Th e U.S. market is in a Confirmed Uptrend. Th e S&P 500 and Nasdaq found support at
their respective 21-DMAs on Th ursday, before gapping up and closing at the highs of the
session Friday. Distribution remains low at one day on the S&P 500 and three on the Nasdaq.
Tag: Confirmed Uptrend
European Focus
On Thursday, the Stoxx 600 lost 0.60% and lost 0.52% for the entire
week. Today markets are trading higher and will likely close in the
green. Of the 17 indices we cover in Europe, three are in an Uptrend
Under Pressure and 14 remain in a Confirmed Uptrend. However, the
distribution day count remains high.
Market View
Strategy View
Index strength remains intact a third of the way through earnings season. Normal (~78% of S&P 500
companies) beats have occurred so far.
Style-wise, large growth continues to be the standout, up 20% year-to-date and 17% over one year.
Small growth is up 20% year-to-date, but only 5% over one year.
Notably, the top 10 stocks make up 35% of the large-growth (0IKT) index: AAPL, MSFT, AMZN,
FB, GOOG, GOOGL, V, HD, MA, and UNH. The top 10 stocks in the small-growth index only
make up 6%.
Technology, the leading sector over one year, is also more represented in large growth than any
other index, giving it another advantage.
Materials and Cyclicals look cheap on a forward multiple basis in both the S&P 500 and S&P 600
indices and could play catch-up if overall strength continues, but only Cyclicals is showing relative
improvement currently. Materials and Energy continue to lag far behind.
Health Care is sharply decelerating but is not yet at a historically extreme level of underperformance to
make for a successful reversion trade.
China A Shares
The CSI 300 declined -5.6% on lower-than-average volume this week, erasing gains made since the beginning of April. It is right above support at ~3,880. Four of five trading days were down days. The market remains in a Confirmed Uptrend with two new distribution days with lower-than average volume for a total of three. Most sectors began to show weakness but we didn’t see broad selling. Capital Equipment declined the most (-7.6%) for the week, Consumer Staple declined the least (-0.6%). CAFL Capital Equipment stocks SNY.CN, HOY.CN and CRC.CN saw strong selling. The next round of U.S.-China trade talks next week could be a near-term catalyst. We recommend staying patient and being ready to trim extended positions if they show technical deterioration.
Market View
Strategy View
According to Bloomberg, from 2008 to Q3 2018, S&P 500 companies have spent $4.9T on buybacks versus
only $3.4T on dividends.
Last year, partially fueled by lower corporate tax rates, S&P 500 constituents spent $770B purchasing
their stock; this year it’s estimated they will spend close to $1T. This means the S&P 500 will buy back
more than 3% of its outstanding market capitalization in 2019. Given that S&P 500 earnings are only
projected to grow +7% in 2019, shrinking the share base by 3% is significant.
Looking at a buyback proxy ETF (Invesco Buyback Achievers ETF-PKW, companies with at least 5% of
shares bought back in trailing 12 months), we note that buybacks as a group outperformed the S&P 500
from March 2008 to March 2015. But, over the past four years, that trend reversed.
Lower interest rates likely played a large role in this difference. The outperformance period began
as rates were lowered and ended when the Fed raised rates in 2015.
With the Fed currently on pause and talks of interest rate cuts picking up, the buyback group has
begun to outperform again.
When looking at individual names that buy back shares, not all are equal. The table below shows that
the best performers also have stronger growth (at the median level).
Interesting names that have both growth and 5%+ buybacks that performed well in the past year include
NTAP, CHDN, UNP, AWI, CRMT, UBNT, ORLY, GLW, SBUX, CSCO, and ATKR.
China A Shares
Te CSI 300 rose 2.09% through Tursday, remaining in a Confrmed Uptrend with one distribution day. Te index consolidated constructively for the week and has rallied 35% year-todate. As long as key support holds, the market should trend positively, supported by strong fnancial and economic data from March and Q1 2019. Since trading volume fell this week, we expect continued consolidation in the near term while individual stock trends diverge. We recommend that investors stay disciplined and patient, not chasing extended stocks. Buy stocks with strong earnings and growth outlook at a proper entry point. Te CSI 300’s next resistance is at ~4,100 and support is at ~3,900
US Focus
Te U.S. market is in a Confrmed Uptrend. Te S&P 500 and Nasdaq continue to trend higher, holding near-term support along their respective 10-DMAs on Tursday. Distribution stands at three days each with no expiration until the end of next week. Should a pullback occur, we will be looking for the rising 21-DMA t
European Focus
On Wednesday, the Stoxx 600 closed 0.10% higher, gaining 0.53% on a weekly basis
Market View
Strategy View
The negative trend in earnings revisions for the current quarter and year has continued for both the S&P 500
and S&P 600. This trend of downward revisions began at the end of September 2018 and has continued non-
stop. Given how far estimates have fallen, we are hopeful the hurdle is now low enough that estimates can be
revised upward for Q2 2019 and beyond, when companies give forward guidance during this season’s earnings
calls. If this does not occur, it would increase our nervousness about a potential pullback from the current rally.
The key companies reporting this week, including JPM and WFC, both posted better-than-expected top- and
bottom-line results. However, only JPM gained (+5%), while WFC fell due to weak guidance overshadowing the
earnings beat.
China A Shares
Te CSI 300 dropped -1.81% for the week on decreased volume. Te market remains in a Confrmed Uptrend with no distribution days. It was not a surprise the index pulled back after a four-week gaining streak, and it remains constructive if key support holds and distribution days remain low. Te next immediate support is at ~3,900, and resistance at ~4,100 for the CSI 300
