Stock Market Weekly: Sideways trading with a downward bias likely 

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) concluded a volatile trading week in negative territory, declining by 2.3% week-on-week (WoW) to 6,977.18 (-165.78 points). Early in the week, market sentiment was buoyed by Oct 2024 inflation data, which came in at 2.3%, aligning with consensus expectations and remaining within the Bangko Sentral ng Pilipinas’ (BSP) target range of 2- 4%.

Additionally, September 2024 unemployment declined to 3.7% from Aug 2024’s 4.0%, outperforming the estimated 4.4%. However, bearish sentiment prevailed following a series of risk events: (i) a likely Republican sweep in the US elections, leading to market concerns over potential tariffs and protectionist trade policies; and (ii) the Philippines’ 3Q 2024 GDP growth missing expectations at 5.2%, below the consensus forecast of 5.7% and the government’s target range of 6-7%.

Meanwhile, the reaction to the MSCI quarterly rebalancing was largely muted, with no significant changes to the index composition. Persistent risk-off sentiment pushed the main gauge back below the 7,000 level by the end of the week, although the US Federal Reserve’s anticipated 25-basis-point rate cut helped limit further losses.

WHAT TO EXPECT THIS WEEK

This week, we expect the local bourse to trade sideways with a downward tilt on the lack of significant catalysts to reverse bearish sentiment. Overall market performance is likely to closely track the earnings results of several index heavyweights.

However, rising US Treasury bond yields and a strengthened US dollar following the Republican victory may continue to weigh on local sentiment – especially as some think tanks expect the peso’s continued depreciation to put the BSP’s easing cycle on hold. Nonetheless, the downside may be capped as investors continue to digest local economic data, with lower unemployment and recovering household consumption signaling broader economic recovery.

Moreover, barring a trade war between the US and China, economists expect that Asian markets may stand to gain market share on exports as Trump’s promised tariffs on China trigger reorganizations in global supply chains.

Support: 100-day MA/6,800

Resistance: 7,100/7,200

ANALYSIS

The PSEi dropped by 2.32% WoW, closing at 6,977.18 (-165.78 points). The index broke below key support level of 7,000 following large foreign selling pressure. It is currently trying to find a near-term bottom with momentum indicators nearing overbought levels, signaling a potential near-term recovery.

TRADING PLAN

Consider test buying near support levels around the 100-day-MA and 200-day MA between 6,900 and 6,800.

STOCK PICKS FOR THE WEEK

Converge ICT Solutions, Inc.| BUY FMSEC TARGET PRICE: PHP 20.50

CNVRG has crossed below its 20-day and 50-day moving averages (MA) after nearly two months of trading within a range, largely on a lack of catalysts to drive the stock further upward. Nonetheless, although momentum indicators suggest a lack of significant movement, the stock remains above its 100-day and 200- day MAs.

As such, long-term bullish momentum has yet to peak. We view recent price weakness as an opportunity to accumulate the stock, with our fundamental target price of PHP 20.50, implying >30% upside. Accumulating at current levels is advised. Take profits 15% above average cost and set stop-loss limits 8% below average cost. For long-term investors, we have a fundamental target price of PHP 20.50 (+32.43% upside from recent close).

Manila Electric Company | BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 471.57

MER reached an all-time high stock price last month at PHP 503.50. Furthermore, MER has formed a symmetrical triangle pattern, indicating that the bullish momentum might continue. It is currently above all key moving averages (20-day, 50- day, 100-day, and 200-day). However, the RSI is neutral and the MACD remains below the signal line, suggesting a lack of significant movement. Accumulating MER once it pulls back around the PHP490 level is advisable.

Take profits 15% above your entry price and set stop loss limits 8% below your entry price

Robinsons Retail Holdings, Inc. | BUY ON BREAKOUT | FMSEC TARGET PRICE: PHP 47.00

RRHI is currently trading below the 20- day and 50- day moving averages (MA), while remaining above the 100-day and 200-day MA. In terms of momentum, the RSI suggests that the stock is approaching oversold territory, while the downward trending MACD indicates lack of significant movement. Nevertheless, a clear breakout above the PHP 41.23 level, accompanied by increased volume, could indicate a potential uptrend reversal.

On a fundamental note, we anticipate an upside to PHP 47.00 as management indicated signs of turnaround on SSSG improvement and increased holiday spending. We recommend accumulating RRHI once it breaks above PHP 41.23 with strong volume. Take profits at PHP 47.00 and set stop loss limits below PHP 38.00.

KEY DATA RELEASES

1. US Inflation Rate year-on-year for October on Wednesday, November 13, 2024 (estimates: 2.6%; previous: 2.4%)

2. PH Cash Remittances for September on Friday, November 15, 2024 (estimates: USD 2.8 billion; previous: USD 2.89 billion).