The U.S. market remains in an Uptrend Under Pressure. The S&P 500 and Nasdaq are back below their 100-DMA and remain under distribution. Indices are testing price support along ~4,200 and 14,200, respectively, followed by moving average support at their rising 200-DMA (S&P 500: 4,140; Nasdaq: 13,968). The distribution day count stands at six and seven on the S&P 500 and Nasdaq, respectively.
Author: Gaghan
WON Europe Today
Yesterday,
- European markets closed in the red due to concerns about rising inflation and slowing down of global economic growth. We recommend that investors avoid adding any new risks as major indices are trading below their key support levels and the distribution day count remains high.
- The Stoxx 600 lost 0.47%. The index is trading below its 50-DMA with support at the low of a current base followed by the 200-DMA. On the sectoral front, Technology sector was the major decliner.
- Major indices like France’s CAC, Germany’s DAX, and the U.K.’s FTSE 100 closed in the red on lower volume. All the three indices are trading below their 50- and 100-DMA with support at the 200-DMA.
- The majority of indices we cover closed in the red. Norway and Portugal gained the most and were upgraded to a Confirmed Uptrend after the indices reclaimed their prior rally highs. Denmark and Ireland recorded a distribution day each, taking the average distribution day count to 6.94.
- Actionable names in the Focus List include Darktrace ( DARK.GB; DARK:LN ), Ashtead ( AHT.GB; AHT:LN ), Rentokil Initial ( RTO.GB; RTO:LN ), and B&M European Value Retail ( BME.GB; BME:LN ).
WON Europe Today
- European markets continued to consolidate and ended in negative territory on low volume with none recording a
distribution day but the count remains elevated at 6.9. We recommend a cautious and patient approach to adding
risk as indices are consolidating in a choppy fashion below their respective 50-DMA. -
The Stoxx 600 is trading 1% below its 50-DMA and has a good support at its 200-DMA. On the sectoral front, all
major sectors were in the red barring Travel & Leisure and Utility stocks. -
Among other major indices, France’s CAC continues to find resistance at its 100-DMA and support at its 200-DMA.
Germany’s DAX continued to trade below its 100-DMA and remains in an Uptrend Under Pressure. The U.K.’s
FTSE 100 is finding support at its 50-DMA with nine distribution days. -
Among the 17 indices that we track in Europe, barring Austria, all are in an Uptrend Under Pressure.
Actionable names in the Focus List include Darktrace ( DARK.GB; DARK:LN ), Ashtead ( AHT.GB; AHT:LN ), Rentokil
Initial ( RTO.GB; RTO:LN ), Euronext ( ENX.FR; ENX:FP ), and B&M European Value Retail ( BME.GB; BME:LN ).
Won Global View
The U.S. market remains in an Uptrend Under Pressure. The S&P 500 and Nasdaq gapped down back below their respective 50-DMA last Tuesday and are now trading around their respective 100-DMA after staging upside reversals Friday. Both will now enter their fifth week of consolidation with support at ~4,200 and 14,200, respectively, and resistance at a flattening 50-DMA (S&P 500: 4,443; Nasdaq: 14,909). The distribution day count increased sharply to five and seven, respectively, with no expiration this week.
O’Neil Capital Equipment Sector Weekly
SMC Corp (SMCC.JP; $47B market cap; $95M ADV): We added SMC to our Developed Markets Focus List as the stock broke out of a stage-one 30-week consolidation. SMC is a global leader in pneumatic control equipment with a 38% market share and may benefit from the increased demand driven by factory automation trends. It has also invested heavily in expanding its manufacturing capability, inventory management, and R&D. Consensus expects a revenue CAGR of 13% and EPS CAGR of 16% over FY20–22. Click here for the detailed note
Broadcom
Key points from this report:
- Accumulate: We recommend that investors accumulate Broadcom shares as it is breaking out of a stage-two 26-week consolidation following Q3 FY21 earnings.
- Decent technical ratings: It has an RS Rating of 67. Volume trends are good with an A/D Rating of B- and Up/Down Volume ratio of 1.0. The company belongs to the leading Semiconductor Fabless industry group, which is currently ranked 5 out of 197 groups in our database.
- Solid fundamental profile: EPS Rank 87. SMR Rating of A. Broadcom has strong defensive characteristics (dividend yield of 2.9% and exposure to diversified end-markets) along with exposure to some secular trends like 5G and cloud that make it a good addition to a defensive growth portfolio.
- Near-term growth driven by launch of iPhone 13: Broadcom is a direct beneficiary of the upcoming iPhone 13 launch later this month as Apple is its largest customer and accounted for 24% of revenue. According to Taiwan media reports, Apple has ordered 100M processor chips for its upcoming iPhone 13, an 11% increase from the prior estimate of 90M. Additionally, it has asked its supply chain to increase iPhone 13 production 20% over the iPhone 12. All these data points suggest strong demand for iPhone 13.
- Broadcom is one of the best dividend-paying stocks in the semiconductor industry, with 2.9% dividend yield. Strong cash flow generation has boosted the company’s annual dividend from $7 in FY18 and $13 in FY20 to $14.4 currently. For FY21, consensus expects FCF of $13.4B, up 16% y/y from the $11.6B recorded in FY20.
O’Neil Capital Equipment Sector Weekly
Omron ( OMRN.JP; $20B market cap; $50M ADV ): We added Omron to our Developed Markets Focus List as the stock broke out of a stage-one 51-week cup-with-handle base and is trading at a 52-week high. Omron manufactures components for industrial automation, healthcare, transportation systems, solar PV, and mechanical applications.
The company is expected to benefit from the demand for factory automation solutions for EV battery and semiconductor manufacturing, rising market penetration in bloodpressure monitors, and its focus on high-margin products.
U.S. Economic Summary
Q2 GDP expanded 6.6% :
The U.S. economy grew 6.6% in Q2, according to the second estimate, 10bps below consensus but 10bps above the
advance estimate. The expansion for the quarter reflected an increase in personal consumption expenditures,
non-residential fixed investment, exports, and state and local government spending.
• Personal spending in line with consensus:
Personal spending increased 0.3% m/m in July. The increase was mainly due to higher spending on services, while
spending on goods declined. Within services, increases were widespread across all spending categories, led by food
services and accommodations. Within goods, decreases were widespread across most spending categories, led by
motor vehicles and parts, recreational goods and vehicles, and clothing and footwear. These decreases were partly
offset by an increase in gasoline and other energy goods.
• The 10-year bond yield stabilized:
The 10-year yield stabilized in August and gained 8bps in the month after declining ~20bps in July and closed at 1.30%.The yield remained flat during the first two weeks of September.
O’Neil Capital Equipment Sector Weekly
Volvo ‘B’ ( VOBF.SE; $35B market cap; $84M ADV ) plans to acquire JMC Heavy Duty Vehicles, a subsidiary of Jiangling Motors ( JAU.CN; $3B market cap; $44M ADV ) for SEK 1.1B. In 2020, Volvo had to import over 4,500 trucks into China, but this acquisition will allow the company to start production in China as it includes a manufacturing plant. Volvo could start production of its FH, FM, and FMX range of trucks in Taiyuan, China by the end of 2022. It might expand the plant’s annual capacity to 15,000 trucks in the long term. The stock has declined 19% from its 52-week high and is trading below its 50- and 200- DMA. It has a declining RS line with a low RS Rating of 30 and an A/D Rating of D-. Avoid.
Won Europe Today
We released our Weekly European Summary yesterday ( please click here to access the report) . Key points include:
- The Stoxx 600 gained 142bps last week and is trading at an all-time high. It is in a Confirmed Uptrend with four
distribution days. - Of the 17 indices we cover, 15 are in a Confirmed Uptrend and two in an Uptrend Under Pressure. We upgraded
Germany and the U.K. to a Confirmed Uptrend. The average distribution day count has come down to 4 compared
with 5.59 last week. - All the sectors closed in positive territory, with Health Care and Transportation being the top gainers. Our rotation
chart highlights improving momentum in Health Care, Technology, and Finance sectors.
Last week, we added Kering ( KER.FR; KER:FP ) to our Focus List and removed Zooplus ( ZO1X.DE; ZO1:GR ) and
Boozt ( BOZT.SE; BOOZT:SS ). Other actionable names in the Focus List include Airbus ( AIRS.FR; AIR:FP ), Halma
( HLMA.GB; HLMA:LN ), Moncler ( MONC.IT; MONC:IM ), and Trigano ( TRI.FR; TRI:FP ).
