The PSE index is currently at its last line of defense, the 200-day SMA. If this fails, it will result to a death cross and will cause a lot of investors to panic.

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What is a death cross? A death cross is defined as an occurrence wherein a certain stock price or market level drops below either the 50-day or 200-day moving average. If a price or market level drops below such moving averages, it signifies bearishness in the market and suggests that the market may drop even lower. On a technical perspective, the 200-day moving average is the last line of defense of the PSE right now. If it fails, the PSE may just fall freely.

In the image above, the PSE index briefly pierced through but bounced back above the 200-day moving average which could result in either of these: the index finding its bottom by making the 200-day moving average a support or it will just continue to drop.

If the 200-day moving average becomes the support, I believe things would turn out for the better. A lot of stocks have been battered lately and they still show great potential. Some of these notable stocks are AGI, ALI, GTCAP and MER. Telco stocks GLO and TEL are also down but both are facing tough times over the rumors of the entry of a possible third player.

What concerns a lot of traders is what if it pierces the 200-day moving average going down? It’s expected that the index will bounce momentarily after hitting the 200-day moving average but will such bounce sustain and translate into a rally or will it just be a mere correction of the downtrend? If the 200-day moving average fails, selling pressure would increase which will drag the index and the entire PSE down. Going below 7,000 is not a bleak possibility if the 200-day moving average fails.

On the fundamental side of things, there are two main reasons which I believe influence the sentiment of the market heavily. First, everyone is talking about another interest rate hike by the US Fed. Any speculation of an interest rate hike spooks investors because an interest rate hike makes borrowing money expensive hence bonds will look more lucrative than equities. It’s also not so beneficial for developing countries that borrowed money. Second, there has been so much concern over the stance of the current administration with regard to the relationship between the Philippines and the United States.

The most ideal thing to do right now is to just avoid the market and keep an eye on the 200-day moving average and see how will the market react to it. So far, things are inclining towards a possible break (of the 200-day MA). Keep in mind, cash is also a position.

Article by Makoy Velasco, Certified Securities Representative
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