Stock Market Weekly: Keeping an eye on the SONA and US interest rate decision

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) rose by 68.13 points ( up 1.10% week-on-week) to close at 6,263.39. At the start of the week, investor sentiment improved due to lessened expectations of larger US Fed rate hikes and upbeat US corporate earnings releases.

By the middle of the week, the market pulled back as investors factored in the country’s wider balance of payments deficit as of June 2022 and the Bangko Sentral ng Pilipinas (BSP)’s comment on reviewing both the public and private sectors’ foreign borrowing limit.

Top index performers were Ayala Land Inc. (ALI) which was up 10.4%, GT Capital (GTCAP) up 6.3%, and Ayala Corporation (AC) up 5.7%. Index laggards were Globe Telecom (GLO) which was down 3.5%, SM Prime Holdings Inc. (SMPH) down 2.7%, and Jollibee Foods Corporation (JFC) down 2.5%. The index breadth was positive with 21 gainers versus nine losers. The average daily turnover value was PHP 4.1 billion. Foreigners were net sellers by PHP 777 million.

WHAT TO EXPECT THIS WEEK

The market is expected to trade sideways this week as investors await President Ferdinand Marcos Jr.’s State of the Nation Address (SONA) and more earnings releases locally and in the US. Investors will be closely monitoring the US Fed’s interest rate decision (a 75 basis point rate hike expected) and if there will be more fuel price rollbacks in the coming days.

STOCK PICKS FOR THE WEEK

Jollibee Foods Corp. (JFC) — BUY

Despite cost pressures, earnings recovery appears to be sustainable and continues to gain traction amid the unwinding of COVID-19 mobility restrictions, better store economics, and turnaround of Smashburger and Coffee Bean and Tea Leaf. Accumulate once the stock breaks above PHP 225.00. Set cut loss below PHP 208.00 and take profit at PHP 250.00/PHP 260.00.

Megawide Construction Corp. (MWIDE) — BUY

We expect a significant recovery of Mactan-Cebu International Airport’s earnings as the economy further reopens, supported by the enhancement of its airport infrastructure, strategic location, and its improving connectivity to popular local tourist destinations and international airports. As for the construction business, looser quarantine measures should bode well for the segment. MWIDE’s order backlog is at PHP 56.4 billion, equivalent to around 4 years of revenue visibility. Accumulate once the stock breaks above PHP 5.00. Set cut loss below PHP 4.68 and take profit at PHP 5.55/PHP 6.00.

DITO CME Holdings, Inc. (DITO) — SELL ON BREAKDOWN

DITO’s share price has broken downward out of a consolidation period, suggesting a continuation of the prior downtrend. According to Technical Insight, our automated chart pattern recognition program, the measured price target once DITO breaks down of the continuation diamond pattern is from PHP 2.90 to PHP 3.30. Lighten position on DITO should the stock break below PHP 4.00. Next support levels are at PHP 3.50 and PHP 3.00

PSEi TECHNICAL ANALYSIS

Resistance: 6,400 / 50-day moving average price (MA)

Support: 5,700 / 6,180

The PSEi traded within 6,160 to 6,400 last week. The 6,400 level also proved to be a strong resistance as the market’s rally was not sustained. We reiterate our view that a break below 6,180 opens the possibility of retesting its year-to-date (YTD) low of 6,054. A further break below 6,054 can result in a retest of 5,700.

TRADING PLAN

Continue setting stop limit orders. Slowly accumulate once the PSEi breaks above the 50-day MA, or moving average, which is currently at 6,448).

KEY DATA RELEASES

Wed, July 27, 2022
– US Federal Open Market Committee (FOMC) interest rate decision (consensus estimate: 75 bps rate increase)

Thu, July 28, 2022
– US first reading of GDP annualized quarter-on-quarter for the second quarter of 2022 (consensus estimate: 0.5%, actual for first quarter of 2022: -1.6%)

Fri, July 29, 2022
– Bank lending net of RRPs (Reverse Repurchase rate) year-on-year for June 2022 (actual: 10.7% in May2022)