Following the one-day debacle of the DJIA, the Philippine Stock Exchange Index (PSEi) also opened weak on May 7 to regain most of the loss.  In short, it was still a down day yet it had bullish implications.  What we were expecting from this day was a one-day reversal that will push the index back to near its highs.  True enough, the next trading day saw the PSEi gap up very significantly due to the DJIA’s 400 point increase on May 10 and the generally peaceful elections that we had on the same day.

If we take a look at the support line that we drew since the low in February, the index has returned above the support and is now making new 2 year highs.  In fact, when we take a look at how low the index has dropped, it did not get to breach the 130-day moving average at 3070.  Now that the PSEi is back above the 3 moving averages, we are back to being bullish about the market.

However, the MACD is acting differently.  Our index has been moving higher yet when we take a look at how the MACD has been performing, it has been moving lower.  Normally the MACD, which is derived from how the index has been doing, should follow the direction of the prices.  Yet in this case, it has diverged from what we’ve seen.  This is a bearish divergence, indicating that the trend of the market may soon reverse.

It may be wise for us to liquidate our winning positions and wait for opportunities to come before we decide to do anything.

Recommendation: Take profits
Support: 3283