General / Inter Market Analysis


Inching Higher
By Fitz Aclan
May 14, 2008


Is there a silver lining in the horizon for our market?

Despite the high inflation numbers that came out last week, the PSEi has decided to move higher in a strange twist of fate. What could be the reason for this?

Obviously the key here is bargain hunters as most issues have already been driven down to undervalued levels. It is likely the market is moving ahead and discounted the higher inflation figures. This is of course, still speculation given that fundamentals have not moved in conjunction with the technicals. This should come as no surprise since this is the way these two do their dance.

Actually, the technicals are showing us a bottoming out with a bullish divergence, a good indication that the market has the potential to reverse the trend since it measures momentum change in relation to changes in price over time.

Market players might be seeing the inflation numbers in relation to the rice shortage, which many see as only temporary what with the upcoming harvest and arrival of rice imports into the country. If the expected wage hike falls within government expectations, it would not have any structural impact on inflation numbers.

It is also important to remember that prices in the PSEi has already fallen more than 25 percent since the start of the year. Many see that the market has declined too far with prices already factoring into the negative development of high inflation.

Looking outside the country, the US markets are actually stabilizing. The Dow Jones already tested the 13,000 level last week. The daily charts also show a small upward trend since February.

All in all, it is still too early to call a reversal here until the key resistance levels of 3,050 and 3,250 are broken. But the change of pace in the PSEi is indeed encouraging.

Traders entering the market at this point face a favorable risk to reward profile with a downside risk limited to around 2,500-2,600 but a potential upside of 3,400-3,600.   

Are you ready for the ride?

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