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 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.

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 index is trading above its 50-DMA after rebounding from the 100-DMA. We recommend that investors focus on quality ideas that are building the right side of a base or are holding within pivot. Trim ideas that are extended above or lagging below key moving averages.
  • Seven of 13 markets are in a Confirmed Uptrend, four are in an Uptrend Under Pressure, and two are in a Rally Attempt. We shifted the Philippines to a Confirmed Uptrend from a Rally Attempt after it had a follow-through day today.
  • The average number of distribution days has declined to 3.4 from 4.3 last week mainly due to expiration and is below an elevated level of four.
  • We are noticing early signs of rotation into Health Care. Momentum has improved over the trailing four weeks. Refer to page 6 for our sector rotation graph, which displays Health Care’s progress since August 2019.
  • Refer to page 7 for Health Care stocks that are building the right side of a base or trading near a pivot.
  • Highlighted Focus List idea: Jinxin Fertility (JIFG.HK). Refer to page 5 for an annotated chart.

Electric Vehicles

Posted on by Derek Higa

Key points from this report:

 

  • Beginning in H2 2020, OEMs have rallied after a multi-year decline. Many are trading at a higher valuation based on current PE ratio. However, valuation is comfortably below the five-year average based on 2021 and 2022 estimates.
  • Volkswagen, General Motors, and Hyundai are trading at a premium to their peers due to announcements and significant steps in electric vehicle (EV) manufacturing. However, it is only a slightly higher premium as it is difficult to determine winners at this early stage of EV adoption. We believe a significant rerating could still be in store for select companies.
  • Profits will remain under pressure until EVs achieve parity with internal combustion engine (ICE) vehicles. Therefore, we believe it is still early. It will take 10 years or more for EV adoption to overtake ICE despite the euphoria over the last year. By 2025, EV is estimated to be 10–15% of total auto sales. Battery cost reduction and dedicated platforms will be the key factors in reducing cost.

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 index is testing 100-DMA support and faces stiff resistance at the downward trending 50-DMA (+2%). Focus on fundamentally strong ideas with good technical ratings that are trading near pivot. Avoid extended names.
  • We upgraded China to a Confirmed Uptrend from a Rally Attempt on Monday. Refer to our China Market Update for more details.
  • Leading markets Australia, Singapore, South Korea, and Taiwan are trading at or near 52-week highs. They are extended and could be due for near-term consolidation.
  • Refer to pages 9 and 10 for near-pivot and extended ideas in Confirmed Uptrend markets.
  • Distribution days are rising in Japan and India as both remain in an Uptrend Under Pressure amid rising COVID-19 cases. The TOPIX has breached 50-DMA support for the first time since October 2020. Indian Financial stocks are dragging down the Sensex and Nifty.
  • In India, the Financial, Retail, and Consumer Cyclical sectors have underperformed over the last few weeks. Health Care, Basic Material, and Consumer Staple are holding up well.
  • Highlighted Focus List idea: PI Industries (PII.IN; PI IN)

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 faces resistance at the 21-DMA and is testing support at the 100-DMA. Focus on quality ideas and avoid stocks extended or trading below key moving averages.
  • We have seen market sentiment improve over the last few weeks with the average number of distribution days declining each week. However, a surge in COVID-19 cases could become a concern. The number of cases in APAC has been accelerating since the end of March, mainly led by India.
  • In APAC, the Utility sector is leading over the long term with improving momentum. The Financial sector is also outperforming, moving into the top right quadrant of our Sector Rotation graph over the last two weeks.
  • Consumer Staple has been lagging over the last 52 weeks. The spread between it and the leading sector is the highest it been over the last six months. However, we are noticing improvement in shorter-term RS, which could be the beginning of a reversion in the near term. Many large-cap stocks in the sector are still forming a base. Look for these stocks to break out before turning constructive. Refer to pages 8 and 9 for notable stocks from the Consumer Staple, Financial, and Utility sectors.

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 reclaimed its 21-DMA. However, it continues to find resistance below its 50-DMA. We recommend looking for ideas with leadership characteristics and avoiding extended ideas.
  • Four markets are in a Confirmed Uptrend, five are in an Uptrend Under Pressure, and four are in a Rally Attempt. The average number of distribution days has declined to less than 5 and currently stands at 4.8.
  • Value stocks have outperformed since the spread between growth and value peaked in February. Refer to page 7 for a price comparison chart of the MSCI Asia growth versus value indices.