U.S. indices continued their move higher this week, extending gains for a fourth straight week. The major aver-ages have maintained this squeeze higher with a tremendous amount of support from commodity-related equi-ties. The S&P 500 is now trading just above its 200-day moving average, but it will need actual buying, not just short covering, to push this rally back into new highs. The list of quality ideas showing strong earnings and reve-nue growth has continued to consolidate over the last few weeks, but remains thin. We are especially watchful for ideas emerging from early-stage bases, because ideas with actual top- and bottom-line growth will be need-ed for a sustainable rally. The market remains in a Confirmed Uptrend, up ~4% from the follow-through day on February 17, 2016.
Author: Raj Gupta
Raj Gupta is Director, Research Analyst.
After joining the firm in 2002 as a research analyst, Raj was appointed senior equity analyst in 2006, and lead senior equity analyst in 2014—largely because of his ability to select outperforming stocks. He acts as an expert in the O’Neil Methodology and contributes to the direction of product and service line development. He recommends securities for addition to or removal from the U.S. Focus List, or USFL, and the associated alerts to clients. During his tenure, he was part of the leadership that developed the Global Focus List, which marked the firm’s successful expansion into international equity recommendations. He is also a lead on the IPO Rewind report and contributes to weekly summaries on the performance of the U.S. market. Much of his expertise is delivered as highly customized service to clients.
RAj earned his Bachelor’s degree in Economics from the University of California, Santa Barbara. He began working at the firm directly out of college, driven by his passion for investing and stocks. An avid soccer player, he built and managed an adult league in the Los Angeles area, in which he still plays. He also enjoys international travel; he and his wife commit to at least one major adventure a year.
Market View
U.S. indices remain in a rally, led by a strong move in the Material and Energy sectors. The strength in commod-ities persists; stocks with exposure to steel, oil, and gold are under very heavy accumulation. In addition, slightly better-than-expected economic data over the last few weeks, including a positive February Jobs report today, could force the Fed’s hand to raise rates at the mid-March FOMC meeting. Despite the strength in broken sec-tors coming off the bottom, we continue to call for patience while fundamentally strong stocks continue building constructive bases. Multiple indices and sectors may face upward resistance at their respective 200 dma in the coming days/weeks. We are encouraged by the improvement in the general market but remain very selective of security allocation. The market is in a Confirmed Uptrend, up 4% since the follow-through day.
Market View
U.S. indices continued to rally higher this week, with the S&P 500 breaking through resistance at the 50-day moving average. Although the move came on light volume, without much quality growth leadership, consolida-tion at these levels could bode well moving forward. We are now looking for prior resistance at the 50-day to act as support. If the market calms, it will allow new leadership to develop and emerge within the next few weeks. Patience remains imperative here, as we look for the expansion in breadth needed to confirm our convic-tion in this current move. The S&P 500 and Nasdaq remain in a Confirmed Uptrend, up 1-2% from the February 17, 2016 follow-through day, with no distribution.
Market View
U.S. Indices rallied this week after undercutting previous lows. This sharp rally can be attributed to broken for-mer leaders rallying from extreme sell-offs over the past two weeks. The vast majority are now trading more than 20% off their highs, and most were able to outperform the major averages this week. These bear market rallies can be quite strong, however, many of these ideas carry a tremendous amount of overhead supply and will like-ly run into their own individual areas of resistance. Resistance on the S&P 500 remains the same: approximately 1950 as well as the downward trending 50- and 200-day moving averages. 1950 and the 50 dma are still 2% above current levels.
Market View
U.S. Indices fell briefly below lows set in January as distribution continues to be widespread. The Energy and Fi-nancial sectors were the weakest due to the yield on the 10-year treasury and crude oil (WTI), which exhibited volatility and fell to levels not seen since 2012 and 2003, respectively. Ultimately, we would like to see price sta-bility across sectors and the major indices; a V-shape recovery would only bode more concerns for the future. Currently, we see no signs of stability and anticipate more volatility.
Market View
U.S. indices ran right into resistance this week, reversing their big gains from last Friday. There continues to be multiple signs of weakness from a sector level all the way down to individual ideas. Lagging sectors are bounc-ing, defensive sectors are leading, and constructive growth ideas are being heavily sold. Facebook and Alphabet both reported solid earnings, and both stocks have begun to trade sharply lower—confirming the weakness in the market. Quality growth is beginning to break multiyear trends.
Market Update with Raj Gupta – February 4, 2016
Raj Gupta, lead senior equity analyst for O’Neil Equity Research, will give a general market update looking at sector breakdown and our thoughts going forward.
IPO Watch
Market View
U.S. indices traded sharply higher on Friday, recovering from early week losses to close higher for a second straight week. Earnings encouragingly provided a strong bump in a select few U.S. Focus List ideas that led last year. With that said, the internals still remain suspect, with oil-related stocks and mining companies bouncing from extreme lows, and Utilities continuing to lead. We have been advising to rotate into defensive sectors as the market bounces from oversold levels, and we continue to recommend this approach. For this initial rally off the lows to be sustainable, we will need to see additional ideas reemerge from outside defensive and broken down sectors.
Market View
U.S indices traded in volatile action throughout the week, ultimately erasing much of their earlier gains and closing
relatively flat. Range-bound action continues, as the majority of leadership ideas hold up well, while energy
and basic materials continue to drag down the major averages. There remain multiple alpha-generating ideas
within the U.S. Focus List that we recommend holding as long they continue to trade constructively above levels
of support. If the energy sector (WS002), which makes up roughly 7-8% of the S&P 500, is able to at least trade
flat, the action of the market and these leadership ideas will likely improve.
