Author: Derek Higa

Derek Higa is a senior equity analyst and a lead for the APAC region and the Consumer Cyclical sector. He serves on the Global Focus List Committee, which approves all equity recommendations for developed, emerging, and frontier markets, and compiles Asia Watch, a weekly recap of regional investing news. Since joining William O’Neil + Company in 2005, he has lent his market expertise to alpha capture, product development, and historical studies on outperforming stocks. Derek graduated summa cum laude from California State University Los Angeles with a B.S. in Finance and Information Systems. He holds a Series 65 securities license.

APAC Market Update

Posted on by Derek Higa

Key points from this report:

 

  • Following our upgrade of Hong Kong on May 26, we are upgrading Taiwan to a Confirmed Uptrend and shifting India to a Confirmed Uptrend from an Uptrend Under Pressure. Japan has not had a technical follow-through day, but we remain encouraged by price and volume action in the Nikkei and TOPIX this week. Both could rise above short-term resistance next week.
  • Across APAC, mega-cap ideas have lagged. They have found support at recent lows, but several have yet to retake their 50-DMA.
  • After today’s status change, seven out of 13 APAC markets, including Taiwan and India, are in a Confirmed Uptrend, three are in an Uptrend Under Pressure, and three are in a Rally Attempt. The average number of distribution days has fallen to 3.1 and is below the elevated level of 4.0. Refer to page 3 for APAC Market Conditions.
  • We recommend gradually increasing risk as markets strengthen. Refer to pages 3-6 for stocks near pivot in Taiwan, India, and Japan.

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • We are encouraged by the recent price and volume action in markets. The number of distribution days is declining, and major indices are either attempting to reclaim their short-term moving averages or have already done so. We continue to wait for follow-through days in Japan and Taiwan, which would tip the scale to a Confirmed Uptrend in APAC.
  • In APAC countries, the share of the population that is fully vaccinated is in the low single digits, compared with 5% worldwide and more than 35% in the U.S. Vaccination will be key to economic recovery and could be correlated with market performance.
  • The MSCI Asia Pacific growth index has pulled back sharply from February highs while the value index has traded sideways. Currently, the one-year performance of both indices is similar. The MSCI APAC small-cap index has outperformed large- and mid-cap indices during this period.
  • Stocks breaking out in the Health Care and Consumer Staple sectors have improved recently. The number of breakouts is near five-year highs for Consumer Staple while the number of breakouts in Health Care has stabilized after a sharp decline in the second half of 2020.
  • Refer to pages 11 and 12 for stocks near pivot.
  • Highlighted idea: Hygeia Healthcare (HYHH.HK; 6078 HK).

APAC market update

Posted on by Derek Higa

Key points from this report:

 

  • We are upgrading Hong Kong to a Confirmed Uptrend from a Rally Attempt after the Hang Seng staged a day-42 follow-through day. The index was up 1.8% on strong day-over-day volume. Refer to page 2 for an annotated chart of the Hang Seng.
  • The index is trading 7% below its February high (31,183). Next resistance is between 29,400 and 29,600 (+2%). Look for it to clear immediate resistance and hold above key moving averages to increase conviction.
  • We recommend gradually increasing risk. Focus on stocks with leading relative strength or breaking out of sound bases. Refer to pages 3 and 4 for a list of stocks near pivot.
  • Over the past eight weeks, Health Care stocks in Hong Kong have been outperforming. However, today’s move was led by Technology and Retail stocks.
  • Mega-cap Technology names have lagged and have yet to retake their key moving averages.
  • Actionable Focus List ideas: China Merchants Bank (CMBC.HK; 3968 HK), Zhongsheng Gp. Hdg. (ZSG.HK; 881 HK), and Hygeia Healthcare Hldgs Co (HYHH.HK; 6078 HK).

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Index faces resistance at the 50-DMA, with immediate support at the 200-DMA (-5%). We continue to recommend a cautious approach. Be patient and wait for market volatility to settle before turning constructive.
  • Five of 13 markets, including China and India, are in an Uptrend Under Pressure, two are in a Confirmed Uptrend, four are in a Rally Attempt, and two are in a Downtrend. The average number of distribution days stands at 4.6, compared with 5.3 last week. It is at an elevated level.
  • Value oriented sectors like Basic Material, Transportation, and Utility are outperforming over the past 13 weeks since February highs.
  • Focus List removals have increased since March. The breakdown in growth ideas remains concerning. Additions to our Focus List have also declined over the last few weeks.
  • Surprisingly, the bright spot has been India, where we removed the fewest number of ideas. Mid- and small-cap ideas in India are holding up well despite economic concerns.

Social Media

Posted on by Derek Higa

Key points from this report:

 

  • 2020 was a wash for global traditional advertising. Ad spend for out-of-home advertising, magazines, newspapers, and others declined 16% y/y. Although overall advertising spend was marginally up 1% y/y, it was buoyed by digital advertising growth of 13% y/y.
  • Digital ad spend growth was driven by social media as engagement trends shot up during the pandemic last year. The share of display ads is increasing in comparison to search ads.
  • This scenario is stronger in the U.S. where digital ad share is expected to reach 75% of total U.S. ad spend in 2024, compared with 68% globally. The share of social media spend increased to 30% in 2020 from 22% in 2016.
  • Apple’s new iOS update could be a headwind. Based on research by AppsFlyer, opt-in rates are expected to be a lot better than the wide range of 2-20% estimated by the industry. However, there is reason to believe it can have a short-term transitory effect like GDPR.

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia ex Japan index has declined below March price support after facing stiff resistance at the 50- and 100-DMA. We recommend trimming profits on extended ideas (i.e., those trading the most above moving averages or pivots). Focus on ideas holding above prior support and above key moving averages with rising relative strength.
  • A majority of markets (seven) are in an Uptrend Under Pressure, three are in a Downtrend, and two are in a Rally Attempt. Only Australia, South Korea, and Thailand are in a Confirmed Uptrend.

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

  • The MSCI Asia ex Japan has hit resistance at the 50-DMA and breached 100-DMA support. Be prudent and selective. Trim extended ideas and those trading below support. Focus on quality ideas and those with rising relative strength.
  • Six of 13 markets are in a Confirmed Uptrend, five are in an Uptrend Under Pressure, and two are in a Rally Attempt. The average number of distribution days has risen above the elevated level of four and stands at 4.5, compared with 3.4 last week.
  • Taiwan is among the best performing markets over the trailing 52-weeks. However, we believe the TAIEX is extended, currently trading 18% above its 200-DMA. We expect it to continue to pull back in the short term. Refer to page 9 for an annotated chart of the TAIEX index.
  • Small-cap stocks are outperforming, led by the Basic Material sector. Refer to page 10 for a Sector Rotation Chart and pages 5–8 for a price comparison of large-, mid-, and small-cap stocks in India, Hong Kong, Japan, and APAC.
  • The Indian market has been volatile over the trailing three weeks. Small-cap stocks have reclaimed outperformance in the short term following earnings announcements.

O’Neil Financial Sector Weekly

Posted on by Derek Higa

Financial gained 2.6% over the last five trading days and 5% over the last four weeks.

Over the last five sessions:
Leading: Finance-Consumer Loans, Banks-Northeast, Finance-Mortgage REIT and Insurance-Life.
Lagging: Finance-CrdtCard/PmtPr, Insurance-Acc & Health, Finance-Mrtg&Rel Svc.

Facebook

Posted on by Derek Higa

Key points from this report:

 

  • We reiterate or buy recommendation on Facebook as shares break out to new highs from a 31-week consolidation base on strong volume following better-than-expected Q1 results.
  • Technical ratings: RS line is trending up toward new highs. RS Rating of 56 and A/D Rating of A-.  Up Down Volume Ratio of 1.2 and positive A/D Rating indicate strong institutional support.
  • Fundamental ratings: Solid EPS Rank of 96 and SMR Rating of A. EPS growth estimates for 2021 and 2022 have been revised upward.
  • Ad revenue growth is accelerating, mainly led by strong demand that has boosted price per ad. FB will double down on its investments in commerce and creator tools for future growth. Q2 revenue growth expected to accelerate slightly from 48% or remain stable, higher than street estimates of 36% y/y.
  • Management believes that IDFA changes will be a headwind in 2021 and the challenges are manageable. It is working with its advertisers to mitigate the IDFA effect and believes that privacy-protected personalized ads are good for business and people.