PSEi: The Year Ahead

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The Philippine Stock Exchange Index (symbol: PSEi) closed the year below the 6,000 psychological level at 5,889.83, which is not far above the yearly open. Below, I’ll try to map out the possible direction the index will take in the coming new year.

In the Monthly chart (below), we can easily see that the index rose smoothly in the first half of the year, but eventually just bobbed up and down during the rest of the year. Some traders in the forum told me that some “gurus” or analysts predicted that PSEi will close the year around 7,000 (as high as 7,500-8,000), but as we now know that did not happen. I believe some of them merely hyped it up so they can trick the new investors who were late to enter the market this year.

Unlike the previous instances this year, the 6,000 psychological level failed to support the market this December, and this puts the index at risk of downside continuation as early as January or within the first quarter of 2014. We also have an upsloping trendline at risk of breaking next year. This trendline has been supporting the market even before 2010. All these points are too hard to ignore. Downside targets come at the next psychological levels – 5,000 and 4,000.

(Click here to see the original image)

PSEi Monthly chart, December 27

PSEi Monthly chart, December 27

In the following Weekly chart, we can see that after topping out above 7,000, the index dropped forcefully to create a new yearly low followed by a bounce, a gap, a new yearly low, and then a subsequent weaker bounce towards the yearend. The index did not create a third fresh yearly low in the process, but the fact that price broke through and closed below the 6,000 level is not a good sign for bulls. If bulls cannot take control of 6,000 early next year, they must be able to control the 5,000-5,500 area – no matter what.

(Click here to see the original image)

PSEi Weekly chart, December 27

PSEi Weekly chart, December 27

In the following Daily chart, the index is seen as corralled between two trendlines and two upright black rectangles. The black rectangles represent the resistance and support areas, respectively, and they are the must-break areas if we ever want to see a follow-through move. Of course, bulls want a break to the upside, but first they must conquer the 6,000 psychological level, ideally in the first quarter of 2014. The trendlines will serve as another lid on price.

(Click here to see the original image)

PSEi Daily chart, December 27

PSEi Daily chart, December 27

Key areas to watch:
Resistance: 6,000, 6,700-7,000
Support: 5,000-5,500, 5,562 (2013 low)

Based on all the information mentioned, I expect the index to consolidate for some time. Watch out for all the key areas stated – a strong break of any of the key areas could swing the momentum on one direction. Bears have a slight upper hand and the first major battleground is the control of the 6,000 level.

Safe trading to all in the year ahead!

 

 

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