Stock Market Weekly: Market consolidation seen

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) slipped by 2.29% week-on-week (w-o-w) to close at 6,745.46 (-158.07 points). The local bourse mostly traded in the red, tracking global markets amid heightened speculations of higher-for-longer interest rates.

US Fed Chair Jerome Powell’s reassurance of possible rate cuts through a data-driven approach did little to support sentiment, with the benchmark US 10-year Treasury yield breaching the 4.4% level during the trading week. In addition, investors digested the sequential uptick in local inflation at 3.7% for March 2024 (from February 2024’s 3.4%) alongside tempered Philippine GDP growth target by the Development Budget Coordination Committee (DBCC) to 6.0-7.0% (from 6.5-8.0%).

The US labor market added 303k jobs in March 2024 – surprising the consensus estimate of 200k additions and higher than February 2024’s +270k – with most of the job gains coming from healthcare (+72k), government (+71k), construction (+39k), and hospitality (+49k) sectors.

The unemployment rate printed lower at 3.8% (estimates: 3.9%; February 2024: 3.9%). The labor force participation rate came in at 62.7% (February 2024: 62.5%). Wage growth came in at 4.1% y-o-y (February 2024: 4.3%).

WHAT TO EXPECT THIS WEEK

This week, we expect the market to consolidate with a slight upward bias amid the shortened trading week. This is on the back of bargain hunting, with the PSEi approaching the 6,700 key support level and nearing oversold conditions (RSI: ~39).

Investors will also monitor various local and international data releases such as the US consumer price index (CPI) (estimates: 3.4%; March 2024: 3.2%), PH interest rate decision (estimates: no changes), and PH unemployment rate (previous 4.5%).

Local pump prices are again expected to rise, with estimates suggesting an increase of PHP 0.90 to PHP 1.20 per liter for gasoline, PHP 1.20 to PHP 1.40 per liter for diesel, and PHP 1.10 to PHP 1.30 per liter for kerosene.

Resistance: 6,800/6,900

Support: 6,700/6,400

ANALYSIS

The PSEi slipped by +2.29% w-o-w to close at 6,745.46, breaking below the 6,800 immediate support as well as its 50-day moving average. Since February 2024, the market has been trading sideways within the 6,800 to 7,000 range, indicating a period of indecision for the market.

The market is poised to retest its next key support level at 6,700 as well as its 100-day MA and 200-day MA. A break below these levels may signal a bearish reversal for the index. If the market pulls back further, it can retrace next support levels at 6,700 to 6,400. If the bulls continue to dominate, the PSEi could once again retest the next resistance levels around 7,800 and 7,900. Watch out for possible basing which could provide trading opportunities. For those who plan to increase exposure, consider tranche buying around identified support areas.

STOCK CALLS FOR THE WEEK

Aboitiz Power Corp. | BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 42.06

AP formed a gap down pattern following its ex-dividend date last March 18, 2024. The stock dropped but re-bounded after hitting its support around PHP 35.00. The stock is currently retesting its resistance around PHP 36.60.

For a more favorable risk-reward ratio, it is advisable to enter the stock if it pulls back around the support region. Accumulate AP only once the stock pulls back and bounces off around the PHP 34.74 to PHP 35.20 support levels. Set stop limit orders below PHP 31.96 and take profits around PHP 39.95.

Manila Electric Company | BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 396.58

For the most part of 2023, MER rallied by as much as 43% to reach an all-time-high of PHP 399.80. This was followed by a consolidation period with three peaks — resembling a head-and-shoulders pattern which could indicate a bearish reversal for the stock.

A break below the neck-line could potentially result in price correction which may offer buying opportunities for the stock. Accumulate MER once it pulls back to the next support levels around PHP 321. Set stop loss limit around PHP 295.32 and take profits around PHP 369.15.

DigiPlus Interactive Corp. | BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 15.84

On the technical front, PLUS broke above its consolidation pattern to post a new 52-week-high at PHP 11.18, surpassing our last target price of PHP 9.26. The counter is currently above key moving averages (50- day, 100-day, and 200-day), with the technical indicator RSI at overbought levels at 88, signaling strong upward momentum but a possibility of a retracement.

Thus, it is advisable to accumulate on pullbacks. Entering on pullbacks near psychological supports at PHP 10.5/PHP 10.0 is advisable. Set stop limit orders 8% below your average price and take profits 15% above.

KEY DATA RELEASES

1.) BSP Overnight Borrowing Rate on Monday, April 8, 2024 (estimates: no change)

2.) PH Unemployment Rate for February 2024 on Wed, April 10, 2024 (previous: 4.5%)

3.) US CPI y-o-y for March 2024 on Wednesday, April 10, 2024 (estimates: 3.4%; February 2024: 3.2%)

4.) PH Imports and Exports y-o-y for February 2024 on Thursday, April 11, 2024

5.) US Initial Jobless Claims as of April 6, 2024, on Thursday, April 11, 2024 (previous: 217k)

6.) PH Money Supply M3 SRF y-o-y on Thursday, April 11, 2024

7.) Earnings Release: Century Pacific Food, Inc. on Monday, April 8, 2024

8.) Earnings Release: Monde Nissin Corp. on Thursday, April 11, 2024