Mainland markets were closed for a holiday but we are becoming increasingly cautious, especially after poor action in the Hong Kong market this week. The Hang Seng reversed nearly all its gains from previous weeks and leaves us with very low conviction that a rally will sustain in Mainland markets. Furthermore, the index continues to find resistance along its 50- DMA, keeping within a downward trend. We have little confidence that support will be held at the 50-DMA for other Chinese indices next week. We recommend a defensive approach.
Author: Raghavendra K
US Focus Long
The U.S. market is in an Uptrend Under Pressure. The Nasdaq broke its 50-DMA on Thursday, a level that had been holding as support for the last several months. Distribution increased and leading ideas pulled sharply back off highs with several breaking down technically and subsequently being removed from the U.S. Focus List. With the 100-DMA also undercut on Friday, the next level of support on the Nasdaq is now the July 30 low at ~7,600, before the 200-DMA. This poor technical action across the major averages and leading ideas alike warrants a cautious approach until market conditions stabilize and price action tightens up. Therefore, our recommendation is to reduce risk by trimming ideas that have broken below moving average and/or price support, while also locking in gains in ideas that have become well extended from prior pivot points.
European Focus Long
The Stoxx 600 closed 0.91% lower on a weekly basis on Thursday. We downgraded Italy to Under Pressure on Tuesday, and Denmark and Finland to a Downtrend today. Of the 17 indices we cover, two are in a Downtrend, two are Under Pressure, three are in a Confirmed Uptrend, and ten are in a Rally Attempt. As of this morning, the index is in negative territory and continues to trade below its 50- and 200-DMA.
Global Focus Developed Long
Australia’s ASX All Ordinaries Index fell 0.39% this week, trading 0.53% below its 50-DMA and 1.91% above its 200-DMA. It added one distribution day this week, taking its total to six. The index is currently Under Pressure.
Global Focus Emerging Long
China’s CSI 300 index was closed last week for the National Day holiday. Currently, the index is in a Confirmed Uptrend.
China A Shares Long
The CSI 300 rose 0.8% during the holiday-shortened week on below average volume and remains in a Confirmed Uptrend. The market will be closed all of next week due the upcoming National Day Holiday. Our conviction has increased somewhat due to the index holding above ~3,400 and 2.4% above its 50-DMA. This week, the FTSE Russell announced it will add China A Shares to its key indices starting in 2019, which is positive news for the market. Going forward, we are looking for the Shenzhen Composite Index to break through its 50-DMA and for the CSI 300 to break through 100-DMA resistance at ~3,500 (~2.2%). If a pullback occurs, we look for the CSI 300 to hold support above its 50-DMA (~3,350). We recommend staying patient and focusing on leading stocks with strong fundamentals.
US Focus Long
The U.S. market is in a Confirmed Uptrend. The S&P 500 and Nasdaq continue to hold above short-term support levels. The Nasdaq has an elevated distribution day count at seven, however, three days expire within four sessions beginning next Thursday. To remain positive, we would like to see the Nasdaq hold above its 50-DMA and avoid further distribution as expiration approaches. Positively, underlying action among growth ideas has been strong this past week. Multiple ideas have begun to emerge from consolidation and move back into new highs. 64 of the 75 (85%) U.S. Focus List ideas are trading above their respective 50-DMA, 49 (65%) are trading within 5% of a new high, and 21 (28%) hit new all-time highs this week. We continue to recommend buying high quality ideas as they find support at key moving averages or as they emerge from sound bases.
European Focus Long
The Stoxx 600 closed 0.54% higher on a weekly basis on Thursday. The index regained some positive momentum this week since it bottomed September 7, taking back its 50- and 200-DMA for the first time since it undercut those levels in August. As of this morning, the index is trading in negative territory amidst concerns over the wider-than-expected budget deficit target set by Italy’s government.
Global Focus Developed Long
Australia’s ASX All Ordinaries Index rose 0.32% this week. It is trading 0.76% below its 50-DMA and 1.97% above its 200-DMA and is currently Under Pressure.
Global Focus Emerging Long
China’s CSI 300 index increased 0.83% w/w. The index continues to remain in a Confirmed Uptrend. It regained its 50-DMA for the first time since January.