China’s CSI 300 index (
) fell 5.85% this week, breaking three consecutive weeks of gains. We moved the market to a Downtrend amidst the U.S.-China trade war heating up. The index continues to slide below the 50-DMA, but is holding above its last level of support at 3,295.73.
We downgraded both China and Hong Kong today as geopolitical tension surrounding U.S.‐China tariffs are heating up again and
causing markets to trend lower. Both markets are testing or below year‐to‐date lows. Furthermore, they are the worst performing
year‐to‐date in their respective emerging and developed markets. Major APAC markets are shifting more bearish again. It has
been back and forth all year as they have struggled to maintain positive momentum. Also, the majority of APAC markets have yet
to hold above their respective 200‐DMA. We are becoming more cautious in general and recommend a conservative approach in
more bearish markets.
This week we review our Hong Kong and China downgrades. We also review our thoughts on Tencent ( TCNT.HK, 700: HK ), which
we removed from our Focus List today. Elsewhere, we are more positive on India with the BSE SENSEX still near all‐time highs. We
are overweight Indian Financials with seven ideas currently on our Focus List. Our Financial sector analyst shares his thoughts on
India’s rising interest rate environment, highlighting Yes Bank ( YEB.IN; YES: IN ) and Indusind Bank ( IBK.IN; IIB: IN ) as
beneficiaries.
Key Points:
Global:
The majority of 47 markets are back in an Uptrend as of last week. First shift in six weeks. Still fairly cautious however. We recommend carefully picking spots instead of being aggressive.
U.S.:
After underperforming consistently for the past six years, some very short-term outperformance in value versus growth.
Related to this, shift toward industrials and resource sectors in very short term. Technology/Retail still long-term leaders, but there is a clear deceleration.
Areas of strength:
Focus List picks from the top-35 fastest improving industry groups: UNP, HEI, ASGN, FLIR
Watch list names from these groups: SHW, CSX, IEX, IR, ROLL, TDY, FTV
Developed Markets:
Improvement QTD but still overhang from May/June weakness. Several markets back in an Uptrend, including Germany, Switzerland, and Denmark, which join Japan, Australia, and Canada. Waiting on France. Hong Kong is weak, at YTD lows.
Focus List areas of strength:
European Health Care, Energy, Technology: Straumann ( STMN.CH; STMN SW ), Ipsen ( IPN.FR; IPN FP ), DNO ( DNO.NO; DNO NO ), Evolution Gaming ( EVOG.SE; EVO SS )
Japan outsourcing/staffing: SMS ( SMSC.JP; 2175 JP ), Recruit Holdings ( RHCL.JP; 6098 JP )
Emerging Markets:
A majority of markets are in an Uptrend, driven by QTD improvement in LatAm, Southeast Asia, and continued strength in India/Taiwan. China very weak, with indices back in a Downtrend.
Focus List areas of strength:
India banks and industrials: Indusindbank ( IBK.IN; IIB IN ), Yes Bank ( YEB.IN; YES IN ), JSW Steel ( JVS.IN; JSTL IN), Asian Paints ( API.IN; APNT IN )
Taiwan/Korea Tech equip/components: SKC Kolon Pi; SKJ.KR; 178920 KS), Chroma ( CMA.TW; 2360 TT )
Qatar banks: Qatar National Bank ( QNB.QA; QNBK QD )
Frontier Markets:
Clear majority in a Downtrend, but strength in Saudi/Kuwait, and recently in Vietnam.
Areas of strength:
Saudi/Kuwait banks and chemicals: Alina Bank ( ALN.SA; ALINMA AB ), Saudi Basic Industries ( BIC.SA; SABIC AB ), National Bank of Kuwait ( NBK.KW; NBK KK )
Vietnam airlines and real estate dev: Vietjet Aviation ( VJC.VN; VJC VM ), Vincom ( VIC.VN; VIC VM )
The U.S. market is in a Confirmed Uptrend. We will move the market back to Under Pressure should we see the Nasdaq
close below its 50-DMA next week. We are concerned with the action of leading ideas, which came under severe selling
pressure on Friday, resulting in the Nasdaq closing below its 21-DMA. Multiple names either pulled back sharply to their
respective 50-DMA or broke below that level post-earnings results. Earnings will continue to play a big role next week, with
another 25% of the U.S. Focus List reporting. We recommend a patient approach in the near term, waiting to see support
come back into the market over the next few sessions.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 68 ideas lost 1.8% on average this week, underperforming the S&P 500 (+0.6%) and the Nasdaq (-1.1%).
Actionable Focus List ideas: Diamondback Energy ( FANG ), Envestnet ( ENV ), Flir Systems ( FLIR ), Heico ( HEI ), Home Depot
( HD ), Nextera Energy Prtn Lp ( NEP ), Paypal ( PYPL ), RingCentral ( RNG ), Unitedhealth ( UNH ), Vertex Pharmaceuticals ( VRTX ).
USFL ideas weekly earnings line-up:
Monday: Open: ON; Close: ILMN
Tuesday: Open: FIS; Close: PAYC
Wednesday: Open: IDXX; Close: PRAH, SQ
Thursday: Open: GPN; Close: ANET, ATVI, FLT, RP, SSNC, WING
By Sector
All sectors pulled back sharply to close the week, led lower by Health Care. Multiple Medical Product ideas gapped down
post earnings, including ABMD, ALGN, and EW. ABMD and EW are now testing support around their respective 100-DMA,
while ALGN is still holding above its 50-DMA. IDXX and ILMN are also pulling back off extended levels ahead of earnings
next week. Technology ideas also sold off Friday. ATVI, MPWR, PSTG, VEEV, RP, and ADSK all broke back below their re-
spective 50-DMA. Retail ideas, which had been leading, all pulled back as well. LULU, OLLI, and HOME broke their respec-
tive 50-DMA on Friday, while FIVE and HD look set to test that same level in the coming days. Financial ideas held up the
best, despite selling off on Friday. SIVB, FLT, V, MA, FIS, SQ, and ENV all hit new highs this week before fading into Friday’s
close.
New Ideas or Deletions
We added Envestnet ( ENV ) and removed TAL Education ( TAL ) from the U.S. Focus List this week.
China’s CSI 300 index (
) was up 0.81% this week, compared with last week’s flat performance. The market is in a Confirmed Uptrend with two distribution days. The index is still trading below its 50-DMA, with a strong resistance at the 200- DMA (~3,922).
The majority of APAC market conditions are tilted bullish, but 60% are trading below the 40-WMA. This gives us reason to remain a bit cautious as many are testing shorter-term (10-WMA) resistance levels. In our view, it would not be surprising to see markets pause and for volatility to pick up again. What is important is how indices handle resistance in the near term. An example is Mainland China, which we are watching closely.
In this week’s note, we explain what we are looking for in China’s market to remain constructive. We also review India. The SENSEX is at 52-week highs but is driven by only a handful of stocks. Since large-cap ideas are currently working in India, we have provide names on and off our Focus List that are screening well from an O’Neil perspective. Lastly, we highlight recent Focus List addition Yes Bank ( YEB.IN; YES: IN ).
The U.S. market is in a Confirmed Uptrend. The S&P 500 and Nasdaq traded relatively flat this week, consoli-
dating the last two weeks of gains. The S&P 500 now has four distribution days with two expiring next week,
while the Nasdaq has six distribution days with three expiring next week. Leading ideas continue to show con-
structive action with multiple ideas hitting new highs despite sideways trade in the major averages. Earnings will
continue to play a big role over the next few weeks, driving market direction. Thirty-percent of the U.S. Focus List
reports next week, followed by 25% the week after. We maintain our positive view on the general market due to
a declining distribution day count and good technical action in the major averages and leading ideas alike.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 68 ideas gained 0.9% on average this week, outperforming the S&P 500 (+0.02%) and the
Nasdaq (-0.07%).
Actionable Focus List ideas: Activision Blizzard ( ATVI ), Arista Networks ( ANET ), Calavo Growers ( CVGW ), Dia-
mondback Energy ( FANG ), Fleetcor Technologies ( FLT ), Global Payments ( GPN ), Home Depot ( HD ), RingCentral
( RNG ), SS&C Technologies ( SSNC ), Unitedhealth ( UNH ), Worldpay ( WP )
USFL ideas weekly earnings line-up:
Monday: Close: GOOGL, ZION
Wednesday: Open: FLIR, GRUB, MKTX, NEP; Close: ALGN, MPWR, NOW, PYPL, V, VRTX
Thursday: Open: ABMD, MA, TAL; Close: AMZN, EW, SIVB, TEAM
Friday: Open: TYL
By Sector
Health Care ideas on the U.S. Focus List led this week. IDXX, ILMN, ALGN, PRAH, EW, and VRTX are all trading
at or near new highs. UNH pulled back post earnings, but found support at its 50-DMA. Banks also did well this
week, though most just held the lower end of support levels and are now attempting to build the right side of
new bases. TCBI and WAL reacted positively to earnings, while ZION and SIVB both report next week. After two
solid weeks of gains, Software ideas held up well with a handful moving back into new highs. ATVI, RNG, and
SSNC provided new buy points after breaking out of new bases, while RP and PAYC both regained their respec-
tive 50-DMA. Conversely, Energy ideas have lagged over the last few sessions. FANG remains above its 50-
DMA, however, WRD and CLR are now trading more than 10% off highs and around their respective 100-DMA.
China’s CSI 300 Index (
) remained flat last week compared with the strong recovery last previous week. The market is in a Confirmed Uptrend and had a distribution day this week. The index is trading 22% off 52-week highs with stiff resistance at the 200-DMA (~3,929).
Last week, we upgraded both Mainland China and Japan to a Confirmed Uptrend as both staged a follow‐through day. Despite
this, we feel more confident about Japan’s market condition than China (more on this below). With the two upgrades, our APAC
market conditions have shifted more bullish, but 60% of markets are still trading below longer term moving averages, which gives
us a reason to remain a bit cautious. Additionally, the broader MSCI Asia ex Japan benchmark (Datagraph below) has yet to display
signs of positive momentum this week. A/D is still poor and it has traded flatly this week, weighed down by weak action in
heavier weighted names (e.g. Tencent).
Furthermore, we have yet to see significant rotation out of defensive sectors, although Health Care has pulled back recently. As
we mentioned in a previous note, Utilities continue to display momentum. We are keeping an eye on short‐term improvement in
Technology and noticing sharp underperformance from Materials, Transportation, and Energy. We provided names in these
sectors to keep on your radar for breakouts as well as those we believe are still vulnerable to further downside. Lastly, we
highlight two Technology names on our list, Samsung SDI ( SCT.KR; 006400:KS ) and L&F ( LAF.KR; 066970:KS ).
Market Overview :
The U.S. market is in a Confirmed Uptrend. The S&P 500 is now trading just 2% off highs, while the Nasdaq
made a new all-time high after finding strong support at the 50-DMA last week. Distribution stands at five days
on the S&P 500 and four on the Nasdaq, with one day expiring on the S&P 500 at the close next Wednesday.
Leading ideas showed very strong price action this week, with more than 25% of the U.S. Focus List hitting a new
all-time high. We recommend buying high relative strength ideas across leading and/or improving industry
groups at risk-optimal entry points.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 68 ideas gained 1.5% on average this week, in line with the S&P 500 (+1.5%) and underperform-
ing the Nasdaq (+1.8%).
Actionable Focus List ideas: Activision Blizzard ( ATVI ), Alphabet ( GOOGL ), Arista Networks ( ANET ), Calavo
Growers ( CVGW ), Diamondback Energy ( FANG ), Edwards Lifesciences ( EW ), Fleetcor Technologies ( FLT ), Global
Payments ( GPN ), Home Depot ( HD ), Nextera Energy ( NEP ), Paypal ( PYPL ), PRA Health Sciences ( PRAH ),
RingCentral ( RNG ), SS&C Technologies ( SSNC ), Vertex Pharmaceuticals ( VRTX ), Worldpay ( WP )
USFL ideas weekly earnings line-up:
Monday: Close: NFLX
Tuesday: Open: SCHW, UNH
Wednesday: Close: TCBI
Thursday: Close: WAL
By Sector
Technology and Health Care ideas on the U.S. Focus List led this week. Within Technology, software led with
NOW, ATVI, CRM, TEAM, and ADBE all moving back into new highs. PAYC, RNG, TYL, VEEV, and ADSK all re-
gained their respective 50-DMA. Outside of software, GOOGL is actionable after breaking out of consolidation
and back into all-time highs. Within Health Care, five of our nine ideas made new all-time highs. ILMN, IDXX,
and PRAH continue to trend into higher highs, while VRTX just broke out on Friday from a 17-week cup. Payment
Processors also continue to act well, with PYPL, WP, GPN, MA, V, and FLT all trading at or near new highs. Con-
versely, Banks remain weak. WAL, ZION, and TCBI are all testing the low end of near-term support ahead of
their respective earnings announcements in the coming days. SIVB remains the leader, despite trading below its
50-DMA and ~10% off highs.
