interest rate range unchanged at 5.25%-5.5%. Fed Chair Jerome Powell said the central bank will hold off on rate cuts until it is more certain that inflation is steadily progressing toward its 2% target. On the local front, President Ferdinand “Bongbong” Marcos Jr. has designated Trade Undersecretary Ma. Cristina Aldeguer Roque as the acting trade secretary subsequent to Alfredo Pascual’s decision to resign and re-enter the private sector.

WHAT TO EXPECT THIS WEEK

We expect the local bourse to trade lower as investors digest the disappointing US jobs report that fell short of expectations and as investors await the Philippine inflation report. A higher inflation forecast for July 2024 of 4%-4.8% is seen by the Bangko Sentral ng Pilipinas (BSP) on account of elevated energy costs.

Although the Consumer Price Index (CPI) is anticipated to peak in July, the BSP predicts that inflation will fall back within the desired band of 2%-4% by August. Investors will also be on the lookout for a slew of 1st half 2024 earnings releases this week.

On oil prices, industry estimates suggest diesel prices to drop by PHP 0.35 to PHP 0.75 per liter, while kerosene prices might decrease by PHP 0.15 to PHP 0.55 per liter. On the other hand, gasoline prices may have a reduction of PHP 0.15 per liter, or the price might stay the same, or even increase by PHP 0.15 per liter due to market risk factors.

Resistance: 6,800 / 7,000

Support: 6,400

ANALYSIS

The PSEi fell by -1.79% w/w to close at 6,605.30 points. The benchmark index continued its descent after the 6,700 key support failed to hold. The market broke below its upward channel and is currently retesting the 100-day moving average.

If the bears continue to dampen market sentiment, the PSEi may revisit the next support levels around the 200-day MA to 6,400. Otherwise, if the bulls dominate, the market may regain lost ground and retest resistance levels around 6,700 and 6,800.

STOCK CALLS FOR THE WEEK

Wilcon Depot, Inc. | TRAILING STOPS | FMSEC TARGET PRICE: PHP 19.50

The technical indicators for WLCON show a predominantly bearish trend. The stock is trading below its key moving averages (MA), with a descending channel pattern suggesting continued downward momentum.

The support level at PHP 15.36 could act as a crucial point for a potential reversal, while the resistance at PHP 19.88 and above may limit upward movement, close to our fundamental target price of PHP 19.50. On other indicators, the RSI displays neutral to slightly bearish momentum, and the negative net foreign inflows suggest continued selling pressure. Reducing exposure to the stock is advisable for the time being while waiting for positive drivers to emerge.

OceanaGold (Philippines), Inc. BUY | CONSENSUS TARGET PRICE: NO CONSENSUS TP

Following its successful initial public offering, OGP rose by around 16.3%, trading above its IPO price. However, the stock formed a double top pattern after retesting the established resistance level around PHP 15.51, consequently resulting in the stock’s decline. OGP established support around the PHP 13.35 to PHP 13.51 region, hence, accumulating around these levels is advisable. Accumulating the stock at current levels is advisable. Set a stop-loss limit order below PHP 12.40 and take profits around PHP 15.50.

DoubleDragon Corp. | TRAILING STOPS | CONSENSUS TARGET PRICE: NO CONSENSUS TP

After a strong and bullish price action, DD’s stock price is expected to decline following President Marcos’ announcement of a total ban on POGOs in the country. In a worst-case scenario, the stock could fall by as much as 30% to PHP 8.40, potentially reversing the gains made in May 2024.

In the near term, we recommend lightening positions on the stock and re-entering once positive catalysts emerge. Lightening positions at current levels is advisable. Should the expected downtrend take place, the stock may drop by as much as 30% to PHP 8.40.

KEY DATA RELEASES

1. Philippine Consumer Price Index (CPI) y/y for July 2024 on Tuesday, August 6, 2024 (estimates: 4%; previous: 3.7%)

2. Philippine Imports and Exports y/y for June 2024 on Tuesday, August 6, 2024

3. Philippine Trade Balance for June 2024 on Tuesday, August 6, 2024 (estimates: -USD 4,320 million; previous: -USD 4,601 million)

4. PHP Bank Lending y/y for June 2024 on Wednesday, August 7, 2024 (previous: 9.1%)

5. PHP GDP y/y for 2nd quarter 2024 on Thursday, August 8, 2024 (estimates: 6.2%; previous: 5.7%)

6. US Trade Balance for June 2024 on Tuesday, August 6, 2024 (estimates: USD 72.6 billion; previous: USD 75.1 billion)

7. US Initial Jobless Claims for August 3, 2024, on Thursday, August 8, 2024 (previous: 249k)