ChampionX Corporation (CHX) – $7B market cap – Technicals: The stock is breaking out of a stage-one 23-week consolidation (pivot:$33.65). Solid fundamental profile: EPS Rank 79 and SMR Rating of B. Strong technical setup: RS Rating of 93, A/D Rating of B, and Up/Down Volume ratio of 1.7 indicate strong accumulation. Pivot buy range of $33.65–35.33.
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
Key points from this report:
- Bull versus bear trajectory still seems more in favor of the bull case, although Dow and small/mid indices are not off to a great start relative to history.
O’Neil Energy/Material Weekly
P G & E Corporation (PCG) – $44B market cap – Technicals: The stock broke out of a stage-two seven-week flat base (pivot: $17.68). It has a mixed
fundamental profile: EPS Rank 33 and SMR Rating of C. However, these ratings are expected to improve through FY24. Technical ratings indicate strong
accumulation: RS Rating of 88, A/D Rating of B+, and Up/Down Volume ratio of 1.8. Pivot range of $17.68–18.56
Global Sector Strategy
Key Points:
- Global benchmark (VT) ends the first half of 2023 up 13%. It is also 26% off Oct. 2022 lows and just below 52-week highs, but still 12% off all-time highs.
- Leading global markets included the U.S. (Nasdaq), Japan, Ireland, Greece, Egypt, and Taiwan…all up over 20%.
- Still, about a third of markets, including Hong Kong, Belgium, Finland, Thailand, and South Africa are down YTD.
- U.S. market once again had a great first half in the third year of the presidential cycle, which has by-far the best average of any half.
O’Neil Energy/Material Weekly
Commercial Metals Company (CMC) – $6B market cap – Technicals: The stock is forming the right side of a stage-two 21-week cup base and is 10% off the pivot price of $58. Good fundamental profile: EPS Rank 82 and SMR Rating of B, supported by accelerating sales growth and expanding ROE and margins. Its technical profile has improved over the past two months.
Global Sector Strategy
Key Points:
- S&P 500 earnings expectations have come down markedly over the past five months but may be at an inflection.
- Q2–Q3 2023 earnings are expected to fall 8% and 1%, y/y, respectively.
- Q1 2023 earnings were also expected to fall 8%, but easily beat, falling by ~3%.
- Q4 is expected to mark the turnaround, with +7% y/y growth.
- Estimates have stabilized more recently, not falling further over the past month.
- By sector, four (Basic Material, Capital Equipment, Consumer Cyclical, Consumer Staple) have seen median 2023 estimates rise over 90 days.
- Good places to look for ideas (see attachment)
- 1) Standout companies, with growth expected in the coming quarter, for 2023 and 2024, and above 50/200-DMA (For example: TDG).
- 2) Mismatch between earnings and price action: Weak estimates but very strong price action (For example: GNRC).
- 3) Mismatch the other way: Strong estimates but weak price action (For example: ENPH).
O’Neil Energy/Material Weekly
XPO (XPO) – $6B market cap – Technicals: The stock broke out of a stage-one 12-week cup base (pivot: $45.06) in May. It has solid fundamental ratings like EPS Rank 77 and SMR Rating of B. Technical ratings indicate high accumulation (RS Rating of 96, A/D Rating of A-, and Up/Down Volume ratio of 1.9). Extended, but look for pullback to rising 21-DMA as secondary entry. Company Description: XPO is one of the world’s largest (fourth largest in the U.S.) asset-based less-than-truckload (LTL) companies operating in North America.
Global Sector Strategy
Key points:
- Comparing the leading index now (Nasdaq 100) to the leaders off the prior two major bear market lows (Nasdaq Comp in 2002 and 2009).
- In the prior cases, the Nasdaq reached a max of 21-24% above its 40-WMA and 6-8% above its 10-WMA.
- Now, the Nasdaq 100 has reached 23% above the 40-WMA and 9% above the 10-WMA.
- It would be reasonable to expect some consolidation. In looking at the two prior periods, the consolidations lasted for a few weeks as the 10-WMA caught up. It was not until well after a year into the bull markets when there was a major consolidation.
O’Neil Energy/Material Weekly
Saia (SAIA) – $8B market cap – Technicals: The stock is breaking out of a stage-one 17-week consolidation. It has strong fundamental ratings: EPS Rank 85 and SMR Rating of A. Technical ratings are strong (RS Rating of 93, A/D Rating of B, and Up/Down Volume ratio of 1.6), indicating outperformance versus benchmark and strong money flows. Accumulate in the range of $306.40–321.72.
Global Sector Strategy
Key Points:
- Recent index breakouts reminiscent in some ways of the turn higher in 2002-2003, where:
- From market lows to first major “higher high” was about seven months.
- The Nasdaq became the clear leading index from the October 2002 lows, and lasted through 2003.
- The S&P 500 began to consolidate a couple of weeks after the breakout surge. This lasted for 11 weeks (6% depth). However, the Nasdaq’s consolidations were much shorter, lasting 3-5 weeks at a time as the 10-WMA caught up.
