The outlook for the Philippine Composite Index (PCOMP) has turned sour when it broke its long term support a couple of weeks back. Over a longer term, though, it seems that the index could fall into a deeper ditch.
But before the index plunges, it could first rally up to around 4,100 to 4,300 as what I’ve written in my previous post (kindly see it here). As you can see on its weekly chart, the index has formed a bullish hammer candlestick pattern following its sharp descent. This suggests a possible pick up in the near term. However, if you take a look at the index’s movement since October of 2010, a bigger head and shoulders pattern could be forming especially if a rally towards 4,100 to 4,300 occurs. If this is me, I would take a closer look at the coming rally and see if it slows and turns at the level that I mentioned. Because if it does then the index could indeed be forming a big head and shoulders that will eventually reverse the whole uptrend that it had since its bottom back in 2009.
If the recent long term uptrend gets reversed by a succesful breach below 3,700 then the index could fall into one of its Fibonacci retracments levels (38.2%, 50%, 61.8%) which is at 3,500, 3,200, and 2,800, respectively.