Stock Market Weekly: Sideways Trading Ahead

WHAT HAPPENED LAST WEEK 

The Philippine Stock Exchange index (PSEi) closed 367.16 points higher at 6,746.33, up 5.76% week-on-week. Our local bourse rose along with Asian peers following China’s slashing of its five-year loan prime rate by 15 basis points (bps) to 4.55%.  

Positive sentiment in the US markets likewise spilled over to local investors. The PSEi enjoyed a three-day win streak early in the early part of the week, with foreign net buying returning for the first time in eight sessions on Wednesday.  

Profit taking ensued on Thursday due to a decline on Wall Street amid global stagflation concerns. The local market ended in the green on Friday following the BSP’s raising of interest rates by 25 bps to 2.25%, a move expected by 14 out of 21 economists surveyed by Bloomberg. 

Top index performers were Globe Telecom (GLO) which was up by 13.9%; AC Energy Corporation (ACEN), up by 13.3%; and Monde Nissin Corporation (MONDE), up by 11.3%. Index laggards were Alliance Global Group Inc. (AGI), down by 5.7%; and Emperador Inc. (EMP), down by 3.2%. The index breadth was positive with 28 gainers versus two losers. The average daily turnover value was PHP 7.2 billion. Foreigners were net sellers amounting to PHP 515 million. 

WHAT TO EXPECT THIS WEEK 

The market is expected to trade sideways. Investors may remain on the sidelines as they await more earnings reports from US retailers, who may exhibit the effects of inflation and supply chain disruptions on the economy. Investors will also watch out for the second reading of the US annualized first quarter 2022 GDP and the Federal Open Market Committee’s (FOMC’s) minutes of the meeting on Thursday. On the local front, investors will be monitoring the developments of the COVID-19 Omicron sub-variant BA.4 which is considered a “variant of concern”, and the local transmission of the more transmissible BA.2.12.1. 

STOCK PICKS FOR THE WEEK 

1) DMCI Holdings, Inc. (DMC) — BUY 

Semirara Mining and Power Corp. (SCC), DMCI Power, and DMCI Mining are expected to sustain their earnings growth this year as coal sales volume and energy prices remain elevated due to the ongoing global supply disruptions and surge in demand. For DMCI Homes, management expects sales to improve and cancellations to taper as the economy recovers. DMC’s share price managed to stay above key support levels despite ongoing market volatility. Accumulating DMC shares from PHP 8.10 to PHP 7.90 is advisable. Set cut loss below PHP 7.55. Take profit at around PHP 9.00/PHP 9.50.  

2) Bloomberry Resorts Corp. (BLOOM) — BUY 

Casino operators, especially Bloomberry, are poised to benefit from the policy that allows vaccinated foreigners to enter the Philippines. Similarly, the low cases in Metro Manila allow Bloomberry to resume activities to full capacity for as long as the company complies with minimum health standards. Its share price is looking to retest its resistance level after bouncing off its recent support price. Accumulating shares once the stock breaks above PHP 6.80 is advisable. Set stop limit orders below PHP 6.30. Take profit at around PHP 7.80 to PHP 8.00. 

3) Metro Pacific Investments Corp. (MPI) — BUY 

Manila Electric Co. (MER) emphasized that its sales volume growth target is between 5 – 6% this year, assuming restrictions will not be tightened. As for the toll segment, management said that traffic volume in April 2022 for some of its toll locations has already exceeded the volume in April 2019. Management added that they are hopeful that their pending toll rate hike applications for the Cavite Expressway (Cavitex), North Luzon Expressway (NLEX), and Subic-Clar-Tarlac Expressway (SCTEX) will be approved in May 2022. As for the water business, Maynilad Water Services, Inc. (Maynilad) expects water supply to further improve in the second quarter of 2022 amid the start of the La Niña season. MPI’s share price is still trading sideways. Accumulating MPI shares once it breaks above the PHP 4.00 resistance is advisable. Set cut loss below PHP 3.65. Take profit at around PHP 4.50/PHP 4.60.  

PSEi TECHNICAL ANALYSIS 

Resistance: 6,800 / 7,200 

Support: 6,400 / 6,180  

The PSEi rebounded as expected amid a technical bounce after the market hovered at oversold levels for the first time since January 2021. The PSEi may attempt to break above its resistance level of 6,800, the 100-day, and 200-day moving averages (MAs). However, it is still not out of the woods. A break above 6,800 will likely result in a retest of the 7,200 levels. Failure to break out may lead to a pullback to 6,400. 

TRADING PLAN 

Continue setting stop limit orders, especially below 6,400 to protect capital. Support levels are currently at 6,400/6,180. 

KEY DATA RELEASES 

Thursday, May 26, 2022
– US second reading of GDP annualised quarter-on-quarter for 1Q2022 (-1.3% est., -1.4% on first reading)
– FOMC minutes of the meeting 

Friday, May 27, 2022
– Corporate Earnings: Alliance Global Group, Inc. (AGI)