The PSE index has gained 16.38% from its lowest close at the end of September, its longest and biggest rally this year. The PSEi closed in the red for only 13 sessions out of the 39 trading days during the period, and it has been notching gain after gain for the past few days. <\/p>\n\n\n\n
What\u2019s remarkable is that this rally is happening in a macroeconomic environment of high inflation, rising interest rates, and slowing global economic growth. Granted, the Philippine GDP report and corporate earnings in the third quarter mostly gave us an upside surprise, and the Philippine peso has been steadily regaining lost ground after hitting a high of P59.00 to the dollar in mid-October. Yields on 10-year government bonds have also eased by 43.2 bps during the past month, therefore reducing the attractiveness of government securities against equities.<\/p>\n\n\n\n
This then begs the question, is this still a bear market rally or is this the beginning of a new bull run?<\/p>\n\n\n\n
Our View: No longer a bear market, but not yet a bull run. The PSE Index has broken above the downtrend line that has served as its resistance since the second quarter, and is now trading above the 50, 100, and 200-day moving averages. However, momentum oscillators like the RSI, MACD, and Stochastics are all flashing overbought signals which may indicate an upcoming short-term correction.<\/p>\n\n\n\n
A pullback may lead to a test of the psychological support at 6,500, or maybe even the 100-day moving average around 6,350. There is a slim chance that the market may continue to defy gravity and soar to test the recent high at 6,850 but this will only make the case for a more pronounced correction.<\/strong><\/p>\n\n\n\n It remains to be seen if the market can resume its climb after this necessary retracement, but we stand by our house view that the macroeconomic environment is not conducive to high valuation ratios and it is very unlikely that we will return to the market P\/E of above 18x that was the norm in the \u201cbefore times\u201d.<\/p>\n\n\n\n Fundamentally speaking, we feel that the market has become fairly valued at the current market P\/E of 15.5x. This might be the optimal time to take profit, particularly on stocks that are trading with valuations higher than the market average and index heavyweights that will likely lead the upcoming correction.<\/p>\n\n\n\n