The Philippine Stock Exchange Index (PSEi) looks very similar to the DJIA as it also recently stopped going higher and broke the support line at 3215 and ended 113 points lower on May 5.  When that happened, the index formed the bearish formation called the double top.  We were looking at 3145 to serve as our support area.  Once this area was broken, we know that this double top was pointing to a possible downside target of 2985.

On May 7, we imitated what the DJIA did, which was to drop by 94 points intraday.  However, the PSEi was resilient enough to recover most of what it lost during the day and it ended at 3142, 25 points lower than the previous day.  Although it seemed like a relief that majority of what was lost was regained within the day, the index still ended slightly below the support level of 3145.

The PSEi is still considered somewhat bullish as it is still above the moving averages, but since it already breached the 50 and 100-day moving averages, it may be a point of concern as bearishness is setting in.  The other point of concern is the MACD, as the fast line has accelerated in its downward direction.  For the moment, it is still above the zero line, but we see that it’s only a matter of time before the fast line crosses below the zero line into bearish territory.

What is happening now to the PSEi is a cause of concern as it showed people were panic selling as they expected the whole market to be following what the DJIA did, which was to end 3% lower.  Our index ended around 0.8% lower, owing to the fact that many went on a bargain hunting spree as many of the index issues have gone down to more tolerable levels.  Hopefully the worst is over as we expect there could be some follow through buying on Tuesday based on last Friday’s resiliency.  If the index ends up much higher than the 3142 level from Friday, then we can now consider the double top to have failed and the sentiment would automatically be bullish once again.

Recommendation: Wait and see
Resistance: 3145