More profit taking expected this week

MANILA, Philippines - Profit taking that marked the last three trading days will likely persist this week as high valuation bolsters the case for investors to lock in gains.

The possibility of an uptick will depend on long-term actions from listed firms to shore up revenues and justify current valuations, analysts said.

“While the four-month upward trend remains intact, we expect the correction to continue this week as investors may pocket their gains from the bullish run starting end of March, specifically when the index failed to break through 6,800,” said Joyce Anne Ramos, an analyst at AB Capital Securities Inc.

The benchmark index’s price-to-earnings ratio of 20.22x, higher than the 17.02x in end-2013 and the 14.43x ten-year average, is also a tempting case for investors to cash in on recent gains, Ramos said.

“For this week, we expect the retesting of the support range of 6,650-6,675 that is likely to form a base to support the next leg of the rally, which may present fresh buying opportunities,” said Gab Aguila, equity analyst at DA Market Securities Inc.

On Tuesday, the bellwether Philippine Stock Exchange index (PSEi) ended at 6,784.95, its best since closing at 6,800.11 on July 25, 2013.

However, profit taking in the past three trading days cut the main index’s gains as it ended the week higher by 0.21 percent or 13.92 points at 6,685.10. Still, it was the fifth straight weekly gain for the PSEi.

“Having breached an intra-week high of 6,815, attempts to move past this resistance barrier will be driven by long-term actions from listed firms to expand their revenue model, and lead to improved outlook on growth valuations,” said online brokerage firm 2Trade-Asia.com.

2Trade-Asia.com advised investors to trade selectively and aim for modest accumulation on lows. Immediate support is 6,600-6,650 and resistance is at 6,750-6,800.

AB Capital pegged this week’s support level at 6,530-6,650.

Among the US data releases to be expected this week are pending home sales, consumer confidence, non-farm employment change, Federal Open Market Committee statement, Federal Reserve chair Janet Yellen’s speech, and unemployment rate, Ramos said.

Close to home, investors should await the Japan’s monetary policy statement and China’s purchasing managers’ index on the manufacturing sector.