Stock Market Weekly: Waiting game for key data and earnings releases

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) ended the volatile week higher by 1.44% to 7,415.73 (+105.41 points). Early gains were driven by value-buying and optimism surrounding the expected 25-basis-point (bp) cut by the Bangko Sentral ng Pilipinas (BSP) in its October policy meeting.

However, the market pulled back midweek despite the rate cut, as investors passively received the widely anticipated reduction, which brought the key rate to 6%. While the BSP lowered its 2024 inflation forecast to 3.1% (from 3.3%), it raised projections for 2025 and 2026 to 3.3% and 3.7%, respectively, potentially reversing earlier market optimism.

Sentiment was also weighed down by the Philippine peso slipping back to the 57-level against the US dollar. Despite this, the market managed to recover slightly towards the end of the week, closing with a modest gain. Foreign investors alternated between net buying and selling, while overall turnover remained thin, reflecting ongoing concerns on both local and global economic conditions.

WHAT TO EXPECT THIS WEEK

This week, we anticipate the PSEi to trade sideways with a slight upward bias as investors await key data and earnings releases. In the absence of market-moving catalysts, the index is likely to build on the BSP’s interest rate decision from last week and will likely follow Wall Street’s lead, where both the S&P 500 and the Dow Jones Industrial Average (DJIA) surged to new record highs last Friday amid stronger-than-expected earnings reports.

Additionally, some relief is expected, with gasoline prices projected to drop by PHP 0.50 to PHP 0.75, diesel by PHP 1.00 to PHP 1.15, and kerosene by PHP 0.90 to PHP 1.00, following four consecutive weeks of increases.

Resistance: 7,450 / 7,550

Support: 7,300

ANALYSIS

The PSEi rose by 1.44% week-on-week (WoW), closing at 7,415.73 (+105.41 points). The index bounced back from the prior week’s steep decline after hitting the 7,300 support and uptrend line. While the bourse remains in an uptrend, trading above key moving averages (200-day, 100-day, and 50-day), momentum indicators have signaled short-term weakness marked by bearish divergences. With this, we expect the index to consolidate as it hovers at the top end of its pandemic range.

STOCK CALLS FOR THE WEEK

Bank of the Philippine Islands | TRAILING STOPS | FMSEC TARGET PRICE: PHP 141.00

BPI is currently trading around PHP 140.00, which aligns with our fundamental target price. The stock recently tested the resistance level at PHP 145.00 but failed to break above it. Despite trading above key moving averages (20-day, 50-day, 100-day, and 200-day), momentum indicators suggest that a pullback may be likely.

The MACD line, a technical indicator, has crossed below the signal line, indicating a bearish crossover. Meanwhile, the RSI remains within the neutral range, indicating the stock is neither overbought nor oversold. On price movement, a previous upward trend line was broken, indicating that the strong bullish momentum has weakened. Hence, at current levels, we recommend implementing trailing stops. For those with positions, the trailing stops will help to protect profits and manage risk.

Emperador Inc. | BUY ON BREAKOUT | FMSEC Target Price: PHP16.20

EMI has been trading sideways between PHP 18.50 to PHP 18.90 since March 2024, with the technical indicator RSI at 43.58, signaling that the counter is nearing oversold conditions. While the stock is in consolidation, a definitive breakout above or below these levels, accompanied by increased volume, could signal a potential uptrend reversal.

We acknowledge that investor interest in the stock is currently muted. Therefore, we recommend buying EMI once it breaks out of its range, supported by strong trading volume. Accumulating once EMI breaks out of its range at PHP 18.91 with strong volume is advisable. Take profits at PHP 21.75 and set stop loss limits below PHP 17.39.

MREIT, Inc. | BUY ON BREAKOUT | FMSEC Target Price: PHP 14.06

MREIT is forming a bullish rounding bottom pattern between April and October 2024, with the price approaching a crucial resistance level at PHP 14.15. This pattern suggests a gradual shift in market sentiment from bearish to bullish. Currently, the stock is trading above key moving averages (20-day, 50-day, 100-day, and 200-day), reinforcing the bullish outlook, while momentum indicators are also pointing upwards.

A break above the resistance, especially if accompanied by increasing volume, would likely confirm the continuation of the uptrend. Accumulating MREIT once it breaks above PHP 14.15 is advisable. Take profits at PHP 16.20 and set stop loss limits below PHP 13.00.

KEY DATA RELEASES

1. US Money Supply for September 2024 on Wednesday, October 23, 2024.

2. PH Budget Balance for September 2024 on Thursday, October 24, 2024 (previous: PHP 54.2 billion).

3. US Initial Jobless Claims as of October 19, 2024, on Thursday, October 24, 2024 (estimates: 245k; previous: 241k).

4. US S&P Global Manufacturing PMI Flash for October 2024 on Thursday, October 24, 2024 (estimates: 48.2; previous: 47.3).