China’s CSI 300 index dropped 1.71% after two consecutive weeks of gains. The index remains in an Uptrend Under Pressure and we recommend remaining cautious on new additions. Due to renewed trade war fears, the index faces stiff resistance at the 50-DMA.
Symbol: SKJ.KR
APAC Weekly Summary
On Friday, August 31, we quickly shifted mainland China and Hong Kong markets to an Uptrend Under Pressure following increasing volatility. Furthermore, we believe there is a high probability that the August 27 follow-through day will fail. We are noticing distribution rising in other APAC markets. Today (September 5), eight indices recorded distribution and, over recent weeks, distribution (among those in a Confirmed Uptrend) has reached elevated levels. The MSCI Asia is once again trading below the 50-DMA, unable to find support. The majority of indices are still struggling to stay above their respective 200-DMA. The leading market, India, is also beginning to pull back from highs (see last week’s note). Overall, there are enough reasons to stay patient and be more cautious in APAC.
This week, we reiterate our optimism on Japan, which continues to trade constructively despite overall APAC volatility. In APAC Sector Rotation, Energy is the only sector displaying short-term strength. We provided Energy ideas to keep on your radar. Last, we highlight two actionable Japanese Focus List ideas, Fast Retailing ( RETA.JP; 9983:JP ) and GMO Payments ( GMOP.JP; 3769:JP ).
Market View
Market Overview
The U.S. market is in a Confirmed Uptrend. The S&P 500 and Nasdaq are consolidating near all-time highs after accelerating the last two weeks. Distribution remains low with three days on the Nasdaq and two on the S&P500. Leadership remains intact, with strong price action across multiple groups, including payment processors, med-tech, and software. We maintain a positive outlook on the market.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 77 ideas gained 1.8% on average this week, outperforming the S&P 500 (+0.9%) and slightly lag-
ging the Nasdaq (+2.1%).
By Sector
Ideas across Capital Equipment, Health Care, Financial, and Retail were up more than 2% on average. HEI, within the Capital Equipment sector, gapped up 12% into new highs after better-than-expected earnings results. Payment processors remain one the best industry groups in the Financial sector, led by SQ, MA, and V. LULU gapped up on earnings, while OLLI broke out into new highs ahead of earning results on Wednesday. Health Care ideas, VRTX and ALGN, are actionable after moving into a pivot area on constructive price action. Transportation ideas remain weak, as ZTO pulled back below its 100-DMA.
Global Focus Emerging Long
China’s CSI 300 index edged up 0.28% this week after increasing sharply the week before. We upgraded the market status to a Confirmed Uptrend on Monday, subsequent to strong price volume action. However, the index was moved to an Uptrend Under Pressure on Friday due to the index trading below the 50-DMA. The index continues to face stiff resistance at the 50-DMA due to renewed trade war fears.
Global Focus Emerging Long
China’s CSI 300 was up 2.11% after reaching a low on Monday. We updated the market status to a Rally Attempt after it continued to trade above the August 20 low. There were two distribution days earlier in the week.
APAC Weekly Summary
Considering bounces in both China and Hong Kong markets recently and the possibility of a follow-through day, many of our clients have asked our take on market bottoms and how to avoid missing out on a rally should a reverse in sentiment occur. In general, our answer remains consistent with the O’Neil Methodology and its guidelines. Should our sentiment shift with a follow-through day over the coming days, we would focus our attention on leading growth ideas, with top- and bottom-line growth intact, strong O’Neil Ratings and Rankings, and constructive price action.
This week, we go over our thoughts on Chinese markets, now that both Mainland and Hong Kong are in a Rally Attempt. We also review sector rotation in Hong Kong and provide Hong Kong Stocks of Interest. Last, we highlight China Everbright Greentech ( CE
Global Focus Emerging Long
China’s CSI 300 index (
) was down 5.15% this week after last week’s attempted recovery. We updated the market status to a Downtrend after a failed rally attempt.
Market View
Market Overview
The U.S. market is in a Confirmed Uptrend. Despite the pullback on Friday, the majority of growth ideas held up well, with multiple recent IPOs also breaking out into new highs. Further, small-cap indices, including the S&P 600 and Russell 2000, also held up well relative to the other major averages, indicating a further rotation into U.S.-based ideas. Overall, despite choppy market conditions, we maintain our positive view as the major averages remain above moving average support with a low number of distribution days.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 69 ideas gained 1.1% on average this week, outperforming the S&P 500 (-0.2%) and the Nasdaq
(+0.3%).
By Sector
Software ideas on the U.S. Focus List led this week. RNG, TEAM, VEEV, and PAYC are all trading at or near new highs, while RP, NOW, TYL, and ADSK all regained their respective 50-DMA. Retail names also rallied, led by AMZN which continues to make new highs, as well as FIVE and LULU, which both found support around their respective 50-DMA. Conversely, with the exception of WP and SQ, the majority of Financial ideas lagged this
week, including WAL, ZION, TCBI, and SCHW, which are all testing the low end of long-term support.
Global Focus Emerging Long
China’s CSI 300 (
) rose 2.48% this week, rebounding from last week’s decline. We moved the market to a Rally Attempt after it closed positive in three out of the last four sessions. However, we still remain cautious with an eye on the U.S.-China trade war.
APAC Weekly Summary
We continue to be cautious on overall APAC markets, as the MSCI Asia remains 3% above year lows and in a flat trend below its
50‐DMA. Chinese markets continue to be a major concern. Mainland China markets are still in a Downtrend, while Hong Kong is
back in a Rally Attempt after rebounding over the past four days. We are not confident in a Hong Kong follow‐through day, but we
are not ruling out the possibility under our guidelines.
Looking beyond our China concerns, we believe Japan is still constructive. We continue to look for the Nikkei to break out to
increase our conviction. Defensive sectors still lead in Japan, but we are noticing a rotation out of Staples (mostly cosmetics)
and into the Energy and Technology sectors. Focus List‐idea TDK (TD@N.JP, 6762: JP) is currently actionable.
