Presented by: Juan G. Barredo Chief Technical Analyst COL Financial

2014 COL Financial 1st Half Technical Outlook

MARKET OVERVIEW

• Global markets have been pressed into corrective drifts due to ‘taper tantrums’

• Emerging Markets (EMs) suffered the heaviest as ‘Withdrawal Symptoms’ as rerouted funds flows to Developed Markets

• There may yet be some tail end selling for EMs as no clear reversal patterns have been shown

• But some of these may be nearing intended targets in Magnitudes (Price) and Duration (Time)… if not already

• Opportunities for range trades will again appear – as prices stand near the lower end of trading bands

GLOBAL MARKET REVIEW

As economic signs of recovery in the US and Europe becomes noticeable, the FED moves to taper stimulus shocking EMs

Why the switch: • Trimmings of excessive credit may

ease pushing an early rise in Bond Yields then possibly into I-rates

•A Dollar recovery forced on a defensive stand on EM currency investments

• Pick up in EM inflation may wrestle with investment yields

Funds flow out from EMs to DMs

DMs versus EMs

US Bonds reacting since mid-2012 as FED loosens stimulus; may allow the SP500 to regain its inverse relationship into wider trends

US Bond Buying Tapered

10-Yr Bond

SP500

Fed Bond Buying Program (QE1, QE2, QE3)

Fed Tapers

The US 10-Yr Yield seems to have blown off and may need some corrective consolidation time

US Bond Yield eases from its earlier surge

US 10-Yr Bond Yield Running too far ahead: • Loss in upward momentum seen

• Bearish Divergences and overbought conditions spotted in weekly charts

• But short term signals do show near oversold levels which may ask for short term rallies

• This may lock Yields into a medium term consolidation from 2.9% and around 2.5% to 2.3%

Perception runs ahead of reality…

History Sample

• US Bonds Yields versus Interest Rates 2003-2004

• Two large surges made before rates actually picked up

The US 10-Yr Yield seems to have blown off and may need some corrective consolidation time

Perception runs ahead of reality…

Markets Susceptibility to Rates Rising

• Markets tend to pullback months before an expected rate hike

• In 2004 markets withdrew several months ahead of any rate hikes then ventured to consolidate thereafter

• Note however that is should not derail the markets longer term upward track – may provide several trading windows

The PSEi has also run ahead of the reality of rates rising by drawing on several months of corrective action

Perception runs ahead of reality… PSEi

PSEi and Rates Today

• Philippine Index has retreated in consolidation for the better part of 2013 and unto today

• May have already taken a good size of intended magnitude and duration

The SP500 continues with its channelled advance but bumped on its range highs and withdrew from overbought conditions

SP500 Review • Its advancing channel is still

secure but it does test its range lows at the moment

• Weekly RSI levels 4-weeks ago tagged overbought levels which initiated the present correction

• Support is expected at 1,730 - 1,690

• A rally may surface but may need one more reaction to complete its corrective drive

Spotlight on the US: SP500

Sup: 1,730 – 1,690 Res: 1,815 – 1,850

SP500

Overbought Levels

Europe may need to ease off a little more from recent range highs; while China remains down cast testing 1 –year lows

EUROPE & CHINA: RESISTANCE & SUPPORT CHALLENGE

Shanghai Index

Sup: 1,980 – 1,850 Res: 2,130 – 2,237

European Index

Sup: 315 – 300 Res: 330 – 340

Overbought Levels

The Euro has slightly improved and carries an upward bias; the US Dollar has shifted sidewards

CURRENCIES: EURO & DOLLAR

Euro-Dollar Index

Sup: 132.5 – 128.1 Res: 139.0 – 143.0

US Dollar Index

Sup: 80.20 – 78.85 Res: 81.50 – 84.70

Sup: 3.12 - 3.06 Res: 3.45 - 3.78

Copper

Sup: 1,200 - 1,180 Res: 1,290 - 1,400

Gold

Sup: 92.00 - 86.30 Res: 100.75 – 110.30

Oil

Metals still show weakness... wary of slowing growth in China and the consolidating Dollar; Oil stays perched on a wide range

COMMODITIES: Mixed showings

PHILIPPINE MARKET REVIEW

Peso reversed its firming trend after breaking above the P42 & P44 levels; resistance seen at P45.50 then P47.00

Sup: 44.60 – 44.00 Res: 45.50 – 47.00

PHILIPPINE PESO

PHILIPPINE PESO: Devaluating Trend

PESO • Philippine Peso has lost quite

a bit of ground since 1Q13 as flows back to the Dollar precipitated

• It has hit our intended target of 45.50 and but has not showed enough power as of yet to stop this devaluing trend that eyes P47 next

• However a divergence is noted on its weekly RSI – this may offer a possible reaction towards short term support at P44.60… maybe even P44.00 if the Dollar staggers

• Trading Buy on the Dollar into dips

Divergence

The PSEi proceeds to range within a reactive channel; a recent higher-low (5,700) offers a chance for a possible major base PSEi Review

• Index is cascading within a ranged channel whose current range breadth is 960-pts large (6,460-5,500)

• A recent and hopefully significant bottom was pinned out at 5,700 – this being our critical support

• Weekly and Daily MACD reads have shown some rally improvement contributing to the possible firming of its base out scenario

• Nevertheless a range trade is offered into the medium term looking a trading buys closer to 5,830-5,700 and selling points closer to 6,200-6,460 as pressing resistance bands

Spotlight on the Philippines: PSEi

Sup: 5,835 – 5,700 Res: 6,200 – 6,460

PSEi

PSEi shows itself within an extended corrective wave; could be driving out a tough 4rth-wave correction in the guise of a bear

PHILIPPINES: Elliot Wave Count

(Elliot Guideline # 2 notes:)

The forms for Wave 2 and Wave 4 will alternate…

• If Wave 2 shows a sharp correction, Wave 4 will be a flat

• If Wave 2 is flat, then Wave 4 will be sharp

ELLIOTS IMPULSE (BULLISH) WAVES

Wave 3 Cannot Be the Shortest

Wave

Wave 4 Cannot Overlap Wave 1

Wave 2 Cannot exceed low of

Wave 1

PSEI RUNNING ON A TOUGH WAVE 4

(PSEi notes:)

The Index still carries itself well above its Wave 1 top

• Its Major Up Trendline (5,760), which began in ‘09

remains intact

• But prices do stand below its 1-yr Moving Average

PSEi and other sub-indices have tagged 20% declines in shades of a bear… but generous downsides have already been registered

PHILIPPINES: A Bearish Tone

“A downturn of 20% or more in multiple broad market indexes…, over at least a two-month period, is considered an entry into a bear market”.

Index Current Top Date Change*

PSEi 6,011 7,403 5/15/2013 -18.80%

All Share 3,655 4,571 5/15/2013 -20.04%

Comm/Ind 8,861 11,177 5/15/2013 -20.72%

Financials 1,495 1,925 5/15/2013 -22.34%

Holdings 5,406 6,700 5/16/2013 -19.31%

Property 2,287 3,089 5/23/2013 -25.96%

Services 1,850 2,181 5/14/2013 -15.18%

Mining/Oil 13,551 28,102 4/26/2012 -51.78%

PSEi has crossed this 20% threshold three time since its 5/2013 Top Note: The tagging of this threshold several times in 9-months along with other related indices qualifies for the Bearish drift. On the positive front, these qualifications usually turn up once 80% or more of the intended move has been already accomplished.

* Net Change from its dated Top Note: Currently 5 out of 8 Philippine Indices stay crossed below a 20% Downturn

PSEi shows inclinations for a possible base as compared with a 2005 historical sample

PHILIPPINES: Moving On

Scenario 1: Rally & Consolidate

•2005-2006 showed a 5-pts pattern gradually grooming into a rally then to consolidate

• After the 5th drive, a rally was reinstated after higher-low bases were successfully drawn out

• Today we seem to be in similar pattern stand

• This could also be timely in asserting a credible rebound; but prices today stand below its 1-Yr Moving Average intoning less bullish calls in demand

PSEi Today

PSEi can still drift off into extended corrective cascades if recent lows are broken or retested

PHILIPPINES: Moving On

Few Months

• Could retest 5,700 or even 5,500

• Peso drags up to P47

• Will proceed until higher-low bases are confirmed and resistance breaches are seen

Scenario 2: Extended Correction

PHILIPPINES: Keeping its nose up

PSEi – Versus DMs & EMs (YTD)

PSEi Versus EMs & DMs: Keeping Itself in the Race

PSEi – Versus Asia (YTD)

PSEi stays ahead of DM and EM indices Indonesia & the Philippines: Top 2 in Asia

PSEi

MS WORLD

MS EMF

OBSERVATIONS:

• The Peso’s devaluation is still in trend though over-extended action shown by divergence calls may need some adjustment

• PSEi may yet need to complete its corrective sway but we are hopeful that much of corrective intent has been priced in

• In the Medium term, expect a wide consolidation pattern (6,460 - 5,500)

• In the short term, stocks may try to pull a rally out of a hat and recover to next levels of resistance (6,200-6,460)

• Given the consolidation and brief rally opportunities we will gear towards range trading – buying after support rebounds and take trading profits on resistance zones

• Best Actions in Corrective Consolidations – Always look for underlying strength, not just the heaviest declines

– Watch for higher-low bases / clear support frames to push trading buys

– Watch for possible oversold readings or bullish divergences in fallouts

– Exercise patience and keep with your view to buy out of good sense

• Exercise prudence in targets , diligence in following support – Target next resistance zones estimated by tops or averages

– Sell some on established resistance points to earmark gains

– Avoid buying after several days of advances

– Always know when its time to quit – utilize stops on support ledges

• Medium to Long Term View – Buy dips from henceforth as corrective magnitudes are fairly done in

TRADING STRATEGY:

Sectoral View: Stronger Formations

Services

Financials Property

Holdings

Sectoral View: Less Impressive

Commercials/Industrials Mining/Oil

•Lower-lows were still shown •Heavy oversold levels may need some adjustment

•May have a kicker if somehow metals can rally further – particularly if the Dollar allows it (further pullback in the greenback)

TRADING STRATEGY: Showing Good Traction

Support Retest

‘A Good Anchor is when you Have Both Feet on the Ground’

‘Watching for a Foothold’

• Allow reactive swings to call out a firm base

• If price > 32-day MA then: • Buy rebounds off short term

averages (16 or 32 day)

• Preferably Positive MACDs

• On our radar: • AC, AGI, AP, AUB, BDO, BEL,

BPI, COAT, DMC, DNL, EDC, EEI,EMP, EW, FDC, FGEN, FPH, GLO, ICT, LR, LTG, MBT, MEG, PAX, PCOR, PGOLD, PNB, RRHI, SCC, TEL, & UBP

Higher-Low 16-day MA 32-day MA 65-day MA

MBT

‘When the Ground is Soft, Take More Careful Steps’

‘Not Every Rebound is Right’

• Corrective trendlines breaking should alert of a possible reversal / rally

• Successful support retests or higher-low fronts add demand

• Durable breaks above the 32-day or even the 65-day may announce Up Trend reinforcement

• Stops placed on recent lows

• Find positive MACDs

Stronger Support Base

Wait for break above 32-day

TRADING STRATEGY: Wait for proper setups

Positive MACD

16-day MA 32-day MA 65-day MA

EDC

Stock Price 32-MA MACD RSI Support

(1) Support

(2) Resist

(1) Resist

(2) AC 535 527.5 Buy - 52.01 515 508 550 572 ALI 26.35 26.03 Sell - 50.69 25.35 24.17 26.35 27.7

BDO 79 74.34 Buy + 60.5 78 76.8 80 85 DNL* 6.99 6.73 Sell + 60.27 6.94 6.73 7.3 7.77 EEI* 10.06 9.97 Sell + 51.79 9.8 9.29 10.58 11 MBT 77.75 76.11 Buy + 56.05 75 70 80 85 MEG 3.74 3.45 Buy + 67 3.58 3.45 3.8 3.92

SMPH 14.98 14.66 Buy - 52.4 14.46 14.1 15.51 16.3 TEL 2686 2682 Sell - 50.7 2,600 2,572 2,695 2,805

*Subject to illiquid threats into reactions

** Price is either close to resistance and/or almost overbought

MODEL PORTFOLIO: Technical Review

• Global markets will seesaw as money flows will rotate

• DMs have held and may yet hold attention (after completing corrections) along with some stronger EMs

• US Bond yields to continue to ease then consolidate – deflating any rush up in interest rates

• The Peso may need to show some technical adjustments but is still prone to devaluation

• The PSEi attempts to carry a higher base (at 5,700) though still driving an ongoing consolidation pattern (5,500-6,460)

• Range trading into stronger stocks are recommended or buy (to accumulate) into dips with medium to long term views

SUMMARY:

“A pessimist sees the difficulty in every

opportunity; an optimist sees the

opportunity in every difficulty.”

― Winston Churchill

Thank You!

JUAN G. BARREDO CHIEF TECHNICAL ANALYST JUANIS.BARREDO@COLFINANCIAL.COM