Phisix Looks Bullish, Eyes the FED

``My approach works not by making valid predictions but by allowing me to correct false ones." George Soros

Activities in the Phisix reflected the activities in most emerging market bourses; they were upbeat as the US markets remained buoyant. And this has been so with sovereign bonds as well as the Peso, which closed the week slightly higher at Php 51.52 to a US dollar as against last week’s Php 52.56.

While foreign money remains as the critical driver of the index, they had been liquidating over the broader market. This suggests that foreign money could be rotating from the broad market and into the blue chips (particularly the telecoms). Net foreign buying stood at about Php 630 million, while the locals seized the leadership relative to trading volume.

As noted last week, coincidental to the Peso’s advance, locals have shored up the broad market in the face of foreign liquidation. A firming peso could have inspired a rotation out of US dollar based assets and into equities by local investors. With this week’s advance the Phisix is up by about 12% year-to-date.

All eyes will be in the FED this time, as foreign buying of local equities would depend on the impetus inferred by overseas investors on ex-US assets. Bonds, equities and the Peso will flow alongside with the performances of its peers.

Figure 5: Stockcharts.com: Weekly Phisix

The technical picture, as shown by the one year weekly chart of the Phisix in Figure 5, looks likely tilted in favor of the bulls. Following the May selloff, the Phisix has gone into a V-shape recovery and has held strongly above its 50-day moving averages (blue) as critical support. There had been few instances where the support was breached albeit unsuccessfully. This suggests of the resiliency of the 50-day moving averages as support. Watch that support.

On the upside, as “officially” loose money conditions may see the light again, a decline in the US dollar may propel global investor activities in emerging market economies on the backdrop of higher “growth” prospects as cover, while chasing for yields as the real intent. With the current clip of recovery, the Phisix may test its previous high.

Finally, as global markets have build up expectations for a pause for the upcoming FOMC meeting at the 8^th of August, and if such expectations hold up as anticipated, there could be a “sell on news” reaction in the US markets which could spillover into the Phisix. Watch how the US dollar and gold responds. If the US dollar weakens amidst the selloff and gold rallies strongly, I think it would be time to add more positions in preparation for a possible yearend run.