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:

  • The S&P 500 had its second-worst first half and third-worst semiannual period of the last 53 years, surpassed only by a 21% drop in H1 1970 and a 29% drop in H2 2008. In Q2, the 16% drop was the second-worst Q2 and the seventh-worst quarter since 1970.
  • The Nasdaq Composite just had its worst first half and its third-worst semiannual period in its 52-year history, surpassed by a 38% drop in H2 2000 and a 31% drop in H2 2008. In Q2, the 22% drop was the worst Q2 and the eighth-worst quarter ever.
  • Consumer Cyclical dropped nearly 40%, in the fourth-worst quarter for any sector since 1970.
  • First halves in second years of presidencies are typically weak, and this year was exaggerated. Q3 is also typically weak, however, Q4 averages a ~+5% gain (S&P 500).

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Air China (AIRC.HK; 753:HK) – $3.9B market cap – Technicals: The stock retook its 50-DMA last week and is forming
the right side of a stage-one 19-week cup base. It is trading 1% below its pivot at HKD 6.75. RS Rating has seen steady
improvement in the last nine weeks. It has a strong technical profile with an A/D Rating of A, Up/Down Volume ratio of 1.5,
and an RS Rating of 92. Company description: Air China is the flag carrier of the People’s Republic of China and one of
the Big Three mainland Chinese airlines.

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

  • S&P 500, Nasdaq, and Russell 2000, all had follow-through days on Friday.
  • We generally consider this the fifth attempt at a new uptrend; the prior four have failed (Nasdaq with four failed FTDs, although S&P and Russell with three each).
  • S&P 500 history has an average of ~6 failed rallies/FTDs throughout extended bear markets (excluding 2020 and 1987, which had none).
    • Average bear rally is 12%, and average gain after the FTD is 5%.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Commodity prices have finally begun to show cracks after months of trending higher. The Reuters/Jefferies CRB Index
closed below the 10-WMA for the first time of the year last week, and is testing a break of a channel which has been in
place since March. The index is about 40% weighted in crude oil, which has fallen by about 14% in two weeks. Other
commodities like copper (-21% from highs), aluminum (-30%), steel (-25%) are already weaker. While there may be more
left yet in the commodity run, we see at the minimum a likely consolidation of several weeks, rather than an immediate
recovery. As such, we suggest trimming names in this universe which are breaking below support levels at 50 or 200-
DMAs.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Wacker Chemie (WCHX.DE; WCH:GR) – $9B market cap. Technicals – The stock pulled back from its highs on
general market weakness after temporarily staying above the pivot of a stage-one cup base. Strong fundamental profile:
EPS Rank of 86, Composite Rating of 94, and SMR Rating of A. Mixed technical profile: A/D Rating has turned negative
and Up/Down Volume ratio remains above 1. RS line is near a multi-year high with a high RS Rating of 90. Industry Group
Rank has improved sharply to 48 from 113 in the past three weeks.

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

  • Highest inflation in over 40 years, with 8.6% y/y acceleration in May.
  • Historically, discount rate has risen to nearly the same magnitude as inflation, with a slight lag. This time, arguably, it is the furthest behind the curve ever.
  • The prior period of highest inflation was from 1970 to 1982, when it ranged from a low of 3% to a high of 14% and averaged about 7.5% (y/y) over the 156 months.
    • That period contained three bear markets (1973–74, 1976–78, and 1980–82), the worst of which was the first (-50% on the S&P 500) and during the first major inflation spike.
    • High inflation did not always signal a bad market, but high inflation and the Fed behind the curve were among the most challenged. Later on, the final bear market of the period occurred when inflation was peaking, but the Fed was arguably late in cutting rates.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Acciona Energias (CAER.ES; ANE:SM) – $13.6B market cap – Technicals: The stock is breaking out of a stage-one
five-week flat base and is actionable. Extremely strong fundamental ratings: EPS Rank 99, SMR Rating of B, and
Composite rating of 99. While Up/Down Volume ratio has turned unfavorable in the last two weeks, A/D Rating improved
to B+ and RS Rating remained above 85. Company description: CAER is a large independent and geographicallydiversified renewable player with an installed capacity of 11.3GW as on 31st March 2022. It is one of the few pure
renewable players in Europe (with consolidated installed capacity being 78% wind, 13% solar, 8% hydro, and 2% other
renewable capacities) not exposed to rising carbon and fuel costs

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Enerplus (ERF.CA; ERF:CN) – $3.7B market cap – Technicals: The stock broke out of a stage-three 11-week cup base
last week and remains in the pivot range ($14.5-15.5). It has a strong fundamental profile and has seen a sharp
improvement in its technical profile in the last two weeks. A/D Rating improved to B from C-, Up/Down Volume ratio to 1.5
from 1. RS line is at a multi-year high with an RS Rating of 97. Company description: Enerplus engages in the
exploration and production of crude oil and natural gas. I

Strong Farm Economics Leads Resilience in Agriculture

Posted on by Kenley Scott

Attached is a note on agrochemicals from Director, Research Analyst Kenley Scott and William O’Neil India Analysts Shailendra Bhogaraju and Harish S.

 

Key points from the report

  • Agriculture-related stocks are outperforming the general market due to strong market fundamentals. Related industry groups like Chemicals-Agricultural and Agricultural-Operations have strong RS Ratings compared with other groups in the Basic Material sector. Chemicals-Agricultural is among the top-performing groups in the U.S. with Group Rank of less than 10 in the past eight weeks.
  • The grain inventory levels are at a decade low due to lower supply in recent years. With the global grain consumption likely to exceed production in 2022, it is expected to take another two years to bring the inventory back to mean levels.
  • The geopolitical escalations in the key crop and fertilizer exporting regions of Russia and Ukraine have led to supply-side shocks and further tightening of the market.
  • The tight grain market has led to record high crop prices. Agrochemicals are benefitting from this inflationary environment as high farmer profitability is incentivizing more plantations and supporting higher fertilizer prices.
  • Outlook for nitrogen fertilizers remains strong compared with other fertilizers due to their inelastic nature of demand.
  • European manufacturers continue to be impacted by the sharp spike in natural gas prices that accounts for 33% of the nitrogen fertilizer production cost. The spread between Europe and the U.S./MENA is expected to persist well into 2023. We highlight our Focus List ideas CF Industries (CF) and Oci (OCIO.NL) which are major beneficiaries in the current environment.
  • The crop protection chemical space will also benefit from the above discussed agricultural fundamentals. We highlight the watchlist idea UPL (UPH.IN) which has a growing market share in this space and the market leadership in biosolutions, the fastest growing agrochemical vertical.
  • Refer to page 7 for a list of stocks related to agriculture that should be kept on the radar.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Erg (ERG.IT; ERG:IM) – $5B market cap – Technicals: The stock bounced off its 10-WMA and is trading slightly above
its ideal buy range after recently breaking out of a stage-one, 22-week consolidation. The stock has mixed fundamental
ratings: EPS Rank of 43 and SMR Rating of C. Strong technical ratings: A/D Rating of A and RS Rating of 88. Accumulate
on a low-volume pullback to its 21-DMA. Company description: ERG is Italy’s largest renewable energy and one of the
top-five power-producing companies in the country.