In my most recent posting, I explained why in my opinion the PSE index is correcting. The real question however is, what now? It is now June 19, should one buy, hold or sell?
My straight answer is hold, it might be too late to sell, but still early to buy. Wait for the valuation to be more acceptable and for the technical indicators to signal buy!
- The tightening that everyone is fearful about will probably not occur. The Fed will temper their bond buying as expected, suggesting a less aggressive loosening of monetary policy. But I do not think an increase in interest rates is imminent. After all, the unemployment rate in the United States is still high at 7.6%, much higher than the 6.5% target. Inflation especially at the consumer level excluding food and energy is acceptable at 1.1%, and the GDP growth rate is still weak. It will probably be years before the Fed really tightens. Consequently the recent down move is probably just a correction in a continuing bull market- not the start of a bear market.
- I am not suggesting an outright buy however because valuation is still extended. PSE stocks continue to be an expensive, especially relative to the developed markets (US and Europe).
- One should have sold when a double top was formed on May 15 and the RSI technical indicator did not confirm. Although the RSI is now at buy territory, being less than 30%, better to wait for a non confirmation before pulling the trigger. Might be ok to buy however if PSE index pierces past 6600.