Stock Market Weekly: Sideways with a downward bias 

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) dropped by 2.82% (-186.79 points) week-on-week (w/w), hitting a year-to-date low of 6,371.25 on Wednesday, before closing at 6,433.10 at the end of the trading week. The benchmark index remained in the red for most of the week due to a number of negative leads, including: i) hawkish statements from the US Fed and Bangko Sentral ng Pilipinas (BSP); ii) the latest Monetary Policy Report indicating the BSP expects the economy to miss the government’s target growth for 2024/2025; iii) further depreciation of the Philippine peso (PHP) against the US dollar (USD); and iv) the implementation of the May 2024 MSCI Quarterly Index Review, which resulted in a country downweight of 0.027% for the Philippines.

Investors also digested remarks from BSP Senior Assistant Governor Iluminada T. Sicat on persistent inflation risks, prompting the BSP to maintain a “restrictive” policy stance. Additionally, the peso hit a new 18-month low of PHP 58.635/US dollar, its worst showing since November 2022 (PHP 58.80), amid the surge in US Treasury yields. The local bourse, nevertheless, ended the week in the green on bargain hunting, following the market’s five consecutive days of decline.

WHAT TO EXPECT THIS WEEK

This week, we anticipate the benchmark index to trade sideways with a downward bias due to the absence of positive catalysts and in anticipation of key local economic data releases. Locally, market participants will closely monitor the May inflation print (estimates: 4.0%; April 2024: 3.8%) and April 2024 unemployment rate (March 2024: 3.9%).

The BSP said that it expects inflation to breach above its 2.0%-4.0% target, estimating the monthly print to range between 3.7%-4.5% in May, attributed to electricity rate hikes, higher vegetable prices, and a weaker peso. Earlier, Governor Eli Remolona Jr. noted that inflation is expected to peak in May and eventually decline in the following months.

Internationally, investors will digest the US May Unemployment Rate, which is expected to be unchanged at 3.9% month-on-month (m/m). Elsewhere, mixed oil price movements are anticipated this week, with gasoline potentially decreasing by as much as PHP 0.90/liter, while diesel and kerosene are expected to increase by as much as PHP 0.60/liter and PHP 0.90/liter, respectively.

Resistance: 6,700/6,800

Support: 6,500/6,400

ANALYSIS

The PSEi dropped by 2.82% w/w to close at 6,433.10 (-186.79 points). The index plunged to its lowest close year-to-date, erasing all the gains it made early in the year. The index finally broke below the 6,500 and 200-day moving average (MA) support region. If the bears continue to dominate, the PSEi could retest the next support levels around 6,400 to 6,200. Otherwise, if the bulls dominate, the PSEi could retrace the next resistance levels around 6,500 and 6,700.

STOCK CALLS FOR THE WEEK

China Banking Corp. (CHIB) | BUY | NO CONSENSUS TARGET PRICE

After breaking out of its consolidation between PHP 30.00 to PHP 31.60, CHIB rallied and continued to trade in an uptrend, creating an upward channel. Furthermore, the stock is hovering above the 50-, 100-, and 200-day moving averages (MAs), confirming its strong upward momentum. However, with the stock currently at overbought conditions (RSI: 72.6), a correction may ensue. Accumulate CHIB once it pulls back around PHP 38.50. Set stop-limit orders around PHP 35.42 and take profits around PHP 44.28.

Nickel Asia Corp. (NIKL) | BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 5.07

NIKL has been in a long-term downtrend, declining by 25% year-to-date. It is currently below key long-term moving averages (100-day and 200-day). Recently, it has bounced back from its three-year low of PHP 3.78 as it reached oversold levels with RSI currently at ~60. Moreover, NIKL has also formed a potential widening accumulation cylinder pattern alongside a MACD reversal, signaling a change in momentum. Investors can trade the widening cylinder by accumulating at the lower trend line support. Take profits 15% above your average cost and set stop-loss limits 8% below your average cost.

Apex Mining Corp. (APX) | BUY | NO CONSENSUS TARGET PRICE

In a span of a few months, APX rallied by as much as 69.45%, as it was trading at around PHP 2.48 in March, to reach a multi-year high at PHP 4.20 as of May 16, 2024. The bullish momentum is expected to continue as investors take interest in the stock amid the current economic volatile backdrop. However, we anticipate a healthy correction to ensue as the counter trades in overbought levels before it breaks above its resistance at PHP 4.20. Based on Fibonacci retracement, the stock may pull back to PHP 3.80 which could be an advisable entry point. Accumulate once APX pulls back to PHP 3.80. Set stop-loss limit orders at PHP 3.50 and take profit around PHP 4.37.

KEY DATA RELEASES

1. PH S&P Manufacturing PMI for May 2024 on Monday, June 3, 2024 (previous: 52.2)

2. US S&P Manufacturing PMI for May 2024 on Monday, June 3, 2024 (previous: 50.9)

3. PH CPI y/y for May 2024 on Wednesday, June 5, 2024 (estimates: 4.0%; April 2024: 3.8%)

4. PH Unemployment Rate for April 2024 on Thursday, June 6, 2024 (previous: 3.9%)

5. US Initial Jobless Claims as of June 1, 2024 on Thursday, June 6, 2024 (previous: 219k)

6. US Unemployment Rate on Friday, June 7, 2024 (estimates: 3.9%; previous: 3.9%).