Stock Market Weekly: Local bourse to trade sideways with an upward bias

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) improved by 2.88% week-on-week (w-o-w) to close at 6,628.75 (+185.75 points), snapping its three-week losing streak. The market registered daily gains on bargain-hunting and as geopolitical sentiment improved. Meanwhile, the decline in US S&P Global Preliminary Manufacturing PMI to 49.9 in April (from March’s 51.9) supported chances for earlier rate cuts this year.

Volumes were, however, muted as the weaker peso (which settled at near two-year lows at 57.7 to the US$ on Friday) and higher bond yields (with the PH 10-year testing the 7.0% level) challenged the investors’ conviction.

WHAT TO EXPECT THIS WEEK

This week, we expect the PSEi to trade sideways with an upward bias, carrying over the momentum of last week’s gains. Investors will closely watch the US Fed’s interest rate decision on Thursday (May 2), which is expected to be kept unchanged.

Locally, market participants will also track 1st quarter 2024 local earning releases as well as economic data reports such as PH Producers’ Price Index (PPI) and PH Purchasing Managers’ Index (PMI).

However, we expect rising bond yields and the continued weakening of the peso to drag market sentiment. Elsewhere, local fuel prices are projected to go down this week, with diesel, gasoline, and kerosene prices rolling back by PHP 0.20-0.40/liter, PHP 0.40-0.60/liter, and PHP 0.70-0.90/liter, respectively.

Resistance: 6,700/6,800

Support: 6,500/6,400

ANALYSIS

The PSEi gained by +2.88% w-o-w to close at 6,628.75, snapping a three-week losing streak. The region between the 6,400 and 200-day moving average proved to be a strong support zone as the market rebounded and recovered its losses. Positive momentum emerged as the technical indicator MACD is poised to break above the signal line. If positive sentiment continues, the PSEi could retest the next resistance levels around 6,700 and 6,800. If the bears dominate, it can retrace next support levels at 6,500 to 6,400.

STOCK CALLS FOR THE WEEK

Bank of the Philippine Islands | STOP-LOSS | FMSEC TARGET PRICE: PHP 123.00

Analyzing the stock’s movement, we observe a firm resistance level forming around the PHP 125.00 mark, coinciding with the emergence of a triple top pattern. The triple top pattern, a bearish candlestick formation typically occurring at the conclusion of an uptrend, signals a potential reversal in BPI’s current trend direction.

This aligns with our fundamental price guidance of PHP 123.00, hence, we advise traders with profitable positions to begin taking profits and implementing trailing stops.

AREIT, Inc. | BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 43.47

After hitting a multi-year low at PHP 28.20 last December 2023, AREIT bounced back and gained by as much as 27.57%. Moreover, AREIT formed a series of higher lows and is currently hovering above 100-day and 200-day moving averages.

For a more favorable risk-reward ratio, it is advisable to wait for the stock to pull back and establish another higher low around the 100-day to 200-day MA before accumulating. Accumulate once the stock pulls back around 100-day MA (PHP 33.6). Set a stop loss limit around PHP 30.91 and take profits around PHP 38.64.

Megawide Construction Corp. | BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 3.40

In terms of technical analysis, MWIDE declined by as much as 17% after reaching a year-to-date high of PHP 3.44 in January 2024. The stock has recently closed to its all-time-low around PHP 2.85, reaching oversold conditions.

The stock bounced back and is currently poised to retest the next resistance level. Accumulate MWIDE once it breaks above PHP 3.00 on strong volume. Set a stop loss limit below PHP 2.76 and take profits around PHP 3.45.

KEY DATA RELEASES

1. PH PPI for March 2024 on Tuesday, April 30, 2024 (estimates: 1.2%; February 2024: -1.2%)

2. US ISM manufacturing PMI for April 2024 on Wednesday, May 1, 2024 (estimates: 49.9; March 2024: 50.3)

3. US Job Openings for March 2024 on Wednesday, May 1, 2024 (estimates: 8.7 million; February 2024: 8.7 million)

4. US Fed Interest Rate Decision on Thursday, May 2, 2024 (estimates: 5.5%; previous: 5.5%)

5. PH S&P manufacturing PMI for April 2024 on Thursday, May 2, 2024 (estimates: 50.1)

6. US Initial Jobless Claims as of April 26, 2024, on Thursday, May 2, 2024 (previous: 207k)

7. US Unemployment Rate for April on Friday, May 3, 2024 (estimates: 3.8%; March 2024: 3.8%)