Of dead cats, bears and horses: PSEi remains a jungle of doubt
Entering the third week of a Luzon-wide lockdown due to the new coronavirus disease (COVID-19) crisis, the stock market is seen to trade with more caution as last week’s big rally opened more opportunities for profit-taking.
The Philippine Stock Exchange index (PSEi) gained 487.86 points or 10 percent last week to close at 5,266.62 as investors pinned their hopes on a massive COVID-19 spending program in the United States and in other parts of the world. This marked the PSEi’s first weekly gain in five weeks, allowing corporate Philippines to claw back about P796 billion worth of market capitalization.
BDO Unibank chief strategist Jonathan Ravelas said: “Investor confidence is coming back after all the king’s men and all the king’s horses are moving together to shore up the local and global economy.”
However, Ravelas said last week’s technical rally was but a “dead cat bounce,” a temporary recovery of asset prices in a bear market.
While the US rally helped dispel some of the gloom, Ravelas noted the reprieve was temporary since the pandemic was still spreading locally and globally.
“Pullback is due following its sharp rally off its 4,039 low. As of Friday, the index has encountered a psychological resistance at the 38.2 percent Fibonacci retracement level of its down leg since November 2019,” said Ron Acoba, chief strategist at equities research provider Trading Edge.
Fibonacci retracement is a popular tool that technical traders employ to identify support and resistance levels and to place stop-loss orders or target prices.
“While an extension of its rally is still possible, note that we are already on a notable bear wave. Given that, any rally should be assumed to be just temporary,” Acoba added.
Ravelas said the week’s close at 5,266.62 showed the technical rebound may still have some gas to try hitting the 5,500-5,800 levels in the near term. “Expect some profit-taking as we near said levels,” Ravelas said.
The bearish stock market has now fallen by 3,792 points or 41.9 percent from the highest closing rate of 9,058.62 on Jan. 29, 2018.
The PSEi has lost since the start of the year 2,548.64 points or 32.6 percent from last year’s finish of 7,815.26. —DORIS DUMLAO-ABADILLA INQ
