INVESTORS could choose to take profits this week with the stock market seen to be overbought, analysts said, but upcoming data may help sustain the Philippine Stock Exchange index's (PSEi) bull run.

The benchmark index last week hit over two-and-a-half year highs, surging to the 7,400 level amid optimism over interest rate cuts and after the Bangko Sentral ng Pilipinas (BSP) slashed bank reserve requirements.

It slipped on Friday, closing at 7,428.30, but was still 2.4 percent up from the previous week. It has now gained for four straight weeks.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said the bourse remained in a bull market, having risen by 20.6 percent since June 21, 2024's year low of 6,158.48.

Philstocks Financial Inc. senior research analyst Japhet Tantiangco said the PSEi "may see episodes of profit taking this week as the market is technically overbought as per its relative strength index, [but] the general direction of the bourse is still projected to be upwards."

"Optimism towards the dovish monetary policy stances both here and abroad are expected to help in sustaining the market's movement," he added.

Tantiangco said that sentiment could be boosted by the BSP's latest confidence surveys, which showed that consumers and businesses were optimistic about the fourth quarter and next 12 months.

"Investors are also expected to look towards the upcoming S&P Global Philippines Manufacturing PMI and the September inflation data for further clues on the local economy," he added.

The S&P Global Philippines Manufacturing PMI will be released on Tuesday while September inflation data will come out on Friday.

Unicapital Group head of research Wendy Estacio-Cruz said the market's momentum remained strong after a Friday's pullback.

"We are currently looking at fresh catalysts locally, such as the PH inflation and unemployment rates that are to be released on October 4 and 8, respectively," she said.

"These will indicate how much more rate cuts will the BSP implement for the remainder of the year."

Ricafort said the BSP could follow up last month's 25-basis point rate reduction with a 25-bps cut on October 17 and again on December 19.

He also noted that Finance Secretary Ralph Recto, a member of the BSP's policymaking Monetary Board, had indicated that the central bank could match the US Federal Reserve's jumbo 50-bps cut last Sept. 18, 2024.

Online brokerage firm 2TradeAsia, meanwhile, said "more volatile trading action is expected over the upcoming months as markets head into the last stretch of the year."

It noted that the fourth quarter tended to have heightened activity given portfolio adjustments in anticipation of the coming year.

"Earnings in late October to mid-November should provide excitement in the very short term, with central bank meetings interspersed in [fourth quarter] driving the overall tone for participants," it added.

"The additional liquidity from the reduction to the RRR (reserve requirement ratio) and policy rate cuts should help fuel the PSEi's ambition to get past 7,500."

2TradeAsia said that "there is historical selling pressure around the benchmark's current trading range, but the yield curve steepening and 'dis-inverting' should support more consistent inflows as the appeal for bills and short-term income securities evaporate relative to riskier assets."

Immediate support this week would be at 7,100-7,400 and resistance at 7,500-7,700, analysts said.