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Presentation by Mr. Juanis Barredo COL Chief Technical Analyst
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Presented by: Juan G. Barredo Chief Technical Analyst COL Financial
2014 COL Financial 1st Half Technical Outlook
MARKET OVERVIEW
• Global markets have been pressed into corrective drifts due to ‘taper tantrums’
• Emerging Markets (EMs) suffered the heaviest as ‘Withdrawal Symptoms’ as rerouted funds flows to Developed Markets
• There may yet be some tail end selling for EMs as no clear reversal patterns have been shown
• But some of these may be nearing intended targets in Magnitudes (Price) and Duration (Time)… if not already
• Opportunities for range trades will again appear – as prices stand near the lower end of trading bands
GLOBAL MARKET REVIEW
As economic signs of recovery in the US and Europe becomes noticeable, the FED moves to taper stimulus shocking EMs
Why the switch: • Trimmings of excessive credit may
ease pushing an early rise in Bond Yields then possibly into I-rates
•A Dollar recovery forced on a defensive stand on EM currency investments
• Pick up in EM inflation may wrestle with investment yields
Funds flow out from EMs to DMs
DMs versus EMs
US Bonds reacting since mid-2012 as FED loosens stimulus; may allow the SP500 to regain its inverse relationship into wider trends
US Bond Buying Tapered
10-Yr Bond
SP500
Fed Bond Buying Program (QE1, QE2, QE3)
Fed Tapers
The US 10-Yr Yield seems to have blown off and may need some corrective consolidation time
US Bond Yield eases from its earlier surge
US 10-Yr Bond Yield Running too far ahead: • Loss in upward momentum seen
• Bearish Divergences and overbought conditions spotted in weekly charts
• But short term signals do show near oversold levels which may ask for short term rallies
• This may lock Yields into a medium term consolidation from 2.9% and around 2.5% to 2.3%
Perception runs ahead of reality…
History Sample
• US Bonds Yields versus Interest Rates 2003-2004
• Two large surges made before rates actually picked up
The US 10-Yr Yield seems to have blown off and may need some corrective consolidation time
Perception runs ahead of reality…
Markets Susceptibility to Rates Rising
• Markets tend to pullback months before an expected rate hike
• In 2004 markets withdrew several months ahead of any rate hikes then ventured to consolidate thereafter
• Note however that is should not derail the markets longer term upward track – may provide several trading windows
The PSEi has also run ahead of the reality of rates rising by drawing on several months of corrective action
Perception runs ahead of reality… PSEi
PSEi and Rates Today
• Philippine Index has retreated in consolidation for the better part of 2013 and unto today
• May have already taken a good size of intended magnitude and duration
The SP500 continues with its channelled advance but bumped on its range highs and withdrew from overbought conditions
SP500 Review • Its advancing channel is still
secure but it does test its range lows at the moment
• Weekly RSI levels 4-weeks ago tagged overbought levels which initiated the present correction
• Support is expected at 1,730 - 1,690
• A rally may surface but may need one more reaction to complete its corrective drive
Spotlight on the US: SP500
Sup: 1,730 – 1,690 Res: 1,815 – 1,850
SP500
Overbought Levels
Europe may need to ease off a little more from recent range highs; while China remains down cast testing 1 –year lows
EUROPE & CHINA: RESISTANCE & SUPPORT CHALLENGE
Shanghai Index
Sup: 1,980 – 1,850 Res: 2,130 – 2,237
European Index
Sup: 315 – 300 Res: 330 – 340
Overbought Levels
The Euro has slightly improved and carries an upward bias; the US Dollar has shifted sidewards
CURRENCIES: EURO & DOLLAR
Euro-Dollar Index
Sup: 132.5 – 128.1 Res: 139.0 – 143.0
US Dollar Index
Sup: 80.20 – 78.85 Res: 81.50 – 84.70
Sup: 3.12 - 3.06 Res: 3.45 - 3.78
Copper
Sup: 1,200 - 1,180 Res: 1,290 - 1,400
Gold
Sup: 92.00 - 86.30 Res: 100.75 – 110.30
Oil
Metals still show weakness... wary of slowing growth in China and the consolidating Dollar; Oil stays perched on a wide range
COMMODITIES: Mixed showings
PHILIPPINE MARKET REVIEW
Peso reversed its firming trend after breaking above the P42 & P44 levels; resistance seen at P45.50 then P47.00
Sup: 44.60 – 44.00 Res: 45.50 – 47.00
PHILIPPINE PESO
PHILIPPINE PESO: Devaluating Trend
PESO • Philippine Peso has lost quite
a bit of ground since 1Q13 as flows back to the Dollar precipitated
• It has hit our intended target of 45.50 and but has not showed enough power as of yet to stop this devaluing trend that eyes P47 next
• However a divergence is noted on its weekly RSI – this may offer a possible reaction towards short term support at P44.60… maybe even P44.00 if the Dollar staggers
• Trading Buy on the Dollar into dips
Divergence
The PSEi proceeds to range within a reactive channel; a recent higher-low (5,700) offers a chance for a possible major base PSEi Review
• Index is cascading within a ranged channel whose current range breadth is 960-pts large (6,460-5,500)
• A recent and hopefully significant bottom was pinned out at 5,700 – this being our critical support
• Weekly and Daily MACD reads have shown some rally improvement contributing to the possible firming of its base out scenario
• Nevertheless a range trade is offered into the medium term looking a trading buys closer to 5,830-5,700 and selling points closer to 6,200-6,460 as pressing resistance bands
Spotlight on the Philippines: PSEi
Sup: 5,835 – 5,700 Res: 6,200 – 6,460
PSEi
PSEi shows itself within an extended corrective wave; could be driving out a tough 4rth-wave correction in the guise of a bear
PHILIPPINES: Elliot Wave Count
(Elliot Guideline # 2 notes:)
The forms for Wave 2 and Wave 4 will alternate…
• If Wave 2 shows a sharp correction, Wave 4 will be a flat
• If Wave 2 is flat, then Wave 4 will be sharp
ELLIOTS IMPULSE (BULLISH) WAVES
Wave 3 Cannot Be the Shortest
Wave
Wave 4 Cannot Overlap Wave 1
Wave 2 Cannot exceed low of
Wave 1
PSEI RUNNING ON A TOUGH WAVE 4
(PSEi notes:)
The Index still carries itself well above its Wave 1 top
• Its Major Up Trendline (5,760), which began in ‘09
remains intact
• But prices do stand below its 1-yr Moving Average
PSEi and other sub-indices have tagged 20% declines in shades of a bear… but generous downsides have already been registered
PHILIPPINES: A Bearish Tone
“A downturn of 20% or more in multiple broad market indexes…, over at least a two-month period, is considered an entry into a bear market”.
Index Current Top Date Change*
PSEi 6,011 7,403 5/15/2013 -18.80%
All Share 3,655 4,571 5/15/2013 -20.04%
Comm/Ind 8,861 11,177 5/15/2013 -20.72%
Financials 1,495 1,925 5/15/2013 -22.34%
Holdings 5,406 6,700 5/16/2013 -19.31%
Property 2,287 3,089 5/23/2013 -25.96%
Services 1,850 2,181 5/14/2013 -15.18%
Mining/Oil 13,551 28,102 4/26/2012 -51.78%
PSEi has crossed this 20% threshold three time since its 5/2013 Top Note: The tagging of this threshold several times in 9-months along with other related indices qualifies for the Bearish drift. On the positive front, these qualifications usually turn up once 80% or more of the intended move has been already accomplished.
* Net Change from its dated Top Note: Currently 5 out of 8 Philippine Indices stay crossed below a 20% Downturn
PSEi shows inclinations for a possible base as compared with a 2005 historical sample
PHILIPPINES: Moving On
Scenario 1: Rally & Consolidate
•2005-2006 showed a 5-pts pattern gradually grooming into a rally then to consolidate
• After the 5th drive, a rally was reinstated after higher-low bases were successfully drawn out
• Today we seem to be in similar pattern stand
• This could also be timely in asserting a credible rebound; but prices today stand below its 1-Yr Moving Average intoning less bullish calls in demand
PSEi Today
PSEi can still drift off into extended corrective cascades if recent lows are broken or retested
PHILIPPINES: Moving On
Few Months
• Could retest 5,700 or even 5,500
• Peso drags up to P47
• Will proceed until higher-low bases are confirmed and resistance breaches are seen
Scenario 2: Extended Correction
PHILIPPINES: Keeping its nose up
PSEi – Versus DMs & EMs (YTD)
PSEi Versus EMs & DMs: Keeping Itself in the Race
PSEi – Versus Asia (YTD)
PSEi stays ahead of DM and EM indices Indonesia & the Philippines: Top 2 in Asia
PSEi
MS WORLD
MS EMF
OBSERVATIONS:
• The Peso’s devaluation is still in trend though over-extended action shown by divergence calls may need some adjustment
• PSEi may yet need to complete its corrective sway but we are hopeful that much of corrective intent has been priced in
• In the Medium term, expect a wide consolidation pattern (6,460 - 5,500)
• In the short term, stocks may try to pull a rally out of a hat and recover to next levels of resistance (6,200-6,460)
• Given the consolidation and brief rally opportunities we will gear towards range trading – buying after support rebounds and take trading profits on resistance zones
• Best Actions in Corrective Consolidations – Always look for underlying strength, not just the heaviest declines
– Watch for higher-low bases / clear support frames to push trading buys
– Watch for possible oversold readings or bullish divergences in fallouts
– Exercise patience and keep with your view to buy out of good sense
• Exercise prudence in targets , diligence in following support – Target next resistance zones estimated by tops or averages
– Sell some on established resistance points to earmark gains
– Avoid buying after several days of advances
– Always know when its time to quit – utilize stops on support ledges
• Medium to Long Term View – Buy dips from henceforth as corrective magnitudes are fairly done in
TRADING STRATEGY:
Sectoral View: Stronger Formations
Services
Financials Property
Holdings
Sectoral View: Less Impressive
Commercials/Industrials Mining/Oil
•Lower-lows were still shown •Heavy oversold levels may need some adjustment
•May have a kicker if somehow metals can rally further – particularly if the Dollar allows it (further pullback in the greenback)
TRADING STRATEGY: Showing Good Traction
Support Retest
‘A Good Anchor is when you Have Both Feet on the Ground’
‘Watching for a Foothold’
• Allow reactive swings to call out a firm base
• If price > 32-day MA then: • Buy rebounds off short term
averages (16 or 32 day)
• Preferably Positive MACDs
• On our radar: • AC, AGI, AP, AUB, BDO, BEL,
BPI, COAT, DMC, DNL, EDC, EEI,EMP, EW, FDC, FGEN, FPH, GLO, ICT, LR, LTG, MBT, MEG, PAX, PCOR, PGOLD, PNB, RRHI, SCC, TEL, & UBP
Higher-Low 16-day MA 32-day MA 65-day MA
MBT
‘When the Ground is Soft, Take More Careful Steps’
‘Not Every Rebound is Right’
• Corrective trendlines breaking should alert of a possible reversal / rally
• Successful support retests or higher-low fronts add demand
• Durable breaks above the 32-day or even the 65-day may announce Up Trend reinforcement
• Stops placed on recent lows
• Find positive MACDs
Stronger Support Base
Wait for break above 32-day
TRADING STRATEGY: Wait for proper setups
Positive MACD
16-day MA 32-day MA 65-day MA
EDC
Stock Price 32-MA MACD RSI Support
(1) Support
(2) Resist
(1) Resist
(2) AC 535 527.5 Buy - 52.01 515 508 550 572 ALI 26.35 26.03 Sell - 50.69 25.35 24.17 26.35 27.7
BDO 79 74.34 Buy + 60.5 78 76.8 80 85 DNL* 6.99 6.73 Sell + 60.27 6.94 6.73 7.3 7.77 EEI* 10.06 9.97 Sell + 51.79 9.8 9.29 10.58 11 MBT 77.75 76.11 Buy + 56.05 75 70 80 85 MEG 3.74 3.45 Buy + 67 3.58 3.45 3.8 3.92
SMPH 14.98 14.66 Buy - 52.4 14.46 14.1 15.51 16.3 TEL 2686 2682 Sell - 50.7 2,600 2,572 2,695 2,805
*Subject to illiquid threats into reactions
** Price is either close to resistance and/or almost overbought
MODEL PORTFOLIO: Technical Review
• Global markets will seesaw as money flows will rotate
• DMs have held and may yet hold attention (after completing corrections) along with some stronger EMs
• US Bond yields to continue to ease then consolidate – deflating any rush up in interest rates
• The Peso may need to show some technical adjustments but is still prone to devaluation
• The PSEi attempts to carry a higher base (at 5,700) though still driving an ongoing consolidation pattern (5,500-6,460)
• Range trading into stronger stocks are recommended or buy (to accumulate) into dips with medium to long term views
SUMMARY:
“A pessimist sees the difficulty in every
opportunity; an optimist sees the
opportunity in every difficulty.”
― Winston Churchill
Thank You!
JUAN G. BARREDO CHIEF TECHNICAL ANALYST [email protected]