Stock Market Weekly: Market volatility seen this week 

WHAT HAPPENED LAST WEEK

Last week, the market increased by +0.32% week-on-week (w-o-w), ending at 6,707.25. The local stock market advanced as investors reacted favorably to the Philippines’ 4th quarter 2023 gross domestic product (GDP), which surpassed expectations at 5.6% (estimates: 5.5%; 3Q23: 6.0%).

This resulted in a full year 2023 GDP of 5.6% (estimates: 5.6%; 2022: 7.6%). Despite 2023 GDP not meeting the government’s target range of 6-7%, Socioeconomic Planning Secretary Arsenio Balisacan cheered that the Philippines remains the fastest-growing economy in Southeast Asia.

The positive sentiment was sustained as full-year 2023 earnings season kicked off, with index heavyweight Bank of the Philippine Islands (BPI) reporting earnings beat. On the international front, the US Fed maintained its interest rates steady and pushed back on calls for rate cuts in March.

WHAT TO EXPECT THIS WEEK

This week, we anticipate an increase in market volatility as investors await major economic data and earnings releases, along with the implementation of the PSEi’s semi-annual rebalancing.

The market is set to process the January 2024 Philippine inflation data (estimated at 3.1%; December 2023: 3.9%) and labor data, which could foster a positive sentiment in the market. However, potential gains might be limited due to the expected rise in local fuel prices for the fifth consecutive week.

Internationally, investors will be closely observing developments in the Red Sea, following the new attacks launched by the United States and the United Kingdom against Houthi rebels in Yemen. Furthermore, as the week progresses, investors may engage in profit taking to position themselves ahead of the long weekend.

Resistance: 6,800/7,100

Support: 6,600/6,400

ANALYSIS

The PSEi surged by +0.32% w-o-w to close at 6,707.25. The benchmark index sustained its rally breaking above 6,700 resistance level. The market is trading above key moving averages (50-day, 100-day, and 200 -day) and is poised to revisit the next resistance level. If the PSEi continues its ascent, it can retest next resistance levels at 6,800 and 7,100. Otherwise, it can retrace the next support levels at 6,600 to 6,400.

STOCK CALLS FOR THE WEEK

D&L Industries, Inc.* BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 8.27

D&L Industries, Inc. (DNL) is poised to benefit from the Department of Energy’s (DOE) mandate to increase the country’s biodiesel or Coco Methyl Ester (CME) mix in gasoline and diesel after a decade-long delay.

Starting July 1, 2024, the biodiesel blend will increase from 2% (B2) and will incrementally rise up to 5% (B5) on July 1, 2026. Regarding price action, DNL formed a double bottom chart pattern between October 2023 and January 2024. A double bottom pattern is a classic technical analysis chart formation that signals a major change in trend and a reversal of momentum from a prior downtrend.

This could indicate a bullish reversal for the stock after trading in a downward channel since February 2023. Currently, DNL is trading above its key moving averages (MA) (20-day, 50-day, and 100-day), and a break above its 200-day MA may signify the beginning of an upward price trend for the stock.

For those looking to enter, it is advisable to accumulate once DNL breaks above its 200-day MA of PHP 6.85 to its immediate resistance at PHP 6.90 on high volume. Take profits at PHP 7.88 and set stop-loss orders at PHP 6.30.

Shakey’s Pizza Asia Ventures, Inc.* TRAILING STOPS | CONSENSUS TARGET PRICE: PHP 12.70

In the recent rebalancing by the Philippine Stock Exchange (PSE), Shakey’s Pizza Asia Ventures, Inc. (PIZZA) is slated to be added to the industrial sectoral index, effective February 5, 2024. Shortly after the inclusion announcement in the Industrial index, the stock price rose to its 52-week high of PHP 10.70, signifying a positive market response to the counter.

In terms of technicals, PIZZA is consolidating with an upward bias and remains above its key moving averages (50-day, 100-day, and 200-day). In the short-term, the stock has established support around its 20-day MA. With the stock currently nearing overbought levels (RSI: 68.50) and a downside potential of 10% based on consensus target price, we recommend cautious trading and advise implementing strict risk management for those with profitable positions.

Investors with exposure to the counter should also implement risk management strategies and trailing stops ahead of the index inclusion. For those looking to increase their exposure, it’s advisable to wait for better entry points after the effectivity of the PSEi rebalancing. We would prefer to accumulate once the stock consolidates closer to the 100-day MA, which is at PHP 9.60.

EEI Corp.* BUY ON PULLBACKS | FMSEC TARGET PRICE: PHP 5.75

EEI Corp. (EEI) approved an additional investment of PHP 1.46 billion to its wholly owned subsidiary, EEI Limited, to fund its overseas expansion projects. EEI said that it is interested in participating in Saudi Arabia’s Vision 2030 — a roadmap to transform and diversify the Kingdom of Saudi Arabia’s (KSA) economy by shifting its focus to future growth industries and gearing away from its reliance on oil.

For the most part of the 2nd half of 2023, EEI was range trading between PHP 4.54 to PHP 5.05. After EEI broke the upper bound of the range, the stock rallied and is currently continuing its upward momentum. The stock is currently on an upward channel and is hovering above key moving averages (50-day, 100-day, and 200-day).

Accumulate once EEI pulls back and bounces off the lower trend line around the 50-day MA to the PHP 5.90 support level. Set the stop loss limit below PHP 5.43 and take profits around PHP 6.79.

KEY DATA RELEASES

1. PH inflation rate for January 2024 on Tuesday, February 6, 2024 (estimates: 3.1%; December 2023: 3.9%)

2. PH unemployment rate for December 2023 on Wednesday, February 7, 2024 (November 2023: 3.6%)

3. PH Money Supply M3 SRF y-o-y for December 2023 on Thursday, February 8, 2024 (November 2023: 7%)

4. PH Bank Lending y-o-y for December 2023 on Thursday, February 8, 2024 (November 2023: 8.3%)

5. PH Bank Lending net of RRPs y-o-y for December 2023 on Thursday, February 8, 2024 (November 2023: 7.0%)

6. US initial jobless claims as of February 3, 2024, on Thursday, February 8, 2024