Cautious trading to continue

Local stocks are seen trading with caution this week, the second week of the so-called “ghost month,” while awaiting fresh catalysts from the stream of second-quarter corporate earnings results.

The Philippine Stock Exchange index (PSEi) ended nearly flat week-on-week on Friday at 6,894.23, 4.68 points higher than the previous week’s level but stood resilient to a global equities retreat led by a pullback in US stocks.

“As the ghost month has officially started, we expect the market to continue moving sideways, although now at a wider trading band as the second-quarter corporate earnings reports are already starting to pour in. We expect to see slightly increased volume as market participants take their positions, taking into account the surge of released data,” said AB Capital Securities analyst Joyce Ann Ramos.

This year, the ghost month period began last July 27 (Sunday) and will end on Aug. 24. This refers to the seventh month of the lunar calendar that, to the Chinese, is considered an unlucky period to start a business, get married or engage in a new investment. It is a period when trading volume thins out across global stock markets as it also coincides with the period when Western fund managers usually take long summer vacations.

Jonathan Ravelas, chief strategist at Banco de Oro Unibank, said that despite the huge selloff in Wall Street and the increase in the Bangko Sentral ng Pilipinas’ policy rates, the index managed to move higher on Friday, bucking the regional trend. “It seems that the market has already factored in the higher interest rates,” he said.

The inflation-targeting Bangko Sentral last week raised its key overnight borrowing and lending rates by 25 basis points in a bid to contain inflationary pressures.

This week’s movements would be guided by the release of second-quarter corporate earnings, Ravelas said. “Chartwise, continue to expect the index to remain range-bound between the 6,800-7,000 levels in the week ahead,” he said.

AB Capital Securities’ Ramos said the release of second-quarter corporate earnings reports would guide market participants on whether to push the market back to and past the 7,000 level or not.

“Recall that the index failed to breach or remain at the 7,000 level due to valuation concerns. On a technical basis, the index has not moved much and remained below the 6,900 level. This kept the negative divergence in the Moving Average Convergence Divergence (MACD) indicator still intact,” she said. Doris C. Dumlao