Key Points
I – Europe Falling Back to a Downtrend
The IShares Dj Stoxx 600 (in a Downtrend – See Page 5) breached its oneyear low yesterday and is now in unchartered territory. This is the second time this year that its follow‐through day failed. We see the 30.70 low of June 2016 acting as the next level of support.
Heavy distribution on Thursday followed a rout in U.S. futures after Canadian authorities arrested Huawei’s CFO at the request of the U.S., delivering a blow to the ongoing peace talks in the China‐U.S. trade war.
The yield curve inversion of the five‐ and three‐year treasury notes that occurred Monday for the first time in more than a decade added to investors’ worries.
In the wake of Ishares Dj Stoxx 600 weakness, we downgraded France, Germany, Norway, Sweden, Austria, Portugal, Spain and Luxembourg to a Downtrend. A majority of the 17 markets we cover are now in a Downtrend.
II – Defensives Continue to be the Best Bet Right Now
Amid extreme volatility with multiple variables like Italy’s debt crisis, a slowdown in the U.K. housing market, Brexit, etc., defensive stocks continue to relatively outperform the market. Of stocks with improving Relative Strength Ratings (over the past four weeks) and decent fundamental (SMR>50) that are under accumulation (A/D Rating >0), a majority are from:
1. Utility‐Electric Power, which includes Iberdrola (
), Terna (
), REN (
), and Focus List name Telecom Plus (TEP.GB – see Page 3). The latter continues to display strong technical characteristics and is actionable after breaking out of a 36‐week cup last week.
2. Staples: Among others, included are Unilever (ULVR.GB), Nestle (
), and Diageo (
). From our Focus List, Davide Campari (CPR.IT – See Page 4) is holding well, trading above its 50‐DMA.
3. Telecom: Swisscom (
) and Proximus (
).
