LOCAL SHARES may tread lower this week as investors pocket gains following the five-day rally of the main index since end-October.

The bellwether Philippine Stock Exchange index (PSEi) picked up 40.92 points or 0.61% to end Friday’s session at 6,685.69. On a weekly basis, it went up 361.69 points or 5.7%.

The market’s performance last week brought the PSEi to its highest level since entering bear market territory in March, when the coronavirus outbreak was declared a pandemic.

During last week’s four days of trading, value turnover fell 29% to an average of P8.53 billion. Foreign investors turned net sellers, posting average net outflows of P123.77 million from average net inflows of P392.86 million in the prior week.

The PSEi’s rise last week  was primarily attributable to the wave of corporate earnings reports, which showed that while year-on-year figures are down, quarter-on-quarter revenues and profits are improving, 2TradeAsia.com said.

“Nearly 85% of PSEi constituents have reported nine months earnings and as expected, the numbers left little to be desired on year-on-year terms, but are significantly better sequentially,” it said in a market note.

“More importantly, third quarter’s quarter-on-quarter recovery sets up an inflection point for a never-look-back scenario for 2021 earnings, supported by hopefully zero lockdown days and the transition from ‘crisis’ to ‘rehab’ management by state authorities,” it added.

However, the brokerage noted that the likelihood for 2021 earnings to rise by 20-25% is “not achievable, and valuations should therefore likewise catch up.”

“The local bourse has already rallied for five straight days, so we may see a pull back in this week’s trading amid profit taking,” Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said in a text message.

Since Oct. 30 and throughout last week, the PSEi maintained its climb and recorded two straight days of increases of more than 2%, posting a 2.05% growth on Nov. 4 and 2.8% on Nov. 5.

“[T]he local bourse could keep its ground above its 10-day exponential moving average which is currently at 6,436.29,” Mr. Tantiangco said.

Aside from the conclusion of the United States elections that favored Democrat Joe Biden, this week’s primary market drivers would remain corporate earnings reports, and the release of the Philippines’ third quarter gross domestic product data on Tuesday.

“If the figures show improvement compared to their second quarter counterparts, then it may also help in sustaining optimism. Downside risks seen for this week’s trading include a post-election protest in the US which could lead to a turmoil,” Mr. Tantiangco said.

Mr. Tantiangco put initial support for the market at 6,600 and next support at 6,436.29, with resistance at 7,150. 2TradeAsia.com placed initial support within 6,500 to 6,600, secondary at 6,250, and resistance at 6,750. — Denise A. Valdez