July 11, 2001

Bagsak na naman, badtrip no?

The market failed to bounce back to the 1,400 level as the selling wave continued. Now down for a second day, the market which has been down week on week for the past three weeks is almost devoid of any volume. Usually, a large cross would push market turnover to within striking distance of the half-billion peso mark. Then again, this has been the case for the past months; wherein market volume suddenly spikes when something very relevant transpires, as when ex-President Estrada was ousted, or when the power bill was passed. Then as the news becomes factored into the prices, volumes once again start to dwindle and trends are lost. Before we know it, the market is just drifting aimlessly again.

During these periods, technicals and speculations become the primary direction-setters of the market. Well, the index is technically negative in both the daily and weekly charts. But like we pointed out yesterday, the main index is once again on the verge of being technically oversold. We see the major support level at 1370. At about that level, which may perhaps be reached within the week or early next week, we would suggest selective buying of blue chips. We'll see which ones will become attractive by the weekend.

The other factor moving the market, speculation has in fact been at the forefront of trading for weeks now. Starting with the usual talks of backdoor listing through mining stocks, the talks are now centered on SMC and its impending purchase of CBC from cash-strapped RFM. Latest news is that SMC has confirmed talks with RFM, and that the company hopes that the talks will be completed within the month. Purchase price for RFM's entire stake in CBC is now reportedly at P14bn. Today RFM and CBC managed a P0.02 and P0.1 gain, respectively. SMC "A" shares dipped by P0.5, while SMC "B" shares closed unchanged at P47.5. We have a sell on strength recommendation on RFM and CBC, and a buy on weakness recommendation on SMC "A" and "B" shares.

MERB, which was today's most actively traded issue lost P2 with over 900k shares changing hands. The issue is technically oversold already, although we believe it may still drop to around P48. We have a wait to buy recommendation for MERB.

Meanwhile, the latest slump of the market has been blamed on the peso's weakness. True enough, recent days have shown that the stock market has mimicked the peso. Thus, with the market's decline today, the peso also predictably weakened. In fact the peso, breached the 53 to a dollar level again. Perhaps in a couple of days, we may see the BSP intervening again. If that coincides with the index reaching 1370, we may see a good rally just yet.