FREE Report: PSEi’s long-term picture remains weak

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Recommendation

The Philippine Stock Exchange index (PSEi) has been in a short-term uptrend since bottoming in early October 2022. The current bullish run-up, though, which has all major moving averages trending up, is still considered a bear market rally. The longer-term and bigger picture trend of the PSEi unfortunately remains to be weak.

Analysis and Recommendation

The sustainability of the current shorter term rally was tested and the PSEi broke a triple-layered support at around the 6,800 level. The latter was the support of the current uptrend channel and an old triple top resistance.

Given the confluence of support levels and with stochastic oscillators nearing oversold levels, the 6,800 level is considered as a relevant support. If the PSEi fails to recover even as the oscillators are already oversold, we may even see the index pull back to a new support target of 6,533.

Recent candlestick formations were giving mixed signals as only 54% of the trading sessions developed into bullish light shaded candles. However, the PSEi showed a bias on the downside as it was touching the lower end of its Bollinger Bands.

Providing a negative backdrop for the market recently is the hot US inflation report, which showed a spike in US consumer prices. US inflation soared to 0.5% month on month in January and pushes back the Fed’s date of achieving its terminal inflation rate of 2%.

US Treasury yields moved higher with the 6-month U.S. Treasury above 5% for the first time since July 2007. If the PSEi fails to recover even as the oscillators are already oversold, we may see it pull back to a measured target of 6,533. The latter is also the 78.6% Fibonacci retracement.

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