PSEI: Correction Bound?

The Philippine Stock Market Index has been stellar since 2012 stepped in. The index has gone up from a little over 4300 after 2011 to as high as 4950 (as of this writing) or roughly 14% in less than 2 months. We are officially in a bull market. A bull market is a market condition wherein almost everybody is a genius, even the beginners. Almost all the stocks you buy go up if given some time resulting to hefty gains.

However, looking at it short term, the index may go lower for a few days (which is quite rare for 2012).

The chart above shows that the index, which is currently at 4950, is near its possible psychological resistance at 5000. It is also inside an uptrend channel which pegs its resistance at 5000.

However, PSE's RSI is still far from overbought which may, just may, push it higher past 5000.

Whether PSE corrects at 5000 or will break past it, it doesn't matter. Oil, mining, the financial sector, real estate, and everybody's new favorite, the basuras are doing more than just fine, as well as other sectors. This bull run has a long way to go because this has been the long overdue run last year (Japan tsunami, chaos in the middle east, European debt crisis, who cares about Europe especially Greece these days by the way? haha!) and companies in the Philippines has been so fundamentally excellent. Prices will continue to go up so let's enjoy the feeling of being a genius while it lasts. haha!

You can disregard the index but if you want a more better return, consider trading with the index's momentum.

PSE Index: Breakout or Breakdown?

For two and a half months, the Philippine Stock Exchange Index or PSEi has been moving sideways. It hit an all time high of more than 4,450 last July 6 but went down from then on. The chart below shows that PSEi is currently resting at its past resistance. Hopefully, such resistance will turn into a support so PSEi could bounce and head back up again.

Aside from turning the resistance into a possible support, PSEi is also resting on 38.2% Fibonacci in reference to its last correction. The Relative Strength Index (RSI) is also showing some good signs as it is not overbought. However, the MACD is showing some bearish signs.

A little caution must be practiced because, despite PSEi's good technical position, the fundamentals aren't looking great. The debt crisis that the European markets are experiencing are having an impact on the global markets. The Dow Jones Index manifested such crisis by dropping 151.44 points or -1.20%. Nasdaq also dropped 57.44 points or -2.0%, while oil continues to tumble down.

Gold might push PSEi up aside from its good technical position. Gold increased by more than 6 points which might have triggered the 11% increase in LC. If gold continues to do such wonder, the mining and oil sector will remain as a safe bet for both traders and investors. The mining and oil sector is also on an uptrend.

If PSEi's technical position won't hold, it may sink to as low as 4200, its long term uptrend support, a deep dive from its current value at 4375. PSE's chart is showing some bearish divergence so there might be a good chance for it to drop.

Going Long for 2011? Consider these Stocks

There are some things that got me excited recently. Some companies are showing great potential and are giving excellent points of entry before another rally comes.

A number of the companies in my watchlist are showing signs of life as soon as PHISIX recovers. I've mixed up very raw data (weekly MACD) to the historical charts of several companies and picked a few that shows really great potential (with few biases because most of these are personal favorites). Here are some of the potentially big (I mean really big) winners for 2011.

SMPH (SM Prime Holdings): The chart below shows that SMPH is bound for it's fifth wave in reference to Elliott Wave Theory. The fifth wave is an uptrend and ideally it will go for about a year referring to the first two uptrend waves.

SMPH's MACD for the week was good improving from -0.176 to -0.081 from February 2 until February 7.

For those who are looking to go long with SMPH, there is a drawback in it's graph. Should SMPH fail to bounce from it's support at around 10.2-10.5, it might go all the way down to it's long term support pegged at 6.50. Quite a deep fall from where it is right now (10.98).

SMC (San Miguel Corporation): A personal favorite. SMC was resting on a not so steep uptrend support until it broke loose near end of 2010. The chart shows that SMC jumped from around 80 late October 2010 to more than 180 by January 3, 2011 or about 140% growth in a little more than a month.

Right now, it seems that SMC met a strong resistance at 180. However, it remained strong despite the weakening of PHISIX which signifies that a very strong rally is just awaiting on the corner. Personally, I think that what's keeping SMC from getting past 180 is PHISIX. Once PHISIX starts to go up, expect SMC to go as well.

Many people are hesitant on taking SMC because of it's price but for me SMC still has a long way to go. SMC has already announced for a 2PO at around 250, announced it's diversifying plans, and has an income more than many blue chip companies. 180 is actually cheap for SMC. I could say that we could never go wrong with SMC.

SMB (San Miguel Brewery): SMB's chart looks very promising. An ascending triangle from near end of November 2010 until February for 2011 before finally getting past 30. Right now, it seems that history might repeat itself. SMB have found another resistance at 33 but another ascending triangle is forming. 35 and 36 is definitely within reach and is a good one for swing traders.

Just like SMC, SMB skyrocketed late 2010 before resting around the 25-30 plateau. Should another SMC rally come, expect SMB to follow. The good catch? SMB is way cheaper than SMC.

MEG (Megawide Corporation): Just like SMPH, MEG is another wave 5 bound entity based on it's 2-year chart. MEG was way below a peso back in the first quarter of 2009 and now is roaming around the 2-3 peso range (banks, cooperatives, bonds, and mutual funds can't give you around 200% growth in less than 2 years).

If MEG will continue to follow Elliott Wave Theory, it could reach P4 before 2011 ends or maybe even around P4.50.

For the past week, MEG's MACD is getting better bouncing from -0.0812 in February 2 to -0.0716 in February 7. MEG's price action doesn't show a lot of optimism lately but as far as technicals are concerned, MEG is going to be a really good one as soon as PHISIX recovers.

Lastly, MEG has announced to sell 292 million more shares at about P7.84 per share. If MEG will hold on to it's fundamentals, we are seeing some 200-300% growth this year.

JGS (JG Summit): Speaking of growth, where else could you find a gain of nearly 2000% in just two years? JGS grew from barely a peso back in January of 2009 to roughly P20 in January of 2011. In fact, it went as high as P25 around October of 2010. Now that's some serious growth.

Right now, JGS is getting near it's uptrend support at around 18 or 17.50 the least. However, it would be wise to take PHISIX into consideration before riding the JGS wave.

JGS's MACD went up the past 4 trading days which signifies that it is strengthening once again. Price action might say otherwise but technicals never lie. Sooner or later JGS will rise again.

This is one serious stock to take into consideration for 2011 (along with SMC).

CEB (Cebu Pacific): Price action doesn't really look good for CEB but the chart says otherwise. CEB is forming an identical triangle which says that it could go either way. However, MACD is getting better and in fact, has signified a buy signal.

Since CEB's value are down, I think that it is going to be at bargain once PHISIX gets back up. Lance Gokongwei already announced that CEB will be adding more planes and CEB will be having more affordable flights in 2011. Good news for employment and passengers.

Though it really doesn't look that good right now (price action), CEB is something worth looking. Never take CEB for granted especially if JGS will rise back up.

The downside for CEB is that it doesn't come in cheap. More fundamentals are needed.

PHISIX heavily influences the direction of the prices as much as the price action directs where PHISIX would go. Be patient and at the same time be cautious. PHISIX will get bullish (go back up) sooner or later but the London based Barclays Capital projected that the Philippines inflation rate might reach 4.5% by mid year of 2011 which might make PHISIX continue to go down. BDO's forecast of PHISIX to go down to as low as 3600 might really come true.