China’s CSI 300 index (
) was up 3.79% over last week, staging a strong recovery from the previous week. The market was moved to a Confirmed Uptrend yesterday after a 2% daily gain. The index is trading 21% off its 52-week high, well below its 50- and 200-DMA. We view stiff resistance at the 200-DMA (~3,938).
Many Asian markets have found support along with the MSCI Asia, holding last week’s lows. Moreover, several markets are now
in a Rally Attempt after finding support over the last four days, setting up for the possibility of a follow‐through day should lows
continue to hold. The majority of markets are still tilted bearish, so we recommend patience and waiting for confirmation. If a
follow‐through day occurs over the next few days, we recommend a gradual approach to buying stocks.
This week, we revisit the 2015‐2016 major correction in China’s A share market compared with what we see currently. The
Shanghai Composite could be reaching support near January 2016 lows. Despite weak conditions in China, there are still a few
outlying growth stocks that continue to act strongly. We screened for A share and Hong Kong names with the best RS near highs
with strong ratings (many in Health Care). These names continue to hold up well. Among them is small cap Focus List
idea Yihai International Holding (YIHA.HK; 1579: HK), which is near all‐time highs.
China’s CSI 300 Index (
) slumped 4.15% over last week. The market remains in a Downtrend. The index is trading 24% off its 52-week high. We view stiff resistance at the 200-DMA (~3,948). We recommend a conservative approach for any fresh additions.
Over the last two weeks, a majority of APAC markets have remained bearish with 60% (eight of 13) in a correction. Furthermore, the MSCI Asia has broken below prior support of the 200-DMA and has made new lows for the year. The index has the worst possible A/D Rating of E. Major markets continue to display downward pressure; on July 2, we downgraded Japan to a Downtrend. It joins other major markets, including Hong Kong, China, and South Korea, which were downgraded in late June. We are more cautious given market conditions and we believe a defensive approach is warranted. Nearly all APAC sectors have shifted downward in recent weeks. All that remains in the upper-right quadrant of our Sector Rotation Graph are defensive sectors, including Utilities, Staples, and Health Care.
This week the Utility sector has stood out and is among the few sectors in APAC that were positive through Thursday. We focus in on utility companies and provide those that look the best from our view. We highlight two on our Focus List, China Gas Holdings ( IWAI.HK; 384:HK ) and Enn Energy Holdings ( XINA.HK; 2688:HK ). Lastly, while markets are weakening, keep an eye on Focus List ideas that have RS near highs (listed at the bottom of every note). We look for these names to continue to lead the market should conditions turn around.
Key points from this week’s commentary:
The first half 2018 ends with a 4% loss for the developed markets index (
), an 8% loss for the emerging markets index (
), and a 13% loss for the frontier markets index.
The first half 2018 also ends with about 60% of markets we track in a Downtrend (or Rally Attempt).
Favored areas:
U.S. Retail, HC, and Energy, with a close eye on potential continuation of late-June rotation to defense. Buyable names from these areas include At Home (
), Supernus Pharma (
), Diamondback Energy (
), and Mccormick (
).
Other developed: Clean energy in HK (Enn Energy, XINA.HK; 2688 HK), certain Cyclicals and Health Care in Europe (Basic Fit, BFIT.NL; BFIT NA; Swedish Orphan Biovitrum, SOBI.SE; SOBI SS), and outsourcing/jobs info in Japan (Benefit One, BONE.JP; 2412 JP)
India: large banks, paint producers, and food companies. These include Asian Paints (API.IN; APNT IN), HDFC Bank (HFC.IN; HDFCB IN), and Britannia Industries (BRI.IN; BRIT IN).
Other emerging: Top Glove (TOGL.MY; TOPG MK).
Frontier: Saudi Arabia banks, chemical producers, and mining companies: Riyad Bank (RIB.SA; RIBL AB), Saudi Kayan Petrochemical (SAK.SA; KAYAN AB), Saudi Arabian Mining (SAM.SA; MAADEN AB).
Market Overview
The U.S. market is in an Uptrend Under Pressure. The S&P 500 and Nasdaq are both holding support above
their respective 50-DMA after a sharp pullback earlier in the week. We are now looking for this level of support
to hold for the next few sessions before we recommend increasing risk in the market. Distribution also remains
elevated at six days on the S&P 500 and seven on the Nasdaq. Next week, however, two distribution days expire
on each index which would take the count back down to a more comfortable level. Lastly, we are still monitoring
the action of leading ideas which have come sharply off recent highs. We will be looking for new ideas to
emerge, while prior leadership consolidates. Our recommendation is still to remain patient here with a focus on
high relative strength ideas bucking the general market pullback.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 68 ideas (five net removals) lost 2.6% on average this week, underperforming the S&P 500 (-1.3%)
and the Nasdaq (-2.4%).
Actionable Focus List ideas: Activision Blizzard (
), Alphabet (
), At Home (
), Calavo Growers
(
), Continental Resources (
), Diamondback Energy (
), Fleetcor Technologies (
), Home Depot
(
), McCormick (
), Nextera Energy (
), Paypal (
), PRA Health Sciences (
), SS&C Technologies
(
), Supernus Pharmaceuticals (
), Unitedhealth (
), Vertex Pharmaceuticals (
)
By Sector
We did see early signs of rotation into Energy last week. This continued this week with
,
, WRD, and
all holding those gains despite the pullback in the market. Consumer Staple also came under accumulation
this week.
regained its 50-DMA and is now trading just 3% off all-time highs, while WTW and new addi-
tion
are both trading near new highs. Lastly, the two biotechs on the USFL,
and
, both broke
out and remain actionable at current levels. Conversely, Technology remains under pressure. The majority of
software ideas undercut short-term support levels and now need time to consolidate before presenting better en-
try points.
and RHT were both removed from our list due to severe technical deterioration, while PAYC,
ADSK, RNG, TYL, NOW, and RP all remain on the list, but are all trading below their respective 50-DMA.
Among software ideas,
does stand out positively with a relative strength line near new highs.
New Ideas or Deletions
We added McCormick (
) and removed Fedex (
), Splunk (
), Marvell Technology (
), MKS In-
struments (
), Morgan Stanley (
), and 58.com (
) from the U.S. Focus List this week.
China’s CSI 300 index (
) slumped 2.71% over last week. Te market remains in a Downtrend. Te index is trading 22% off its 52-week high. We view stiff resistance at the 200-DMA (~3,960). We recommend a conservative approach for any fresh additions.
Market Overview
The U.S. market remains in a Confirmed Uptrend. The S&P 500 is holding support at 2743, while the Nasdaq
remains just 1% off all-time highs. Distribution is elevated, however one day did expire at the close Friday to take
the count back down to six on the S&P 500. Another distribution day is also set to expire at the close Tuesday.
Leadership is mixed with the majority still holding up well. Software ideas, however, did take a hit this week,
pulling back off extended levels and likely set to consolidate gains over the next several weeks. Going forward,
we will be looking for the market to avoid further distribution and for the majority of leading ideas to continue
holding above short-term levels of support.
By Sector
We did see early signs of rotation to close the week. Energy, which has been lagging over the past month, ral-
lied on Friday. FANG and CLR both regained their respective 50-DMA, while WRD is attempting to regain that
same level. NEP also broke out into a new YTD high on Friday, before pulling back at the close. Financial also
fared well this week, with Payment Processors still leading. FLT broke out after being added to the S&P 500,
while MA, V, PYPL, SQ, and WP remain at or near new highs. Banks still remain mostly sideways. Health Care
ideas also continue to stand out, as the majority of USFL ideas held their ground despite the general market
pullback. EW, PRAH, ILMN, ABMD, IDXX, and ALGN all remain at or near new highs. VRTX is also now rounding
out the ride side of a new base after trading below both its 50- and 200-DMA over the last few weeks. Con-
versely, USFL software ideas pulled back after big runs over the past month. RHT gapped down ~14% post
earnings, while SPLK and RP both broke their respective 50-DMA on very heavy volume. Most other ideas includ-
ing RNG, NOW, ADBE, TYL, and TEAM are pulling back off all-time highs and now testing support at the 50-
DMA.
China’s CSI 300 Index (
) slumped 3.85% over last week. On June 19, the market was degraded to a Downtrend following its move toward year-to-date lows. The index is trading 14% off its 52-week high. The next level of support is near 3,500 with stiff resistance at the 200-DMA (~3,970). We recommend a conservative approach for any fresh additions.
The U.S. market is in a Confirmed Uptrend. The S&P 500 is hitting resistance just below 2800, while the Nasdaq continues to trade near all-time highs. Distribution remains elevated, however multiple days expire on both indi-ces next week. Despite the lag in the S&P 500, leading ideas continue to show constructive action. Multiple names across several sectors and market caps are making higher highs after breaking out over the last month. Therefore, we continue to recommend buying ideas at risk optimal levels until we see more concerning technical action. We will remain positive on the general market until we see a further pick up in distribution that results in the major averages breaking below shorter-term moving average support.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 72 ideas gained 1.6% on average this week, outperforming the S&P 500 (flat) and the Nasdaq (+1.3%).
USFL ideas weekly earnings line-up:
Tuesday: Close: FDX
Thursday: Close: RHT
By Sector
Technology and Health Care ideas on the U.S. Focus List led this week. Despite choppy daily action, software ideas continue to trend higher. PAYC regained its 50-DMA and ATVI rallied all the way back to all-time highs where it is now hitting some resistance, while VEEV, NOW, QTWO, RHT, and TYL all made new highs. The ma-jority of Health Care ideas on the USFL are now extended, including ABMD, ALGN, EW, IDXX, and ILMN which are all trading at all-time highs. PRAH and UNH remain actionable. Oil & Gas and Bank ideas on the USFL lagged again this week. WRD and CLR both broke their 50-DMA on Friday, while FANG continues to lag, trad-ing around its 200-DMA. Among Banks, ZION traded back below its 50-DMA on Friday, while TCBI and WAL pulled back to that same level. SIVB remains the leader, still trading near all-time highs.
