Stock Market Weekly: Rising bond yields, ascent of the US dollar to weigh on local stocks 

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) declined by 3.25% week-on-week (w-o-w), closing at 6,443 (-216.39 points). This marked the third consecutive week of losses. The market was predominantly in the red, driven by a risk-off sentiment due to escalating geopolitical tensions in the Middle East and indications of delayed and shallower rate cuts from both the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP).

Additionally, the Philippine peso weakened against the US dollar, breaking the PHP 57.00 per US dollar exchange rate. Foreign investors continued their selling streak for the 11th consecutive trading day, with net selling reaching PHP 3.3 billion.

WHAT TO EXPECT THIS WEEK

In the coming week, we anticipate the market to trade sideways with a downward bias as investors focus on rising bond yields and the strength of the US dollar. Investors will also be keeping an eye on local earnings releases and key economic data such as the Philippine Budget Balance, US GDP, and US manufacturing Purchasing Managers’ Index (PMI).

Local fuel prices are projected to show mixed trends in the upcoming week, with gasoline and diesel prices expected to rise by about PHP 0.60/liter and PHP 0.85/liter, respectively, while kerosene prices are expected to decrease by PHP 0.85/liter.

Resistance: 6,500/6,700

Support: 6,400/6,200

ANALYSIS

The PSEi retreated by -3.25% w-o-w to close at 6,443.00, dropping for three consecutive weeks. The market broke below the key moving averages (50-day, 100-day, and 200-day), forming a downward channel. Momentum turned bearish as the market hovers close to oversold levels (RSI: 31.8) with the technical indicator MACD continuing to trade below zero and the signal line. If the bears dominate, it can retrace the next support levels at 6,400 to 6,200. If positive sentiment emerges, the PSEi could retest next resistance levels around 6,500 and 6,700.

STOCK CALLS FOR THE WEEK

Aboitiz Power Corp. | BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 42.20

AP formed a gap-down pattern following its ex-dividend date last March 18, 2024. The stock dropped but rebounded 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 PHP 34.74 to PHP 35.20 support levels. Set stop-limit orders below PHP 31.96 and take profits around PHP 39.95.

DigiPlus Interactive Corp. | BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 15.80

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 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 your average price.

Manila Electric Company | BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 398.50

For the most part of 2023, MER rallied by as much as 43% to reach an all-time high at 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 neckline 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 orders around PHP 295.32 and take profits around PHP 369.15.

KEY DATA RELEASES

1. US S&P Global Preliminary Manufacturing PMI for April 2024 on Tuesday, April 23, 2024 (estimates: 51.8; prior: 51.9)

2. PH Budget Balance for March 2024, on Wednesday, April 24, 2024

3. US GDP annualized q-o-q for the 1st quarter of 2024 on Thursday, April 25, 2024 (estimates: 2.3%; prior: 3.4%)

4. US Core Personal Consumption Expenditures (PCE) q-o-q for the 1st quarter of 2024 on Thursday, April 25, 2024 (prior: 2.0%)

5. US Initial Jobless Claims as of April 20, 2024, on Thursday, April 25, 2024 (previous: 212k)