The U.S. market is in a Confirmed Uptrend. The S&P 500 and Nasdaq remain resilient and are
holding above their respective 10-DMAs despite Monday’s downside reversal. The S&P500 is less
than 1% below resistance at 3,233 and remains in a 6-week consolidation. Distribution count has
declined this week and currently stands at four and two days respectively.
Tag: Confirmed Uptrend
China A Shares
The CSI 300 rose 7.55% this week on higher volume (+88.4%) and remains in a Confirmed
Uptrend with two distribution days after one expired. The index rallied from Monday through
Thursday and turned downward Friday for the first time since June 29. The index faced pressure
at Thursday’s high (4,854, +2.1%), while support lies at the 50-DMA (~4067, -14.4%). June
data showed signs of improved liquidity and domestic demand. CPI rose 2.5% y/y, versus
consensus of 2.6%. PPI dropped 3.0% y/y, better than estimates of -3.1%. Better-than-expected
total social financing rose to RMB 3.43T in June from 3.19T in May, up 12.8% y/y. M2 rose
11.1% y/y, holding steady from May but lower than forecasts of 11.2%. The CSI 300 has surged
~14% since July and prudent investors could trim profits. We remain optimistic but investors
are advised to beware of market volatility. We recommend staying disciplined and focusing on
quality stocks with strong support levels or breaking out of pivot.
European Focus
On Thursday, the Stoxx 600 ended 0.49% below last Friday’s close. Of the
17 indices that we cover, four are in a Confirmed Uptrend, and 13 are in an
Uptrend Under Pressure
China A Shares
The CSI 300 rose 4.76% from Monday through Thursday this week on higher and above average volume and remains in a Confirmed Uptrend with three distribution days. The index rallied and broke above March highs of ~4,200. The next immediate resistance lies at January 2018 highs (~4,400, +1.5%). Support lies at the 50-DMA (3,960, -9.5%). June’s official PMI was 50.9, up from May’s 50.6, while Caixin’s small business PMI climbed to 51.2 in June from 50.7 in May, both better than consensus. China’s industrial firm profits rose 6.0% y/y in May, the first increase since December 2019. The index closed at a two-and-a-half-year high and showed clear signs of sector rotation. Financial and Real Estate led while long-term leaders Technology and Health Care lagged. Some ideas that deserve attention are SJF.CN, BHZ.CN, and FIN.CN. We recommend increasing risk exposure as the market has become more upbeat. Investors are advised to accumulate positions on quality stocks breaking out of solid bases and take profits in the most extended ideas such as YEP.CN and JJY.CN.
European Focus
After a brief period of volatility due to concerns over the second possible wave of COVID-19 cases, the market remained in positive territory. The Stoxx 600 advanced 0.8% in the first three days of the week and is gaining another 150bps today.
China A Shares
The CSI 300 rose 0.98% this week on lower volume. The market remains in a Confirmed Uptrend with three distribution days, as one expired. The CSI 300 is trending upward after it broke above the bottom of the previous gap-down at ~4,100 and faces immediate resistance at March highs of ~4,210 (+1.5%), followed by 2018 highs of ~4,400 (+6.3%). The market should hold above 200-DMA support at 3,930 (-5.3%) to remain constructive. U.S. President Donald Trump asserted that the trade deal between China and the U.S. remains in place. Shanghai’s Composite Index will be revamped by introducing more high-tech strength and removing loss-making companies. The coronavirus outbreak in Beijing looks to be under control. Two-thirds of stocks fell while leadership outperformed. We recommend investors beware of “risk on” sentiment since the index has surged 7% this month and faced strong resistance at 4,200 (+1.5%). Investors are advised to be selective and focus on quality stocks with sound fundamental and technical profiles. China’s market is closed Thursday and Friday for the Dragon Boat Festival.
European Focus
On Thursday, the Stoxx 600 ended 0.82% below last Friday’s close. Of the 17 indices that we cover, three are in a Confirmed Uptrend, and 14 are in an Uptrend Under pressure
China A Shares
The CSI 300 rose 2.39% this week on higher volume and remains in a Confirmed Uptrend with four distribution days, as two expired. The CSI 300 broke above the lower bound of the previous gap-down of ~4,100, with next immediate resistance at March’s highs of ~4,210 (+2.7%). The market should hold above 200-DMA support at (3,925, -4.2%) to remain constructive. Beijing reported new COVID-19 cases but the government immediately curbed travel and movement to contain a second outbreak. Industrial output rose 4.4% y/y in May, retail sales fell 2.8% y/y, and fixed-asset investment declined 6.3% in the first five months, slightly missing consensus but improving over April. Policymakers are confident the economy is gradually recovering from the coronavirus crisis while pledging more reforms and liquidity. Risk appetite improved as investors expect more liquidity in capital markets and COVID-19 to be under control. Our conviction builds as the market is trading actively but we recommend staying patient given that the market is still volatile. Investors are advised to focus on leading stocks with strong fundamentals breaking out of sound bases or bouncing off key support on heavy volume.
China A Shares
The CSI 300 rose 0.05% this week on higher volume and was shifted to a Confirmed Uptrend from an Uptrend Under Pressure Tuesday as it broke above May resistance. The distribution day count remains at six. The CSI 300 faces resistance near March’s highs of ~4,215 (+5.3%). We would like the index to hold above 200-DMA support at ~3,918 (-2.1%) to remain constructive. In May, China’s CPI increased 2.4% y/y and PPI dropped 3.7% y/y, worse than the expected 3.2% decline. China’s social financing reported a stronger-than-expected increase of RMB 3.19T in May and broad money supply grew as expected at 11.1% y/y by the end of May. The global lockdown continues to devastate demand and we have yet to see confirmation of an economic turnaround. More macro data are expected in the following weeks and we will be watching closely. Our cautiousness has increased as market volatility picked up, and we could shift the market back to an Uptrend Under Pressure if it breaches its 200-DMA or if distribution days continue to cluster. We expect the market to be range-bound in the near term and recommend that investors stick with quality ideas breaking above key resistance. The consumer, retail, and health care sectors have showed strong momentum in the trailing four weeks.
European Focus
On Thursday, the Stoxx 600 ended 5.63% below last Friday’s close. Of the 17 indices that we cover, 13 are in a Confirmed Uptrend, and four are in an Uptrend Under pressure.
