"We believe that the market will be due for a technical correction in the near term. There are some short-term top signals already. Among them is the Phisix’s relative strength index, which has already reached overbought levels," a report prepared by AB Capital Securities research head Jose Vistan Jr. at the investment website PhilStocks.net said.
He said aside from seasonal and technical factors that fueled the price run-up, there is a strong likelihood that investors took on early short-term positions on selected stocks, in anticipation of better earnings prospects.
BPI Securities’ Spencer Yap added: "It would not surprise us if the market corrects with the new year given the unwinding of these short-term positions; the question of the longer-term sustainability of the market’s rally would depend on confirming data from corporate and economic results next year."
Despite the holiday-shortened week, the Phisix went up 22.11 points or 1.93 percent week on week to 1,168.08, managing to slowly recover from the record-lows last October.
On an annual basis, the Phisix had slumped by 326.42 points or nearly 22 percent from its Dec. 29, 2000 level of 1,494.50 as the Philippines fell prey to both domestic and foreign troublemakers: the Sept. 11 terrorist attack in the US, the US-led counterstrike in Afghanistan, the Abu Sayyaf abductions, as well as the transition from the Estrada administration to the people-power installed Arroyo government.
"We need to see fundamental factors such as improving economic conditions and corporate profits to fuel a more sustainable rally. A lack of visibility on the economy and corporate prospects will make gains unsustainable," Vistan noted.
He said over the medium term, confidence should slowly build itself up as the case for a recovery in the economy and earnings seems to be getting better with every passing day.
"There is hope that business will benefit from this past year’s interest-rate cuts and other expansionary policy actions. If there won’t be any unexpected event that would stunt such optimism, the chances of a market recovery are pretty good. Gains would probably be restrained with some pullbacks along the way. However, the market should be able to stay above the lows of October," Vistan said.
He added while some investors may already be anticipating a rebound in the global economy by the second half of next year, there are still some external concerns to deal with such as the rising tension in Argentina, the warnings of elusive terrorist Osama bin Laden, and expectations of higher crude oil prices.
In Argentina, the country’s interim president canceled payment on public debt to try to ease the riots that toppled the previous government. Also, investors who were hoping that Bin Laden was killed during the recent US air strikes, were disappointed by the latest pronouncements of the terrorist leader. And expectations of higher oil prices emerged after the Organization of the Petroleum Exporting Countries (OPEC) announced big cuts in output last week.