Author: Kenley Scott

Kenley Scott is a senior equity analyst and sector strategist covering the APAC region and the Energy sector. He is a member of the Global Focus List Committee, which approves all equity recommendations for developed, emerging, and frontier markets. Kenley also writes the Global Sector Summary, part of the Sector Strategy service, which identifies emerging sector strength and weakness across 46 countries every week. After working as a commodities broker, Kenley joined the firm in July 2006. He has a B.S. in Statistics from the University of California, Riverside and also holds a Series 65 securities license.

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

  • On a YTD-basis, the Nasdaq is leading the equal-weight S&P 500 and the Russell 2000 indices by 29-30%. It is also beating the S&P 500 by 15%. This is an abnormally wide spread.
    • Average annual spread of best to worst index since 1970 is 16%. Above 30% has only been surpassed once since 2000.
    • Since July, mega-cap Tech has further dominated, pushing the relationship versus small-caps to extreme levels.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

TechnipFMC (FTI) – $9B market cap – Technicals: The stock retook its 50-DMA after it pulled back from a multi-year high. It has mixed
fundamental ratings like a strong EPS Rank 81 and an yet to improve SMR Rating of D. Technical ratings are strong like RS Rating of 97, A/D
Rating of B-, and Up/Down Volume ratio of 1.2. Look for secondary entries off rising 50-DMA (currently $19.57). Company Description:
TechnipFMC is the world’s largest subsea and offshore oilfield services company. It provides integrated solutions for the oil and gas industry and
energy transition across the world with current operations in 41 countries.

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

 

  • With Q3 earnings approaching, a look at the last quarter and forward expectations.
    • In Q2, S&P 500 companies beat EPS estimates by 5%, a bit more than normal… yet had clearly negative reactions.
    • The S&P 500 was down around 4% from the beginning of Q2 earnings season until end of last week, but median stock performance was -9% post-results.
    • Six sectors down median of double digits. Energy and Technology were the best two at -3% median.
  • For Q3, companies expect a median of 3% sales and 4% EPS growth. Over the last 90 days, revisions have been slightly downward.
    • Overall S&P 500 median -1% versus 90 days ago.
    • All sectors except Technology and Cyclical down.
    • Materials and Transports estimates have come down double digits.
  • For full-year 2023 and 2024, most companies have seen negative revisions most recently.
    • For 2023, 44% of S&P 500 companies have had last estimate revised down.
    • For 2024, 43% of S&P 500 companies have had last estimate revised down.
    • Energy is the only sector with positive latest revisions for both years.
  • Looking back at the past two quarters, the market setup was the opposite. Indices rallied into the start of earnings but wavered after.
    • In Q1, the S&P 500 rose 7% over the prior four weeks before earnings but was down slightly over the next four.
    • In Q2, the S&P 500 rose 3% over the prior four weeks before earnings, continued a bit higher but then rolled over aggressively.
    • Into Q3, the S&P 500 is down 4% over the prior four weeks into the first week of earnings.
  • Two quick related screens yielding interesting results:
    • Stocks with positive earnings reactions after Q2 results and with overall positive recent earnings and forward outlook. Ex: ROP, TT, SNPS, ANET, NVDA.
    • Stocks with negative earnings reactions after Q2 results and with overall positive recent earnings and forward outlook. Ex: CARR, JPM, COST, ADBE, NOW.
    • See attachment for full screen criteria and list of stocks.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Vista Energy (VIST) – $2.7B market cap – Technical: The stock has pulled back to its pivot range after breaking out of a six-week flat base last week. The rising 10-WMA has been acting as a strong support level on the downside since September 2022. Fundamental profile: EPS Rank 35, Composite Rating of 90, and SMR Rating of B. It has solid double-digit EPS growth estimates for FY23 and FY24.

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

 

  • Seasonal averages have played out fairly well this year and to an exaggerated degree in the case of the Nasdaq Composite.
  • After getting through a somewhat anticipated tough Q3 period, the Q4 seasonal picture does look better.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Below is a chart of the O’Neil Energy Sector on a quarterly basis, going back to 1970. A couple of points on the chart:

 

  • Up until the mid-2010s had held a very long-term uptrend even throughout several prior bear markets.
  • Energy is the only of 11 O’Neil sectors that never made it back to its 2008 peak. 2008 was also the last RS line all-time high.
  • Relative Strength (RS) line versus the S&P 500 has had the tendency to move in one direction for a sustained period of time. The 1970s was mostly higher, 1980s and 1990s mostly lower, 2000s mostly higher, 2010s historically lower. So far in the 2020s, it has made a decent move higher.

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

 

  • QQQ is best major global index over 1-year, with a 31% gain. Developed markets have averaged a 13% gain while emerging markets are up 15% on average (just 4% median stripping out outliers Turkey and Egypt).
  • Looking at QQQ versus four areas: US Small-cap (IWM), Global ex-US (ACWX), Developed (EFA), Emerging (EEM)..see that nearing extreme levels versus IWM and EEM but not versus ACWX or EFA.
    • +22% vs IWM over 1 year, better only 7% of all weeks since 2001.
    • +23% vs EEM over 1 year, better in 20% of all weeks since 2003. Recently hit a +30% peak which is better than all but 7% of weeks.

Global Sector Strategy

Posted on by Kenley Scott

Key points:

 

  • As oil prices rise once again, interesting look back at relationship between oil/10-yr. yield. Has been mostly in line directionally since 2016, with a couple of short divergences
  • Now looking over five years, since 2019, and as oil prices have averaged a 17% annual gain, best and worst O’Neil Major Industries
  • Want to follow clues from this to look for good areas should oil continue to rise.
    • Looking for five-year winning groups combined with 2023 YTD winners, and stocks with rising RS Ratings as oil is up 20%+ over 10 wks.
    • See attachment for a few dozen ideas. Well represented include Comml. Svcs. (TTD, CTAS), Autos (TSLA, RIVN), Refiners (MPC, PBF), Insurance Brokers (RYAN, ERIE), and Database/Enterprise/Financial Software (SPLK, WDAY, NTNX, NOW, BRZE, NCNO).

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

USA Compression Partners (USAC) – $2.2B market cap – Technicals: The stock broke out of a stage-two consolidation base and is trading in
the buyable range (pivot $22.0-23.0). Fundamental profile: EPS Rank 75, Composite Rating of 97, and SMR Rating of C. Excellent technical
profile: RS line is sloping upward with a strong RS Rating of 84. Up/Down Volume ratio of 1.4 and A/D Rating of A- denote good accumulation.

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

 

  • Comparing the current bull market start to those in the past:
    • On the DJIA, a gain of ~20% after the first nine months is below the median 26% gain, but still an ok start.
    • Comparing ARKK to the Nasdaq 2002-on period, fairly similar start after the first 175 trading days. ARKK has been more volatile and with more upside, after seeing a bit more overall downside in the bear market.
    • Comparing the S&P 500 now, versus the 2002 and 2009 bull market beginnings. Tracking very closely to 2002, but lagging 2009 sharply. Overall, looks like reasonable start.