Stock Market Weekly: Market pullback likely

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) edged higher by 2.58% week-on-week as it closed at 6,606.94 (+169.56 points). The market saw six straight days of net buy flows from foreigners on the back of positive catalysts, including the US Fed’s announcement of a slower pace of hikes as inflation begins to ease. Investors also considered the comments of Bangko Sentral ng Pilipinas Governor Felipe Medalla who ruled out jumbo or off-cycle rate hikes. The weaker US dollar and the peso appreciating to its highest level since September 2022 as it closed at P56.67 on Friday also added to last week’s positive sentiment.

Top index performers were Metropolitan Bank & Trust Company (MBT) (+8.7%), Converge (CNVRG) (+8.7%), and SM Investments Corporation (SM) (+5.9%), while index laggards were Meralco (MER) (-7.1%), JG Summit (JGS) (-2.0%), and San Miguel Corporation (SMC) (-1.2%). The index breadth was positive, with 20 gainers versus 9 losers. The average daily turnover value was PHP 5.5 billion. Foreigners were net buyers of PHP 2.3 billion.

WHAT TO EXPECT THIS WEEK

The PSEi is likely to pull back after six straight weeks of ascent, as it is now trading at overbought levels. The market may also worry about China, which reported a fourth straight daily record of 39,971 new COVID cases yesterday. Investors will also be closely monitoring the release of the US jobs report for November on Friday, December 2, 2022. The jobs data will be the last monthly employment report before the US Fed’s next meeting on December 13 and 14, 2022.

STOCK PICKS FOR THE WEEK

Manila Water Company, Inc. (MWC) — TAKE PROFIT ON BREAKDOWN

The stock is now bullish, trading above its key moving averages (50-day, 100-day, and 200-day). However, the stock is also currently trading near overbought levels with the Relative Strength Index (RSI) indicator at 82. Taking profit once MWC trades below its 9-day exponential moving average (EMA) (~ below PHP 19.16) is advisable. The next support levels are PHP 19.00/PHP 17.00.

LT Group, Inc. (LTG) — BUY ON BREAKOUT

After a recent rally, LTG is looking to retest its immediate resistance level of PHP 9.58. The recent rally was driven by the company disclosing that its Board of Directors approved the declaration of PHP 0.50 per outstanding common share in special cash dividends for shareholders on record as of December 6, 2022.

The ex-dividend date will be on December 1, 2022, and payment will be made on December 16, 2022. We are of the view that a clear bullish signal will be indicated by a break above its August 2022 high of PHP 9.58. Accumulating LTG once it breaks above PHP 9.58 is advisable. Set stop limit orders below PHP 9.20 and take profits at around PHP 10.10/PHP 11.00.

ACEN Corp. (ACEN) — TAKE PROFIT ON BREAKDOWN

ACEN’s share price is currently trading near overbought levels. As for company guidance, ACEN noted the Supreme Court’s decision declaring void the administered or regulated pricing, which exposed the company to approximately PHP 1 billion in losses, which are not yet reflected in its 9-month 2022 results. With this, the company expects to be impacted by approximately PHP 3.5 billion in losses for full year 2022.

ACEN plans to mitigate these losses by 2023. On a positive note, ACEN expects strong electricity spot prices in Australia, which will contribute to the bottom line. Aside from this, with the repricing of ACEN’s retail electricity supplier (RES) customer contracts, the company is projecting an improved margin. Taking profit once ACEN trades below its 9-day EMA (~ below PHP 6.95) is advisable. The next support levels are PHP 6.50/PHP 6.00.

PSEi TECHNICAL ANALYSIS

Resistance: 200-day MA (~6,600)

Support: 100-day MA (~6,350)

The PSEi has been up for six straight weeks and is now hovering near its 200-day moving average price for the first time since April 2022. The technical indicator Moving Average Convergence/Divergence (MACD) confirms the bullish momentum. Continue to observe the market, as it is now trading at overbought levels with the RSI at 70. Those looking to enter should wait for the likely pullback.

TRADING PLAN

Look to accumulate on the pullback around 6,450-6,500. Set stop limit orders below 6,300.

KEY DATA RELEASES

Tuesday, November 29, 2022
– Philippine bank lending year-on-year for October 2022 (previous: 12.9%)

Wednesday, November 30, 2022
– US GDP annualized quarter-on-quarter for 3Q 2022 (consensus estimate: 2.8%, actual for 2Q 2022: 2.6%)

Thursday, December 1, 2022
– US Personal Income and Spending for October 2022 (consensus estimate: 0.4%/8%; previous: 0.4%/0.6%)
– US Initial Jobless Claims as of November 26, 2022 (consensus estimate: 231,000, previous: 240,000)
– US S&P Global Manufacturing PMI for November 2022 (consensus estimate: 47.6, previous: 47.6)
– Philippine S&P Global Manufacturing PMI for November 2022 (consensus estimate: 47.6)

Friday, December 2, 2022
– US Change in Nonfarm Payrolls for November 2022 (consensus estimate: 200,000, previous: 261,000)