Stocks head toward consolidation phase

After taking a breather from an extended upswing, the stock market is now heading toward a consolidation phase, perked up from time to time by breaking news from the corporate front, analysts said.

"We’ve seen gains in the market for the past four days, but we can hardly call it a resumption of the rally. Generally, the market’s attitude is more consolidation than anything, and turnover remains in the doldrums," a website report by RCBC Securities noted.

It added that while interest in blue chip stocks such as Ayala Land, Meralco, PLDT and San Miguel helped lift trade value over the P500-million mark, "a lot of the investors that participated in the previous month-long rally opted to watch instead."

At the end of last week’s trades, the 30-company main index gained by a modest one percent or 14.04 points to 1,410.42, boosted by buying in index-linked stocks. However, turnover volume slipped below the P1-billion mark once more after a short run-up the week before – when the bourse started to implement extended trading hours in the afternoon.

According to BPI Securities vice president Spencer Yap, the weak close and the low volumes again hints at an impending correction.

"The market has yet to sustain the strong buying support seen at the early hours of trading as sellers continue to whittle away at early gains. Consolidation is expected to continue although we do not rule out possible weakness in the market next week. Initial support still at 1,400, then 1,360 to 1,380 while resistance still pegged at 1,450," he said.

AB Capital Securities research head Jose Vistan Jr. said even as the market finally experienced its much-needed correction, share prices still look surprisingly healthy. But he added investors have to be wary of a possible bear trap as there is still so much profits to be realized.

"The market’s breadth has been giving off some warning signals in its recent trading sessions. Some measures of market breadth such as value turnover, the advance decline ratio and the volume of rising stocks compared to the volume of falling stocks are already hinting of further weakness in the coming sessions," he said.

Market breadth is a key indicator of the overall health of the market’s trend. Vistan explained that lately, only a few large stocks have been rallying, boosting the major averages and giving the impression that the market is still strong. However, he pointed out that if the majority of the smaller stocks are falling at the same time, then the market will soon be heading for a decline in the very near term.

"Hopefully, the impending market corrections is just one step backward before we take another two steps forward. And if there won’t be any major negative surprise that will crop up, the market’s backing and filling should be a slow and healthy one," he said.

Vistan advised that corrections should be taken as an opportunity for investors to accumulate stocks for long-term investments. "For the near term, we expect the market to go through a bumpy ride before experiencing some smooth sailing. With money market rates at historic lows, stocks should outperform other types of investments over the long-term," he said.