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.
Symbol: CMT.CN
China A Shares
The CSI 300 rose 0.05% this week on higher volume and was shifted to a Confirmed Uptrend from an Uptrend Under Pressure Tuesday as it broke above May resistance. The distribution day count remains at six. The CSI 300 faces resistance near March’s highs of ~4,215 (+5.3%). We would like the index to hold above 200-DMA support at ~3,918 (-2.1%) to remain constructive. In May, China’s CPI increased 2.4% y/y and PPI dropped 3.7% y/y, worse than the expected 3.2% decline. China’s social financing reported a stronger-than-expected increase of RMB 3.19T in May and broad money supply grew as expected at 11.1% y/y by the end of May. The global lockdown continues to devastate demand and we have yet to see confirmation of an economic turnaround. More macro data are expected in the following weeks and we will be watching closely. Our cautiousness has increased as market volatility picked up, and we could shift the market back to an Uptrend Under Pressure if it breaches its 200-DMA or if distribution days continue to cluster. We expect the market to be range-bound in the near term and recommend that investors stick with quality ideas breaking above key resistance. The consumer, retail, and health care sectors have showed strong momentum in the trailing four weeks.
Global Focus Emerging
The CSI 300 rose 0.05% this week on higher volume and was shifted to a Confirmed Uptrend from an Uptrend Under Pressure Tuesday as it broke above May resistance. The distribution day count remains at six. The CSI 300 faces resistance near March’s highs of ~4,215 (+5.3%). We would like the index to hold above 200-DMA support at ~3,918 (-2.1%) to remain constructive. In May, China’s CPI increased 2.4% y/y and PPI dropped 3.7% y/y, worse than the expected 3.2% decline. China’s social financing reported a stronger-than-expected increase of RMB 3.19T in May and broad money supply grew as expected at 11.1% y/y by the end of May.
China A Shares
The CSI 300 gained 3.47% this week on higher-than-average volume. The market remains in an Uptrend Under Pressure with five distribution days. The CSI 300 is consolidating after it surged 2.7% on significantly heavier volume Monday. The index retook its 200-DMA and is now trading above all key moving averages, testing resistance near 4,000–4,200. The lower bound of the previous down-gap at ~4,100 (+2.5%) acts as immediate resistance. The market should hold above 200-DMA support to remain constructive. China’s business activity rebounded sharply in May. The Caixin manufacturing PMI rose to 50.7 in May from April’s 49.4 and beat consensus of 49.6. Caixin service PMI rose to 55 in May from April’s 44. Our conviction has improved as the CSI 300 rallied to two-month highs and trading volume increased above the 50-day average this week. We recommend that investors continue to accumulate positions in fundamentally sound stocks breaking above key resistance or pivot. China is expected to report May’s macro data next week.
Global Focus Emerging
The CSI 300 gained 3.47% this week on higher-than-average volume. The market remains in an Uptrend Under Pressure with five distribution days. The CSI 300 is consolidating after it surged 2.7% on significantly heavier volume Monday. The index retook its 200-DMA and is now trading above all key moving averages, testing resistance near 4,000–4,200. The lower bound of the previous down-gap at ~4,100 (+2.5%) acts as immediate resistance. The market should hold above 200-DMA support to remain constructive. China’s business activity rebounded sharply in May. The Caixin manufacturing PMI rose to 50.7 in May from April’s 49.4 and beat consensus of 49.6. Caixin service PMI rose to 55 in May from April’s 44.
China A Shares
The CSI 300 rose 1.12% this week on lower volume and fell 1.16% for the month. The market remains in an Uptrend Under Pressure with six distribution days. The A-share market staged a moderate rebound this week while volume remained low, suggesting a cautious market sentiment. China’s National People’s Congress Meeting that concluded this week approved a new but widely expected security law for Hong Kong, raising China-U.S. tensions. China’s industrial profits fell 4.3% y/y in April, a slower pace that indicates great pressure for firms’ earnings the rest of the year. More stimulus measures, especially targeted at domestic demand, are expected to support the economy. Consumer sectors outperformed in the trailing four weeks while technology stocks lagged under the rising geopolitical tensions. The market remains constructive but investors need to be very selective. We recommend investors allocate capital gradually to companies breaking above key resistance or pivot with sound fundamentals or strong recovery expectations. The CSI 300 has immediate support along the 50-DMA (-1.5%), followed by 3,740 (-3.3%). Immediate resistance is along the 200-DMA (+0.9%), followed by the 100- DMA (+2.1%).
Global Focus Emerging
The CSI 300 rose 1.12% this week on lower volume and fell 1.16% for the month. The market remains in an Uptrend Under Pressure with six distribution days. The A-share market staged a moderate rebound this week while volume remained low, suggesting a cautious market sentiment. China’s National People’s Congress Meeting that concluded this week approved a new but widely expected security law for Hong Kong, raising China-U.S. tensions. China’s industrial profits fell 4.3% y/y in April, a slower pace that indicates great pressure for firms’ earnings the rest of the year.
China A Shares
The CSI 300 declined 2.27% this week on higher volume. We shifted the market to an Uptrend Under Pressure as the distribution day count rose to six. The CSI 300 broke below its 200-DMA on increased volume and is testing support at its 50-DMA (-0.2%). The next support is at ~3,740 (-2.2%), followed by ~3,637 (-4.9%). Resistance at previous highs of 3,998 (+4.5%) remains consistent. The National People’s Congress Meeting started Friday and will last seven days. China sets its GDP goal for 2020, pledges to expand spending, and gives priority to stabilizing employment and ensuring people’s wellbeing. The government will adopt a more flexible and moderate monetary policy, raising expectations of rate cuts or reserve ratio requirements going forward. Volume has been low and rising global tensions are impacting market sentiment worldwide. The Retail and Consumer Staple sectors outperformed the market while the Technology sector lagged for the trailing week. We recommend that investors avoid ideas that would be vulnerable to trade tensions and allocate capital gradually to fundamentally sound companies breaking above key resistance or pivot.
Global Focus Emerging
The CSI 300 declined 2.27% this week on higher volume. We shifted the market to an Uptrend Under Pressure as the distribution day count rose to six. The CSI 300 broke below its 200-DMA on increased volume and is testing support at its 50-DMA (-0.2%). The next support is at ~3,740 (-2.2%), followed by ~3,637 (-4.9%). Resistance at previous highs of 3,998 (+4.5%) remains consistent.
Market View
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq staged back-to-back upside reversals to close the week, holding above key support levels and keeping an overall low distribution count. Distribution now stands at three days on the S&P 500 and two on the Nasdaq, with no expiration for two weeks. To remain constructive, we would like to see the S&P 500 and Nasdaq hold above Thursday’s intraday lows at 2,766 and 8,705, respectively.
Health Care, Retail, and Technology held up well this week, while lagging sectors such as Utility, Capital Equipment, and Transportation sharply declined by 4–6% each. Despite the pullback, eight of 11 sectors remain above their respective 50-DMA. Top ranked industry groups outperforming this week include Mining, Managed Care, Medical Equipment, Biotech, Enterprise Software, Software Security, Gaming Software, Internet, Discount Retail, and Beverages. 127 of 197 industry groups and 58% of S&P 500 stocks are trading above their respective 50-DMA.
We maintain a positive view of the general market. Indices remain above key levels of support with limited distribution. Most importantly, leadership is very strong with multiple ideas hitting higher highs despite the pullback in the major averages. Continue to selectively increase risk in fundamentally sound ideas coming out of constructive bases or rebounding off logical levels of support.
