Chinese markets sold off hard this week with the Shenzhen plunging
5.6% and the Shanghai falling 3.9%. For the Shenzhen specifically,
this week’s loss was the first in the last six trading sessions. Despite the
significant move, it is important to keep it in perspective. Only one
distribution day was added to both indices bringing the total to two for
the Shenzhen and three for the Shanghai – not yet at an elevated level
in our opinion. Both indices still remain in a Confirmed Uptrend while
continuing to trade above the 10-week moving average where we think
key short-term support resides. We are watching intently in the coming
week to see if markets hold 10-week support. Our concern for market
conditions would increase should support fail and coincide with a
pickup in high volume distribution.
Symbol: ULK.TR
Market View
U.S. indices have continued their march higher after a one-week pause. The S&P 500 is now trading just 3% off highs, while the Nasdaq has retaken its 200-day moving average. Constructive action continues, with distribu-tion still a non-factor. Volume has been the only concern, remaining below average for 16 of the past 17 trad-ing sessions. Growth ideas continue to build the right side of their respective basing patterns, with many now beginning to test highs reached late last year. We expect volume to pick up in many of these ideas, as earnings will now drive market behavior, taking the place of short covering and Fed talk. We recommend a focus on companies showing good earnings stability and a prior history of handily beating estimates.
Global Focus Emerging Long
Mainland Chinese markets are now testing year highs with the Shenzhen
and Shanghai up 2% and 0.2% for the week, respectively. As mentioned
last week, we are watching intently to see whether markets will rise above
short-term peaks or continue to consolidate near 52-week lows. We view
the markets action in the short term to be telling if a move to the 40-
week moving average (next resistance) is likely. Until the market breaks
current resistance levels, the condition will remain Under Pressure.
Global Focus Emerging Long
The Shenzhen recorded its first down week in the last 10 weeks, down
0.6%. While the Shanghai continued to trade strongly up over 6% for
the week. Distribution remains low for both markets with only one
distribution day for the Shanghai and none for the Shenzhen.
