Cautious trading to continue

LOCAL stocks are seen to trade with caution this week as global markets brace for an earlier-than-expected US interest rate increase.

Last week, the Philippine Stock Exchange index (PSEi) fell by 1.85 percent to end on Friday at 7,299.03 as a hawkish signal from the US Federal Reserve drowned out news about the Philippines’ robust 6.9-percent gross domestic product (GDP) growth in the first quarter.

Banco de Oro Unibank chief strategist Jonathan Ravelas said investors had taken the recent GDP report as an excuse to take profits. “Despite the strong performance, the recent moves in the stock market appears excessive relative to its earnings. First-quarter 2016 earnings were better than expected but are not enough to support stretched valuations,” Ravelas said.

“Chartwise, continue to see further weakness toward the 7,000-7,200 levels in the week ahead. Any pullback, if at all, is limited to 7,370-7,450 levels,” Ravelas said.

Luis Gerardo Limlingan, managing director at Regina Capital Development, said that if the PSEi would fail to recover to the 7,300 levels, further declines could be seen toward the 7,250-7,200 levels where the 20- and 50-day moving averages were located.

“These averages are crucial support points as failure to hold will pull prices back to its long-term moving average (200-day moving average) which is currently at 7,020,” Limlingan said.

“If support holds, however, it will establish a higher low base, which will trigger rallies back to its weekly highs,” he said.

Limlingan said volatility remained a concern, which meant sharp intraday movements could be expected this week.

“On top of that, trend bias is bearish so support breakdowns might be a common sight this week. As such, traders should lighten up positions during intraday recovery and wait for prices to stabilize before reentering. Putting tight stops on issues still trading near resistance are advised to protect gains,” he said.

Last week, a hawkish US Fed suggested that it might raise rates by June or July, adding to profit-taking pressures. Political jitters as presumptive President-elect Rodrigo Duterte assembles his Cabinet have also affected the market. Doris Dumlao-Abadilla

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