By Benedict Sylianteng

Initially, I was eyeing the 2,000-2,200 level for the PHISIX as a good level to start accumulating stocks both from a technical and fundamental standpoint.  Looking at the charts, it should be the target of the recent double top pattern the PHISIX formed.

Fundamentally, the Philippine financial system remains stable as banks have had limited exposure to credit.  Liquidity gridlocks (especially in USD) being experienced by banks due to worldwide risk aversion was also solved by the Central Bank through intervention in the swap market shoring up market confidence especially among banks. Finally, the Central Bank ensured that corporations will retain their reasonable funding by shifting to a dovish stance despite recent rate hikes and 4 consecutive months of double-digit inflation.

So what is leading me to think about a doom and gloom scenario? PLDT!  For quite sometime, the stock has had a very high correlation with the PHISIX.  In fact, foreigners use it as a proxy for the index.  Hence, if PLDT falls, the PHISIX will fall.

Looking at the SMA’s, one can clearly see that the 50-day and 100-day averages have crossed the 200-day, a clear indication of a reversal from the 5-year uptrend. Although the charts are not showing any signs of an immediate sell-off, it shows consolidation and a triangle pattern (can be head and shoulder depends on how one looks at it). Decreasing volume is evident as trading volume of the stock has gone south since July 2007. Finally, the triangle is three-fourths of the way and may breakout anytime soon. Looking at the daily MACD, the stock is oversold and may post gains in the next few days.  However, the monthly chart paints a different picture:

The monthly MACD shows very strong downward pressure as the gap between the MACD and the signal has widened further.  Both lines are also far from zero, a clear indication that the stock has more room to go down.  Assuming PLDT breaks the strong support of 2,200, we can expect a dive towards 1,300-1,500. Given its high correlation with the PHISIX, we can also expect a drop below 2,000.

Recent data also support further erosion of stock market value.  Exports are expected to take a hit as the slowdown in the U.S, is expected to curtail demand for electronics, which make up two-thirds of total exports.  In fact, the Development Budget Coordination Committee (DBCC) even predicts 2008 export growth to be limited to 4%, with the worst-case outlook at 2%. At the same time, remittance growth slowed to 10.4% YOY in August compared to 24.6% the previous month.

Government is preparing for further drop in remittances (which has increased for 8 successive years) as a recession in the U.S and Europe lessens demand for OFWs and opens the door for job losses for the country’s army of eight million overseas workers. Take away exports and remittances and it can only lead to an increase in unemployment and a steep decline in consumer spending, which makes up more than 50% of GDP.  Slower growth will lead to revisions in earnings forecasts for companies which will lead to lower stock prices.

So what happens when the PHISIX breaks 2,000?  Well I ain’t watching.  Lets just empty out our inventory and go on a vacation.  Have you guys heard of the Halloween party in Boracay?