Cautious trading seen this week

MANILA, Philippines—Local stocks are seen trading with caution this week as continuing uncertainties in the United States and Europe will keep the main index struggling to stay above 4,000.

Last week, the main-share Philippine Stock Exchange index rose 0.3 percent to 4,009.26 as low valuations started to attract bargain hunters.

Chart-wise, last week’s close suggested the market has still some energy to try the 4,050-4,100 level in the near term, according to Banco de Oro Unibank chief strategist Jonathan Ravelas.

“However, the recent market rally is still viewed as a mere technical rebound as market volume remains anemic. A clear break above 4,250 is needed to put the bulls back to play. Failure of the market to clear [this] level could call for a retest of the 3,800,” Ravelas said.

Local stockbrokerage AB Capital Securities said the market would likely take its cue from developments abroad.

Wall Street snapped out of a three-day rally on Friday as investors fretted over a downgrading of sovereign credit ratings on Italy and Spain. The Dow Jones industrial average shed 20.21 points, or 0.2 percent, to finish at 11,103.12.

“We are not yet out of the woods,” AB Capital Securities said. “The European financial crisis seems to be far from over while the US and even the Chinese economies look fragile.”

AB Capital Securities said the PSEi had turned bearish technically when it breached several key support levels two weeks ago.

“With the bearish tone in the market likely to persist, it will be important to take note of where the next key support levels will be. The initial support for the PSEi is at the 3,700 level, where it held support during the sell-off of last month. However, we believe that the said support is fragile and should give in on the next try,” it said.

Citing Fibonacci retracement from its lows of March 2009 to its recent all-time highs, AB Capital Securities said the key support levels to watch out for would be 3,500 (38.2-percent retracement) and 3,170 (50-percent retracement).

“It’s important to test the said support levels and wait for a more solid base buildup before buying aggressively,” it said.