Update: Philippine Stock Market Testing Breakout Area
On January 16, we posted a chart noting the breakout by the Philippines PSE Composite to all-time highs. Notably, it was breaking out of a “cup-&-handle” formation, an especially consistent and reliable predictor of successful breakouts. The “cup” portion spanned the May 2013 to September 2014 period, with the “handle” extending to December. Indeed, the breakout was successful (thus far) right off the bat, tacking on exactly 10% into April. Since that April peak, however, the PSE has been steadily pulling back. It has now retraced almost the entire post-breakout gain. For those who missed the breakout initially, this is providing, arguably, a favorable long entry point.
The previous high level around 7400 of course would be one spot to look for a bounce. Additionally, there are a number of potentially key Fibonacci Retracement support levels ranging from 7100-7500. Should the 7400 area fail to hold, the 7100′s should prove key. That area marks the first confluence of Fibonacci Retracement levels from the key 2011 and 2013 lows. It also marks the approximate midpoint of the August-December range from which the breakout rally was launched. It could take some time to reach this level, however, we would not be shocked to see it.
One reason is that the current post-April decline is showing 2 waves down thus far. Market moves often (but not always) unfold in a series of 3 waves. Thus, following a possible consolidation attempt in the 7400 range, it would not be surprising, or necessarily unwelcomed to see another down leg into the 7100′s. That may be the optimal entry level. It would also provide a logical stop-loss area, should the index close below it. Of course, this is all conjecture at this point. We will have to see how things unfold and respond accordingly.
One bit of caution, perhaps, is that its Asian Tiger/Cub brethren Indonesia, Thailand and Taiwan have thus far either suffered failed breakouts or have failed to break out. Whether or not this trend will extend to the Philippines remains to be seen. But the overall investment picture across the Asian Tigers looks much more suspect than it did 5 months ago.
At this moment, however, the risk/reward prospects may be lining up very favorably for bulls in the Philippine equity market.
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The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.