The U.S. market is in a Confirmed Uptrend. The next level of resistance is still the downward trending 50-DMA at 2,632 (+2.2%) on the S&P 500, and 6,997 (+1.4%) on the Nasdaq.
Symbol: ALRM
Global Laggards
Highlighted Charts
U.S.: Lyondellbasell Ind ( LYB ), Berry Global Group ( BERY ), Aptiv Plc ( APTV ), Edgewell Personal Care ( EPC ), Enbridge Energy Partners ( EEP ), Bank of Nova Scotia ( BNS ), United Therapeutics ( UTHR ), AutoNation ( AN ), Penske Automotive Group ( PAG ), PTC ( PTC ), Allegiant Travel Company ( ALGT )
Developed: Nine Dragons Paper ( NDRA.HK; 2689 HK ), Cyberagent ( CYBA.JP; 4751 JP ), Just Eat ( JE.GB; JE/LN ), Ezaki Glico ( BQ@N.JP; 2206 JP ), Subsea 7 ( SUBC.NO; SUBC NO ), RSA Insurance Group,( RSA.GB; RSA LN ), William Demant Holding ( WDH.DK; WDH DC ), K’s Holdings ( GIKS.JP; 8282:JP ), SAP ( SAPX.DE; SAP GR ), Deutsche Post ( DPWX.DE; DPW GR )
Emerging: Mondi ( MNDJ.ZA; MND SJ ), Godrej Consumer Products ( GCD.IN; GCPL IN ), Zhen Ding Technology ( ZHE.TW; 4958 TT )
Stocks worth focusing on in this week’s Global Laggards:
Penske Automotive Group ( PAG ) – Retail ( $4B market cap ) – operates automotive and commercial truck dealerships principally in the U.S., Canada, and Western Europe.
Shares of PAG are 20% off 52-week highs and facing resistance at their downward sloping 10- and 40-WMA. The stock has poor RS and A/D Ratings of 35 and D, respectively. We see support for the stock at ~$42, followed by ~$38.
For Q3 2018, total revenue was $5.7B, increasing 2.4% y/y and missing consensus of 5.5% y/y. The miss was due to lower-than-expected sales growth of 1.2% in its Retail Automotive segment.
Same-store sales of new cars declined 4.2% y/y compared with consensus of 6% y/y growth, as revenue from new car sales in the U.K. decreased 10.5% y/y in Q3 and 20.5% y/y in September. The implementation of the new U.K. emission standard “Worldwide Harmonised Light Vehicle Testing Procedure” delayed the delivery of new cars to dealerships.
PAG expects the availability of new cars from OEM to normalize by the end of Q1 2019.
In 2019, revenue and EPS growth are expected to decelerate to 2%, as the Company is expected to be impacted by FX headwinds because of Brexit. The U.K. market accounted for 36% of the Company’s revenue in 9M 2018.
Further, commercial truck sales growth in the U.S. is expected to slow in 2019. In its trucks segment, which contributed to 5.9% of sales in 9M 2018, the Company expects volume growth to moderate from 28% in 2018 to 1.6-4.8% in 2019.
US Focus Long
The U.S. market is in a Rally Attempt. The S&P 500 and Nasdaq have now held above the October 29 intraday low (S&P 500: 2,603; Nasdaq: 6,922) for four sessions. We are now looking for a follow-through day (FTD) before shifting the market into a Confirmed Uptrend. Currently, both indices are hitting resistance just under their respective 200-DMA. Should the indices clear above that level next week, the next level of resistance will be the 50-DMA, which is ~5% above current levels. Overall, we still believe it is too early to increase risk in the market, given that the majority of ideas are still repairing themselves technically. Just 12 (~29%) of 41 U.S. Focus List ideas are trading above their respective 50-DMA, while only 114 stocks within the S&P 500 are trading above that level. If we get a FTD, our recommendation will be to gradually increase risk, committing capital to only high relative strength ideas that have recovered the quickest and have reached risk optimal entry points. We believe the market will provide additional opportunities to buy growth ideas as it progresses higher and through the multiple levels of resistance that still remain. Remain patient for now, but be ready to buy a few actionable U.S. Focus List ideas when and if we get that followthrough day.
Global Laggards
Highlighted Charts
U.S.: Pan American Silver Corp ( PAAS ), Jefferies Financial ( JEF ), Borg Warner ( BWA ), Fomento ( FMX ), Enbridge Energy ( EEP ), Umpqua Holdings ( UMPQ ), Mckesson ( MCK ), Jack In The Box ( JACK ), Sothebys ( BID ),Benchmark Electronics ( BHE ), Varonis Systems Inc ( VRNS )
Developed: Solvay ( SOL.BE; SOLB BB ), Umicore ( UMI.BE; UMI BB ), Daimler ( DAIX.DE; DAI GR ),Husqvarna ( HUSQB:SS; HUSB.SE ), Inter Pipeline Fund ( IPL.CA; IPL CN ), British Land ( BLND.GB; BLND LN ), Santen Pharmaceutical ( XY@N.JP; 4536 JP ), Rocket Internet ( RKETX.DE; RKET GR ), Restaurant Brands ( QSR.CA; QSR CN ), NextDC ( NXT.AU; NXT AU ), Constellation Software ( CSU.CA; CSU:CN )
Emerging: ACC Limited ( ASC.IN; ACC IN ), LG Electronics ( 066570:KS; JHD.KR ), Kasikornbank ( TFBF.TH; KBANK/F TB ), Pegatron ( PEG.TW; 4938 TT )
Stocks worth focusing on in this week’s Global Laggards:
Developed
Restaurant Brands International ( QSR.CA ) – Retail ( $14B market cap ) – franchises and operates 25K quick service restaurants including Tim Hortons ( 17K ), Burger King ( 5K ), and Popeye’s ( 3K ).
Commentary
Shares of QSR.CA are 16% off 52-week highs and finding resistance at the downward sloping 10- and 40-WMA. RS Rating 54. A/D Rating C. Price support is at $70, followed by $68 then $65.
The stock has an EPS Rank of 99, but it is expected to slip as EPS growth is expected to moderate to 5% and 6% for 2018 and 2019, respectively.
For Q3 2018, the Company’s Burger King ( BK ) segment contributed to 41% of Q3 EBITDA while Tim Hortons ( TH ) and Popeyes ( PLK ) made up 52% and 7%, respectively. Comparable sales trends for BK have been a cause for concern, decelerating to 1.8% in Q2 2018 (from 3.9% in Q2 2017) and 1.0% in Q3 2018 (from 3.6% in Q3 2017).
The weak performance at BK has resulted in the Company’s revenue growth decelerating to 1.0% y/y in Q2 from 7.1% in Q1. For Q3, revenue declined 2.2% y/y.
While management is in the process of developing a new “Burger King for Tomorrow” store model to close the design gap versus McDonald’s outlets, the ensuing capex burden on franchisees could lead to unit closures.
Market View
The U.S. market is in a Downtrend. The S&P 500 and Nasdaq continue to make lower lows. We are now look-
ing for the intraday lows from Friday ( S&P 500: 2,628; Nasdaq: 7,057 ) to hold through Wednesday before
looking for a follow-through day. Ideas continue to whipsaw with the majority still on the left side of their respec-
tive bases. There remains little to no leadership outside of defensive sectors. The U.S. Focus List count has fallen
from a high of 80 year-to-date to 44 today ( 14 removals this week ) due to severe technical deterioration. We,
therefore, remain cautious until we see a follow-through day that coincides with quality growth ideas regaining
prior levels of support in strong volume.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 44 ideas lost 5.3% on average this week, underperforming the S&P 500 ( -3.9% ) and the Nasdaq ( –
3.8% ).
USFL ideas weekly earnings line-up:
Monday: Close: QTNA, WING
Tuesday: Open: FIS, FLIR, GPN, MA; Close: PAYC, PRAH
Wednesday: Close: SSNC
Thursday: Open: IDXX, ZTS; Close: CHEF
Friday: Open: ROLL
By Sector
Outside of Consumer Staple, all sectors remain weak. LW and MKC are two of only four U.S. Focus List ideas
trading above their respective 50-DMA. CVGW, though below its 50-DMA, has an RS line that is hitting new
highs. The weakest sector is Energy. FANG is again testing the low end of support at $110, while CDEV and NEP
have broken below their respective 200-DMA. Technology and Health Care ideas also remain weak. VEEV,
PAYC, INTU, QTNA, CRM, and ADBE are now testing their 200-DMA, while NOW, GOOGL, and SSNC have
broken below that level. IDXX and EW, within Health Care, are also trading below their respective 200-DMA.
US Focus Long
The U.S. market is in a Downtrend. The S&P 500 and Nasdaq continue to make lower lows. We are now looking for the intraday lows from Friday (S&P 500: 2,628; Nasdaq: 7,057) to hold through Wednesday before looking for a follow-through day. Ideas continue to whipsaw with the majority still on the left side of their respective bases. There remains little to no leadership outside of defensive sectors. The U.S. Focus List count has fallen from a high of 80 year-to-date to 44 today (14 removals this week) due to severe technical deterioration. We therefore remain cautious until we see a follow-through day that coincides with quality growth ideas regaining prior levels of support in strong volume.
US Focus Long
The U.S. market is in a Rally Attempt. The S&P 500 and Nasdaq have now held above the October 11 intraday low (S&P 500: 2,710; Nasdaq: 7,274) for six sessions, but have yet to stage a follow-through day. Ideas, like the major averages, continue to whipsaw around within their respective bases and few are even trading above their respective 50-DMA. We removed 14 U.S. Focus List ideas over the last two weeks due to technical deterioration and eight of the current 58 (~14%) are still trading below their respective 200-DMA and at risk of removal. We are concerned with the lack of leadership in the market as well as the negative reactions to positive earnings results over the past week. We therefore continue to recommend a defensive posture, avoiding new buys and selling ideas that have broken below long-term support. If we get a follow-through day next week, we will upgrade the market, however, our recommendation will be to gradually increase risk should that occur, with a focus on high relative strength quality ideas with improving A/D Ratings that have either held or regained their respective 50-DMA.
Market View
The U.S. market is in a Downtrend. The S&P 500 and Nasdaq closed below their respective 200-DMA this week in heavy volume. Multiple leading ideas also broke below their 200-DMA or long-term price support and will now need to consolidate for a number of weeks before providing more risk optimal entry points. The U.S. Focus List count has fallen from a yearly high of 80 names to 63 today, with eight (13%) still trading below their respective 200-DMA and at risk of removal. Going forward, we will be looking for a follow- through day to occur above Thursday’s intraday low before we recommend buying. This could happen as early as Wednesday, but until we see that occur, we recommend a defensive posture, avoiding new buys and selling ideas that have broken below long-term support.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 63 ideas lost 5.8% on average this week, underperforming the S&P 500 ( -4.1% ) and the Nasdaq ( -3.7% ).
Actionable Focus List ideas: Centennial Resource Dvlp ( CDEV ), Lamb Weston ( LW ).
USFL ideas weekly earnings line-up:
Monday: Open: SCHW
Tuesday: Open: UNH
Thursday: Close: TEAM
By Sector
All sectors sold off heavily this week. Technology took the brunt of the selling, with multiple U.S. Focus List ideas falling by double digits,
including ALRM, BL, GRUB, NVDA, and ADSK. Tech ideas that held up the best include XLNX, ATVI, INTU, PANW, CRM, and ADBE,
though all of these ideas did break short-term support and will need to consolidate over the next several weeks. Consumer Staple ideas
held up the best on the list. MKC, LW, and NOMD are all trading within 10% of highs with RS lines moving higher. Select Retail ideas also
held up well, including WING and OLLI, which both remain above their respective 50-DMA.
New Ideas or Deletions
We added Lamb Weston ( LW ) and removed Tyler Technologies ( TYL ), CarGurus ( CARG ), Q2 Holdings ( QTWO ), Paypal ( PYPL ), Splunk
( SPLK ), Workday ( WDAY ), Yelp ( YELP ), Semtech ( SMTC ), and Old Dominion Fght Line ( ODFL ) from the U.S. Focus List this week.
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.
Market View
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 rec-
ommendation 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.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 71 ideas lost 4.5% on average this week, underperforming the S&P 500 ( -1% ) and the Nasdaq ( –
3.2% ).
Actionable Focus List ideas: Abiomed ( ABMD ), Activision Blizzard ( ATVI ), Adobe Systems ( ADBE ), Autodesk
( ADSK ), Centennial Resource Dvlp ( CDEV ), Continental Resources ( CLR ), Diamondback Energy ( FANG ), Fidelity
Natl Info Svcs ( FIS ), Intuit ( INTU ), Nvidia ( NVDA ), Vertex Pharmaceuticals ( VRTX ), Xilinx ( XLNX ), Yelp ( YELP ),
Zoetis ( ZTS )
Sector
Health Care and Technology ideas within the U.S. Focus List pulled back sharply this week. Breakouts failed in
EW and ALGN, while ABMD pulled back after testing all-time highs earlier in the week. ILMN and IDXX gapped
down below their respective 50-DMA. VRTX, UNH, and ZTS continue to hold up well. Within Technology, ideas
that had become extended over the past month pulled back the most. PAYC, AMD, TEAM, and VEEV are now
trading more than 10% off their highs, while BL, PANW, ALRM, WDAY, SMTC, NOW, SPLK, and QTNA among
others have broken below their respective 50-DMA. INTU, ADSK, and CRM continue to act well, trading above
their respective 50-DMA with relative strength lines trading near new highs. Bucking the trend were Consumer
Staple ideas MKC and CHEF. Both reached new highs despite the weak tape.
New Ideas or Deletions
We removed
(
), Monolithic Power Systems ( MPWR ), Arista Networks ( ANET ), and Lumentum ( LITE )
from the U.S. Focus List this week.
