Stock Market Weekly: Expect the bourse to trade downwards

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) surged +3.27% week-on-week (w/w), closing at 7,252.32 (+229.47 points), as investors positioned themselves ahead of the US Federal Reserve’s rate decision on September 19, 2024. The market displayed optimism over the anticipated shift towards monetary easing, with robust turnover bolstered by 15 consecutive days of net foreign buying, reflecting sustained foreign interest.

The US Fed delivered a larger-than-expected 50-basis-point (bp) rate cut, marking a notable shift towards an easing cycle. This outsized cut exceeded the anticipated 25-bp reduction, signaling a more assertive approach to loosening monetary policy. On the domestic front, July 2024 OFW cash remittances rose by 3.2% y/y to USD 3.43 billion (from USD 3.32 billion in July 2023), providing support for the Philippine peso against the US dollar.

Moreover, towards the latter part of the week (September 20, 2024), the Bangko Sentral ng Pilipinas (BSP) announced a reduction in reserve ratios for universal and commercial banks, lowering them from 9.5% to 7% (effective October 25, 2024). The Fed’s larger-than-expected rate cut has heightened expectations for further easing measures from the BSP, as local investors welcomed the prospect of more accommodative monetary policies in the coming months.

WHAT TO EXPECT THIS WEEK

This week, we expect the PSEi to take a breather following two consecutive weeks of gains and in the absence of fresh catalysts to further boost the local bourse. However, some positive sentiment may carry over as investors anticipate key data releases, such as the 2nd quarter 2024 US GDP (final), which is expected to show an increase to 3.0% y/y (1Q24: 1.4%; 2Q23: 2.1%).

Additionally, we foresee the BSP’s 250-bp cut announcement to support share prices of the financials sector. On the geopolitical front, investors may adopt a guarded approach amid escalating tensions in the Middle East, particularly concerning the long-running Israel-Hezbollah conflict, which has put pressure on oil prices.

This has led to projected increases in petrol prices of PHP 0.40 to PHP 0.90 per liter, while diesel prices may rise by up to PHP 0.40 per liter, and kerosene prices could increase by up to PHP 0.20 per liter. In this regard, gold spot prices are also expected to continue their rally, with the safe haven asset breaking above the USD 2,600 level for the first time, driven by the US interest rate cuts and rising tensions in the Middle East.

Resistance: 7,300 / 7,400

Support: 7,000 / 7,100

ANALYSIS

The PSEi surged 3.27% w/w to close at 7,252.32 (+229.47 points). The index continued its ascent to retest another long-term resistance at 7,300 before closing the week lower on high-volume selling. The index remains extremely bullish, trading above key moving averages (200-day, 100-day, and 50-day), and with momentum indicators (MACD and RSI) at overbought zones. However, we suggest exercising caution at current levels amid an increased risk of a pullback.

STOCK CALLS FOR THE WEEK

AyalaLand Logistics Holdings Corp. | BUY | Consensus Target Price: PHP 2.19

ALLHC shows the formation of a bullish double-bottom pattern, confirmed by a breakout above the PHP 1.90 resistance with a strong volume surge. This signals a reversal from the prior downtrend, supported by the price now trading above all key moving averages (20-day, 50-day, 100-day, and 200-day), and the MACD crossing into positive territory.

As the stock breaks out of its downward channel, we expect the continuation of bullish momentum and recommend accumulating the stock at current levels. Take profits 15% above your average cost and set stop loss limits 8% below your average cost.

Citicore Renewable Energy Corp. | BUY | Consensus Target Price: PHP 3.70

CREC is displaying strong bullish momentum, having broken out of an ascending triangle pattern that began forming in July 2024, supported by positive technical indicators. The price is trading above all key moving averages (9-day, 20-day, and 50-day), indicating short-term strength, with the 20-day MA acting as dynamic support.

Additionally, the MACD has completed a bullish crossover, suggesting further upward movement. Accumulating CREC at current levels is advisable. Take profits 15% above your average cost and set stop loss limits 8% below your average cost.

RL Commercial REIT, Inc. | BUY | Consensus Target Price: PHP 7.02

RCR is in a clear uptrend, trading above its 20-day and 50-day moving averages (MA), which are converging to form a strong short-term support zone. Moreover, the 100-day and 200-day MAs below the current price reinforce the bullish sentiment. Momentum indicators show the MACD is close to a bullish crossover, with the MACD line poised to move above the signal line, signaling potential upward momentum.

Its position near the zero line suggests the bullish trend is still in its early stages, allowing room for further strength. Accumulating RCR at current levels is advisable. Take profits 15% above your average cost and set stop loss limits 8% below your average cost.

KEY DATA RELEASES

1. Philippine Budget Balance for August 2024, on Wednesday, September 25, 2024 (previous: -PHP 28.8 billion)

2. US GDP annualized q/q for 2nd quarter 2024 on Thursday, September 26, 2024 (estimates: 3.0%, 1Q24: 1.4%)

3. US Core PCE Price Index y/y for August 2024 on Friday, September 27, 2024 (previous: 2.6%)