The CSI 300 rose 5.2% for the week, its biggest weekly gain since March 2016. Volume increased but was still below average. The index rose 3.0% on Friday, rising above its 50- DMA on volume 42% higher than average. We upgraded mainland China markets to a Confirmed Uptrend on September 19 after a follow-through day. However, the market remains in bear territory. The Shenzhen Composite Index, which we believe serves as a leading indicator of the overall market, remained below its 50-DMA. To increase our conviction, we are looking for the CSI 300 to hold above ~3,400 and for the Shenzhen Composite Index to climb above its 50-DMA. Leading or improving industry groups that are under accumulation include Consumers, Financials, and Real Estate. With the upcoming Chinese Mid-Autumn Festival and National Day, we recommend staying cautious and keeping positions low in case of any changes in public policy.
Author: Raghavendra K
US Focus Long
The U.S. market is in a Confirmed Uptrend. The S&P 500 moved back into all-time highs this week, while the Nasdaq held support at its 50-DMA. The majority of leading ideas also continue to hold individual levels of support or make new highs, though we have begun to see sector rotation over the past week. Energy, Basic Material, Consumer Cyclical, and Capital Equipment have come under accumulation, while previously leading sectors, Technology and Retail, have paused, consolidating sharp gains over the last month. Our recommendation is to continue holding core positions in high relative strength ideas, while also proactively locking in gains in ideas that have rallied 20-25% or more above later stage pivot points. We maintain our positive view on the general market, which will change should we begin to see technical deterioration in leading ideas coupled with additional distribution in the major averages.
European Focus Long
The Stoxx 600 closed 1.20% higher on a weekly basis on Thursday. The market continues to be in a Rally Attempt. As of this morning, the index is in positive territory but is trading below its 50- and 200-DMA.
Global Focus Developed Long
Australia’s ASX All Ordinaries rose 0.46% this week. It added two distribution days, taking its total to seven. The index is trading 0.65% below its 50-DMA and 2.09% above its 200-DMA and is currently Under Pressure.
Global Focus Emerging Long
China’s CSI 300 index increased 5.19% w/w, after falling for two consecutive weeks. The index was moved to a Confirmed Uptrend after a successful Rally Attempt. While the index reached the 21- DMA, it continues to face stiff resistance at the 50-DMA.
China A Shares Long
The CSI 300 dropped 1.08% for the week on decreased volume. The index undercut a two-year low at 3,191.40 and we see the next level of support at ~3,050. Meanwhile, both the Shenzhen Composite Index and ChiNext Index came in at approximately four-year lows. We shifted mainland China’s market to a Downtrend on September 12, after the CSI 300 breached the previous low of 3,209. The August 27 follow-through day failed and we reiterate our pessimism on the market. The U.S. invited China to begin a new round of trade negotiations, which gave some support to the market. Even so, the market is still very weak and we recommend staying cautious until we get some positive results from the negotiations.
US Focus Long
The U.S. market is in a Confirmed Uptrend. The S&P 500 held support at its 21-DMA this week while distribution fell to just two days due to expiration. The Nasdaq held its 50-DMA and currently has five distribution days. Both indices will lose an additional distribution day next week. Leadership continues to act well, with new ideas also breaking out from consolidation over the past week. Despite positive price volume action in both the major averages and individual ideas, we recommend reducing risk in stocks that have rallied 20-25% above later stage pivot points. We will change our current positive view on the market should we begin to see technical deterioration in leading ideas coupled with additional distribution in the major averages.
European Focus Long
The Stoxx 600 closed 0.73% higher on a weekly basis on Thursday. We changed the market to a Rally Attempt on Tuesday after it remained above its first-day low of 371.89. The index is in positive territory as of this morning, but trading below its 50- and 200-DMA.
Global Focus Developed Long
Australia’s ASX All Ordinaries rose 0.38% this week. The index is trading 1.25% below its 50-DMA and 1.78% above its 200-DMA. The distribution day count stands at five. The index is currently Under Pressure.
Global Focus Emerging Long
China’s CSI 300 was down again this week after falling 1.08% last week. The index was moved to a Downtrend from an Uptrend Under Pressure. Due to renewed trade war fears, the index faces stiff resistance at the 50- DMA.
