Mainland Chinese markets continue to hold above key 10-week moving averages. Despite a second distribution day recorded on Wednesday, both the Shenzhen and Shanghai remain constructive and in a Confirmed Uptrend.
Symbol: SGHX.TH.
Global Focus Emerging Long
Mainland Chinese markets were moved into a Confirmed Uptrend on Thursday as the Shanghai broke through year highs with other APAC markets. This year the Shanghai has fared better than the Shenzhen, correcting only 7% from November 2016’s peak to January’s trough, compared to the Shenzhen’s 15%correction. The Shanghai is also trading much closer to 52-week highs, 2% below vs. 5% for the Shenzhen. The markets pulled back on Friday, logging their first distribution day.
Market View
The market remains in a Confirmed Uptrend, with three distribution days on the S&P 500 and Nasdaq. The total count remains low, though no distribution days will expire for over two weeks. The S&P 500 and Nasdaq are each holding support along their respective 21-DMAs as leadership ideas continue to surface. Removals from the list were largely isolated to one group. Therefore, we remain positive on the general market as long as these short-term levels of support continue to hold, and distribution remains under control.
Stocks on our U.S. Focus List—Current Sentiment
Our USFL of 48 names lost 0.6% on average this week, underperforming the S&P 500 (-0.4%) and the Nasdaq (-0.1%).
By Sector
For a third straight week, Health Care ideas within the USFL outperformed. UNH and CELG remain actionable, while IDXX, ALGN, and NUVA continue to trend into higher highs. Home builders are breaking out across the board, with many becoming quickly extended. PHM quickly moved 5% above its $22 pivot, but can be added to on pullbacks to its 21-DMA. Semiconductors, which have slowed in recent weeks, rallied Friday sending SOXX into new highs. New addition, CAVM, remains actionable, while AVGO and AMAT continue to hit new highs. Conversely, the Mobile Manufacturing and RV industry group took a big hit this week after THO reported earnings. PATK and LCII were subsequently removed from the list.
Global Focus Emerging Long
Mainland Chinese markets traded mixed this week as both indices continue to test resistance. The Shanghai is trading 3% off 52-week highs and has appeared more constructive than the Shenzhen which is trading 6% off 52- week highs. To shift to an Uptrend, we are looking for either a move to 52-week highs for the Shanghai or a follow-through day in the Shenzhen. China’s February CPI slowed to 0.8% y/y as food prices fell after the Lunar New Year. January-February CPI rose 1.7%.
Global Focus Emerging Long
Mainland Chinese markets pulled back this week, led by the Shanghai which was down 1%. The Shenzhen traded flat, but continues to look the weaker of the two, trading closer to the 40-week moving average and 7% off highs vs. 3% for the Shanghai. We continue to wait for a strong move that would constitute a follow-through day and provide more conviction in a continued rally.
Global Focus Emerging Long
Mainland Chinese markets traded higher on above average volume for the third consecutive week, with both markets maintaining a positive trend. Accumulation has improved, but we have yet to get a strong move that would constitute a follow-through day. The Shenzhen closed at 2,000, 7% off 52-week highs, and continues to test January highs, while the Shanghai has fared better, now only 1% off 52-week highs. The Shanghai index looks poised to test 3,300 or 2016 highs in our view.
Global Focus Emerging Long
Mainland Chinese markets traded flat this week with the Shenzhen trading near resistance below the 40-WMA and the Shanghai trading sideways but still 2% above the 10-WMA. Volumes for both indices were above average for the second consecutive week. We continue to watch the Shenzhen to see if it will break above resistance at approximately 1,988, bringing it back to January levels.
Market View
The U.S. market will remain in a Confirmed Uptrend to close out 2016. The S&P 500 will lose two distribution days next week, while the Nasdaq will lose three. Additionally, sector rotation remains positive as lagging sectors that have depressed the market over the last few years are now leading, while defensives remain weak. Leadership, though pulling back slightly over the last week, continues to hold up well, consolidating in light volume. We remain constructive on the market and will be looking for a bounce off support levels in the coming weeks.
Market View
The U.S. market remains in a Confirmed Uptrend, continuing to grind higher on light volume. Breadth has wid-ened with Retail now beginning to gain momentum into year-end. Meanwhile, Banks, Capital Equipment, Mate-rials, and Transportation have held their leading positions, which has resulted in a breakout across all the major averages. Though a pullback seems likely given 15 straight positive sessions on the Russell, new leadership ide-as continue to surface while distribution remains low. Consequently, we remain bullish on the U.S. market.
Global Focus Emerging Long
Mainland Chinese markets rallied higher this week. The Shenzhen was
up 0.9% while the Shanghai outperformed, up 2.2%. Markets remain
in a Confirmed Uptrend with five and three distribution days on the
Shenzhen and Shanghai, respectively.
