MORE volatility is in store for the market that is on the verge of dropping back to the 7,000 territory as developments surrounding the Greek debt crisis and the meltdown of Chinese equities continue to hound investor sentiment.
“Bargain hunting caused a bounce on Friday. We will continue to see the market to try [moving to]7,500 but risk still lies at 7,000,” Jonathan Ravelas, BDO Unibank chief market strategist, said.
By and large, the market will take its cue from the European Central Bank—primarily how the European regulator will handle the reform proposals submitted by Athens under a third bailout package after both sides failed to reach an agreement over the weekend.
China is scheduled to release the second quarter numbers on its gross domestic product (GDP), which can potentially reverse the downtrend of Chinese stocks.
“Expect volatile sessions as Greece and its creditors hammer out a final debt deal,” said Jason Escartin, investment analyst at F. Yap Securities Inc.
Investors will also track the developments in China, the world’s second largest economy, as Beijing tries to implement stop-gap measures to arrest the a nerve wracking sell-off that carved out as much as a third of the value of Chinese stocks, the analyst noted.
Then there is the US inflation numbers to be released on later this week “… which could influence fund rotation, especially if actual data is closer to the Fed’s 2 percent target,” Escartin added.
For AB Capital Securities Inc. the outcome of negotiations between Greece and its creditors is a potential game changer. In the absence of concrete results, “Greece may experience a financial collapse on Monday,” the brokerage noted.
“Meanwhile, China is also set to announce its second quarter GDP on Tuesday. This will prove to be pivotal amidst the volatile Chinese equities market as a slowdown may reverse the potential rebound which started Thursday,” AB Capital said.
The PSEi managed to stay above 7,300, according to AB Capital, saying other indicators suggest a short-term run-up to the 7,600 level is a possibility.
But investors have been advised to sell their shareholdings, particularly shares that have recovered after a prolonged correction, said Luis Limlingan, Regina Capital Development Corp. managing director.
“The index is headed for a stronger downtrend due to bearish technicals. Volatility readings are a concern again as the 14-day ATR is increasing—a signal that there is heightened fear in the market that may cause sharp intraday moves,” Limlingan said.
ATR or the Average True Range indicator is a measure of volatility based on price action in a given period. A higher ATR indicates a high level of volatility, a low ATR indicates a low level of volatility.
“It is best to wait for prices to stabilize before taking positions to lessen whipsaws in case the support fails to hold,” he added.