The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq continue to hold near all-time highs, consolidating the last two weeks of gains over the last several sessions. Distribution did rise to five days on the S&P 500 (three in the last four sessions) and four on the Nasdaq, though one day is set to expire on the Nasdaq at the end of next week. There will also be further expiration on both indices the week after next. Near-term support remains the rising 21- DMA (S&P 500: 2,968; Nasdaq: 8,104).
Tag: Confirmed Uptrend
European Focus
On Thursday, the Stoxx 600 closed 0.01% below last Friday’s close and was downgraded to an Uptrend Under Pressure after it undercut its 21-DMA despite not adding a distribution day. During the week, we also downgraded Denmark, Finland, and Sweden to an Uptrend Under Pressure. Of the 17 indices we cover, 11 are in a Confirmed Uptrend, five are in an Uptrend Under Pressure, and one is in a Rally Attempt.
Market View
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq are trending constructively higher
with just two and three distribution days, respectively. Near-term support remains the 10- and 21-DMA on both
indices.
Multiple sectors and industry groups are participating in this rally. All 11 O’Neil sectors remain above their re-
spective 50-DMA, led this week by Retail, Energy, Transportation, and Technology which all rose at least 1%
each. 84% of S&P 500 stocks are trading above the 50-DMA and 45% are trading within 5% of a new 52-week
high.
Current upward progress has been better than historical successful follow-through days. After five weeks since
the June 7 follow-through day, the S&P 500 has rallied 4.9% and the Nasdaq 6.5%. In the 18 instances since
1970 where the first follow-through day after a downtrend led to new highs, the median one-month gain was
3.1% and the median two-month gain was 5%.
US Focus
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq are trending constructively higher with just two and three distribution days, respectively. Near-term support remains the 10- and 21-DMA on both indices.
Market View
Strategy
S&P 500 Earnings
Median S&P 500 sales and EPS are both forecast to grow 4% y/y, which would tie Q1 2019 for the slowest sales growth since Q4 2016 and would be the slowest earnings growth since Q1 2016.
However, we expect a normal beat of 3–4%. The bigger key will be to see if the trend in downward revisions after earnings comes to an end. Forward earnings have been consistently revised lower since September 2018.
Into the beginning of the season, the VIX is low, at 13, and investment advisors are slanted bullish, at 53%, although not an extreme level (60%+).
Given a falling 10-year bond yield (historically inverse relationship with market P/E ratio), the market multiple should expand. Unless forward earnings are much worse than expected, this could fuel a push further into all-time highs.
China A Shares
The CSI 300 gained 1.77% for the week on slightly increased volume. The market remains in a Confirmed Uptrend with one distribution day. The leaders of the U.S. and China agreed to resume trade talks, and the U.S. agreed to suspend new tariffs on Chinese goods, causing the market to gap up on increased volume Monday. but has since pulled back while volume has continued to shrink. The CSI 300 faces great pressure after breaking through the gap, with the next immediate resistance at ~3,942 then at rally highs of ~4,126. Immediate support is at ~3,854 and then ~3,715. Chinese macro data for June will be released next week, and earnings season will start soon, so we expect the market to focus on fundamentals. Investors are advised to stay patient and focus on leading stocks that may have strong earnings and are breaking out of sound bases or rallying off key price support.
US Focus
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq continue to act well, trading above multiple moving average support levels with a low number of distribution days. Near-term support remains the rising 10 and 21-DMA and distribution still stands at one day on the S&P 500 and two on the Nasdaq.
European Focus
On Thursday, the Stoxx 600 closed 2% above last Friday’s close and is in a Confirmed Uptrend. During the week, we moved France, Denmark, and the Netherlands to a Confirmed Uptrend after the indices registered new highs. Of the 17 indices we cover, 16 are in a Confirmed Uptrend and one is in a Rally Attempt.
Market View
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq closed slightly lower this week, but both continue to hold trend above all major moving averages. The 21-DMA has risen above the 50-DMA on both indices and is now acting as our primary level of support. Resistance is all-time highs on the S&P 500 at 2,964, while resistance on the Nasdaq is the June 20 intraday high of 8,088. Distribution remains low at one day on the S&P 500 and two on the Nasdaq.
Sectors that sold off earlier in the week, including Transportation, Consumer Cyclical, Health Care, and Financial, were able to retrace the majority, if not all, of early week losses over the last two sessions. Ten of 11 O’Neil sectors are trading back above their respective 50-DMA, with Energy sitting just slightly under that level. Following Friday’s rally in Financials, 72% of S&P 500 stocks are now trading above their respective 50-DMA, up from 70% last week.
We remain in a news-driven environment with major catalysts potentially occurring over the weekend. As of now, the Confirmed Uptrend remains intact, with current upward progress in-line with historical successful follow-through days, leading ideas that are holding support, and a low number of distribution days. We recommend a patient approach, holding leading ideas and looking to increase risk should the market push up and through resistance in the coming days.
China A Shares
The CSI 300 fell 0.22% for the week on lower volume. The A-share market remains in a Confirmed Uptrend with two distribution days. We saw range-bound action in the market this week as investors await the Trump-Xi meeting at the G20, scheduled for this weekend. Uncertainty weighed on market sentiment and investors remain cautious. The CSI 300 faces resistance of the upper gap at ~3,856, and our conviction will increase if the index can break through it on increased volume. The lower gap at ~3,556 is the next level of support. Economic data showed improvement in industrial companies’ year-over-year profit growth in May, a sign that China’s economy is gradually stabilizing. Trade remains a big uncertainty, so investors are advised to stay patient and gradually buy actionable growth ideas as they break out from sound bases or the 50-DMA level. As the market enters the earnings preannouncement season, investors should watch ideas with high or better-than-expected earnings growth.
