The CSI 300 fell 4.39% this week on lower volume and remains in a Confirmed Uptrend
with three distribution days, adding one Thursday. The index had its largest weekly loss since
April. Resistance was at Monday’s high of 4,878 (+7.3%) and support lies at the 21-DMA
(4,430, -2.5%) followed by the 50-DMA (4,150, -8.7%). China’s economic data showed
signs of recovery: GDP grew 3.2% y/y in the second quarter, higher than expectations of
2.5%. June retail sales fell 1.8% y/y, less than the expected 0.3% growth but beat May’s 2.8%
drop. Industrial profits increased 4.8% y/y in June, better than consensus of 4.5%. Real estate
investments grew 1.9% y/y for the first half of the year. June exports and imports rose 0.5% and
2.7%, y/y, respectively, both beating consensus. Escalating China-U.S. tensions and the likely
slowing pace of policy easing after the strong data dampened investor sentiment. We recommend
investors stay disciplined in this volatile market and be selective of quality stocks with strong
support levels or breaking out of pivot.
Symbol: CMT.CN
Global Focus Emerging
The CSI 300 fell 4.39% this week on lower volume and remains in a Confirmed Uptrend with three distribution days, adding one Thursday. The index had its largest weekly loss since April. Resistance was at Monday’s high of 4,878 (+7.3%) and support lies at the 21-DMA (4,430, -2.5%) followed by the 50-DMA (4,150, -8.7%).
China A Shares
The CSI 300 rose 7.55% this week on higher volume (+88.4%) and remains in a Confirmed
Uptrend with two distribution days after one expired. The index rallied from Monday through
Thursday and turned downward Friday for the first time since June 29. The index faced pressure
at Thursday’s high (4,854, +2.1%), while support lies at the 50-DMA (~4067, -14.4%). June
data showed signs of improved liquidity and domestic demand. CPI rose 2.5% y/y, versus
consensus of 2.6%. PPI dropped 3.0% y/y, better than estimates of -3.1%. Better-than-expected
total social financing rose to RMB 3.43T in June from 3.19T in May, up 12.8% y/y. M2 rose
11.1% y/y, holding steady from May but lower than forecasts of 11.2%. The CSI 300 has surged
~14% since July and prudent investors could trim profits. We remain optimistic but investors
are advised to beware of market volatility. We recommend staying disciplined and focusing on
quality stocks with strong support levels or breaking out of pivot.
Global Focus Emerging
The CSI 300 rose 7.55% this week on higher volume (+88.4%) and remains in a Confirmed Uptrend with two distribution days after one expired. The index rallied from Monday through Thursday and turned downward Friday for the first time since June 29. The index faced pressure at Thursday’s high (4,854, +2.1%), while support lies at the 50-DMA (~4067, -14.4%).
Market View
The U.S. market is in a Confirmed Uptrend. The S&P 500 held support along its 21-DMA this week before rallying and closing right at resistance along its downward trending channel line. The next level of resistance is 3,233. The Nasdaq continues to constructively trend within a channel, which is rising into 11,000. Near-term support for both indices remains the 10- and 21-DMA. Distribution now stands at five and two days, respectively, with two days expiring on the S&P 500 and one on the Nasdaq next week.
Retail, Consumer Cyclical, and Technology led by a wide margin this week, rising 3–6% each. On Friday, however, we saw the first signs of potential rotation as lagging sectors, including Energy and Financial, rallied at the expense of long-term leading sectors, Technology and Health Care. Positively, the majority of lagging sectors have been able to make higher lows, holding logical support despite severely underperforming Technology. A broadening of leadership will be necessary in order for the S&P 500 to break out of this one-month choppy trading range. Top-ranked industry groups outperforming this week include Solar, Internet, Software, Semiconductors, Internet, Trucks, and Medical Equipment. Friday’s biggest gainers came from lagging industry groups such as Oil & Gas, Airlines, Banks, and Steel. 62% of S&P 500 stocks are trading above their respective 50-DMA and 41% are trading above their respective 200-DMA. This compares with 69% and 42%, respectively, last week.
We continue to recommend a selective approach to increasing risk. Buy fundamentally sound stocks that are setup constructively within bases, trim ideas that have become overly extended from major moving averages, and avoid lagging ideas trading below their respective 50- and 200-DMA.
China A Shares
The CSI 300 rose 4.76% from Monday through Thursday this week on higher and above average volume and remains in a Confirmed Uptrend with three distribution days. The index rallied and broke above March highs of ~4,200. The next immediate resistance lies at January 2018 highs (~4,400, +1.5%). Support lies at the 50-DMA (3,960, -9.5%). June’s official PMI was 50.9, up from May’s 50.6, while Caixin’s small business PMI climbed to 51.2 in June from 50.7 in May, both better than consensus. China’s industrial firm profits rose 6.0% y/y in May, the first increase since December 2019. The index closed at a two-and-a-half-year high and showed clear signs of sector rotation. Financial and Real Estate led while long-term leaders Technology and Health Care lagged. Some ideas that deserve attention are SJF.CN, BHZ.CN, and FIN.CN. We recommend increasing risk exposure as the market has become more upbeat. Investors are advised to accumulate positions on quality stocks breaking out of solid bases and take profits in the most extended ideas such as YEP.CN and JJY.CN.
Global Focus Emerging
The CSI 300 rose 4.76% from Monday through Thursday this week on higher and above average volume and remains in a Confirmed Uptrend with three distribution days. The index rallied and broke above March highs of ~4,200. The next immediate resistance lies at January
China A Shares
The CSI 300 rose 0.98% this week on lower volume. The market remains in a Confirmed Uptrend with three distribution days, as one expired. The CSI 300 is trending upward after it broke above the bottom of the previous gap-down at ~4,100 and faces immediate resistance at March highs of ~4,210 (+1.5%), followed by 2018 highs of ~4,400 (+6.3%). The market should hold above 200-DMA support at 3,930 (-5.3%) to remain constructive. U.S. President Donald Trump asserted that the trade deal between China and the U.S. remains in place. Shanghai’s Composite Index will be revamped by introducing more high-tech strength and removing loss-making companies. The coronavirus outbreak in Beijing looks to be under control. Two-thirds of stocks fell while leadership outperformed. We recommend investors beware of “risk on” sentiment since the index has surged 7% this month and faced strong resistance at 4,200 (+1.5%). Investors are advised to be selective and focus on quality stocks with sound fundamental and technical profiles. China’s market is closed Thursday and Friday for the Dragon Boat Festival.
Global Focus Emerging
The CSI 300 rose 0.98% this week on lower volume. The market remains in a Confirmed Uptrend with three distribution days, as one expired. The CSI 300 is trending upward after it broke above the bottom of the previous gap-down at ~4,100 and faces immediate resistance at March highs of ~4,210 (+1.5%), followed by 2018 highs of ~4,400 (+6.3%). The market should hold above 200-DMA support at 3,930 (-5.3%) to remain constructive.
China A Shares
The CSI 300 rose 2.39% this week on higher volume and remains in a Confirmed Uptrend with four distribution days, as two expired. The CSI 300 broke above the lower bound of the previous gap-down of ~4,100, with next immediate resistance at March’s highs of ~4,210 (+2.7%). The market should hold above 200-DMA support at (3,925, -4.2%) to remain constructive. Beijing reported new COVID-19 cases but the government immediately curbed travel and movement to contain a second outbreak. Industrial output rose 4.4% y/y in May, retail sales fell 2.8% y/y, and fixed-asset investment declined 6.3% in the first five months, slightly missing consensus but improving over April. Policymakers are confident the economy is gradually recovering from the coronavirus crisis while pledging more reforms and liquidity. Risk appetite improved as investors expect more liquidity in capital markets and COVID-19 to be under control. Our conviction builds as the market is trading actively but we recommend staying patient given that the market is still volatile. Investors are advised to focus on leading stocks with strong fundamentals breaking out of sound bases or bouncing off key support on heavy volume.
