Slow trading seen

Local stocks are seen entering a consolidation phase this week as investors reassess their portfolios amid prospects of slower growth and higher inflation in the country.

Last week, the Philippine Stock Exchange index (PSEi) gained 114.94 points or 1.73 percent to close on Friday at 6,762.62 as upbeat US markets and favorable China data boosted risk-taking.

“Chartwise, the index tested the 6,800 level but failed to sustain it due to profit-taking. Expect the index to consolidate between the 6,650-6,850 levels in the week ahead,” said Banco de Oro Unibank chief strategist Jonathan Ravelas.

After posting a softer-than-expected first-quarter growth of 5.7 percent, it was reported last week that the country’s inflation rate rose to 4.5 percent in May, its highest level since November 2011. This was faster than April’s 4.1 percent and May’s 2.6 percent inflation rate, thereby raising expectations of further monetary tightening by the Bangko Sentral ng Pilipinas.

Joyce Anne Ramos, an analyst at AB Capital Securities, said that on a technical perspective, the local stock market was showing corrective or consolidating readings.

“A bearish divergence has been forming in the past few months where the index has been posting higher highs but the MACD (moving average convergence divergence) line forms lower highs,” Ramos said.

After breaching the five-month upward trend channel last week as a knee-jerk response to the lower-than-expected GDP, she said the index had jumped back again within the channel to retest the 6,800 level.

With this recent formations, AB Capital sees two possible scenarios. “The first scenario could be the index momentarily consolidating between the 6,640 to 6,800 level, where in a breakout could push up the resistance level back to 6,900. In this scenario and at the current level of the index, we advise clients to profit-take near the resistance levels and wait for pullback before accumulating,” Ramos said.

The second scenario seen by AB Capital is the index forming lower intraday highs and lows toward a short-term correction breaching 6,600. “In this scenario, we advise profit taking and wait for a breach of the downward trend line before repositioning,” she said.

Ramos said that among the data coming out this week would be the latest Philippine unemployment rate, US retail sales and producer price index and Japan’s final gross domestic product and monetary policy statement. Doris C. Dumlao