Sluggish market to be tested further this week

Still reeling from seven straight days of losses, the sluggish stock market will be further put to the test this week as investors take their cue on how the May 1 Labor Day demonstrations will take place, analysts said.

"Will the market indeed go lower? It depends on how the May 1 demonstrations will be conducted. If we can get past that key day unscratched, we should see some improvement in sentiments," said Jose Vistan Jr. of AB Capital Securities.

Last week, the main index broke the 1,360 support level to close at a three-month low of 1,323.96, the lowest since Jan. 30. Vistan said a further break below the psychological 1,300 support will prove to be disastrous as the Phisix would likely lead to a bottom somewhere in the 1,200 level.

On the other hand, he pointed out that a rebound could not be discounted since traditionally, the market tends to be positive in the month of May.

"Despite the rising level of tension locally, we believe that the market is now at short term oversold levels. Local stocks were spooked by peace and order concerns that have a strong chance of not happening. As we have stated in the past, rebellion happens when they are least expected. In view thereof, we may see a technical rebound next month, which is seasonally a good time for stocks," Vistan said.

But he stressed the market might not be able to rebound swiftly as negative factors presently outweigh positive ones. For instance, the first batch of earnings reports for the first quarter has already weighed down market sentiment.

"Investors remained tentative as the first batch of earnings reports weighed on market sentiment," a report by BPI Securities noted. "We expected investors to stay sidelined until most of the earnings reports of most blue chips have been released. However, with the market turning oversold, some bargain hunters may take the current drop as an opportunity to accumulate. We, however, would still suggest caution as the market may still go lower," the report added.

"Investors were also worried that the May 1 celebrations may turn out to be violent, or more bombings could result that would scare off investors," a similar market commentary by RCBC Securities noted.

It added that following the market’s sharp retracement, the Phisix might continue to slide lower and touch new support floors. "Investors are advised to wait for the bottom and only buy shares of companies which will post good earnings performance."

Among those which reported poor or lower-than-expected earnings during the first quarter include economically-sensitive issues such as Ayala Land and Ayala Corp., Meralco, ABS-CBN Broadcasting Corp. and San Miguel Corp.

"The outlook for earnings remains uncertain for the next couple of quarters. Until a sustained fundamental strength emerges, we’re not going to see stocks carry on another rally. Have the patience to sit on your money until we start getting some visibility," Vistan said.