Te U.S. market is in a Confrmed Uptrend. Te S&P 500 and Nasdaq continue to trend higher, making new year-to-date highs on Friday. Te distribution count has moderated to a reasonable level of just two days on the S&P 500 and three on the Nasdaq. Te 50-DMA on both indices is now well above the 200-DMA, though we still view the 21-DMA (S&P 500: 2,854; Nasdaq: 7,810) as a key level of short-term support.
Tag: Confirmed Uptrend
European Focus
On Tursday, the Stoxx 600 closed 0.27% below last Friday’s close. Te index is in a Confirmed Uptrend with three distribution days. Tis week, the index reached a new high for the year and has been trading sideways since. Of the 17 indices in Europe that we cover, 15 are in a Confirmed Uptrend and two are in an Uptrend Under Pressure
Market View
Strategy View
Q1 earnings season is expected to be a significant deceleration from Q4. Median S&P 500 sales and EPS growth of 3% and 4%, respectively, would be the lowest since 2016. We do expect normal beats of 1% for sales and ~3% for EPS. Any lower-than-normal sales and EPS beats, or poor guidance, will put significant pressure on the ongoing rally.
Bull investment advisor sentiment reading of 53% and a VIX of 13.5, are bullish but not extreme, similarly making the results of this earnings season a large variable.
Index and sector setups are broadly positive ahead of earnings, with all now supported by upward-trending 50-DMA.
Best sector setups into earnings are Technology, Health Care, Capital Equipment, and Staples.
While the number of actionable U.S. Focus List stocks is smaller than over the previous two months, a few strong setups include AMZN, PAGS, CCMP, ISRG, LULU, GLOB, and FOXF.
China A Shares
The CSI 300 rose 4.9% on increased volume and the market remained in a Confirmed Uptrend
with no distribution days. China’s manufacturing PMI for March returned to expansion,
stimulating the index to gap up and break out of a four-week consolidation. Multiple favorable
policies and news in the following days, such as optimistic expectations for China-U.S. trade
talks, continued to support the gains. The CSI 300 breached key resistance at ~ 3,900 on
increased volume, which leads us to believe that another round of rallying can be expected.
US Focus
Te U.S. market is in a Confrmed Uptrend. Te S&P 500 and Nasdaq continue to push higher
and are now testing resistance near October 2018 highs. Near-term support remains the rising 21-
DMAs (S&P 500: 2,831; Nasdaq: 7,724). Distribution continues to expire, now at four days each
with two additional days falling off next week.
European Focus
On Thursday, the Stoxx 600 closed 2.31% above last Friday’s close. The index is in a Confirmed Uptrend with three distribution days. This week, the index continued to move constructively along its 21-DMA, which is an important support level. During the week, the Stoxx 600 and markets in the U.K., Switzerland, Austria, Belgium, Germany, Ireland, Portugal, Spain, Luxembourg, Sweden, and the Netherlands were moved to a Confirmed Uptrend after strong action. Of the 17 indices that we cover, 15 are in a Confirmed Uptrend and two are in an Uptrend Under Pressure.
Market View
An inverted three-month (13-week) to 10-year yield curve has been a good predictor of recessions (about
12 months out).
Inversion does not always lead to weak market performance but does so on average.
o In all cases where the curve inverted on a weekly basis since 1962, average 4/8/13/26/52-week
forward performance for the S&P 500 is negative.
Cyclicals and Utility tend to be weak, while Material has performed the best.
Interestingly, Utility is currently the best performer over one year, while Material is the worst. A
mean reversion could be approaching.
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq held their respective 21-DMA this
week, consolidating gains. The 50-DMA is now moving above the 200-DMA and will act as another layer of
support should the market pull back. There are currently six distribution days on each index, though four will
expire within six sessions beginning next Wednesday.
Leading ideas are consolidating constructively, with few major technical breakdowns. We will look for secondary
entry points in leading ideas over the next several weeks. Generally, bases take five to seven weeks to complete
and should occur above near-term support levels, including the 50-DMA, the 100-DMA, or prior pivot points.
We recommend a selective and patient approach as the market consolidates. We would like to see distribution
subside and the right-hand side of bases begin to form over the next few weeks before recommending any
meaningful increase in risk.
Sectors: Over the last five sessions, Transportation, Capital Equipment, Consumer Cyclical, and Retail are
leading, while Technology and Utility are lagging. Technology remains a long-term leading sector despite the
recent pullback, and is still trading above 21-DMA support.
China A Shares
The CSI 300 was up 1.01% on decreased volume with the market still in a Confirmed Uptrend.
Alcoholic-beverage company Kweichow (
) led the gains and supported the market rally
because of better-than-expected earnings. Sectors continued to differentiate and volatility picked
up during the earning season. Therefore, it would not be surprising for the market to continue
consolidating in Q2 but we remain optimistic about the overall uptrend, thanks to China’s easing
monetary policy (market consensus expects China to cut its required-reserve ratio this year), and
progress in trade negotiations.
US Focus
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq held their
respective 21-DMA this week, consolidating gains. The 50-DMA is now moving above the 200-
DMA and will act as another layer of support should the market pull back. There are currently
six distribution days on each index, though four will expire within six sessions beginning next
Wednesday.
Market View
Strategy View
Presently, U.S. equity markets remain in a Confirmed Uptrend. The indices’ progress since the December 24,
2018 low is nothing short of amazing, with all major indices up at least 18% as of March 21. All but the Russell
2000 are above both their 50- and 200-DMA.
One of the more remarkable aspects of the current rally is that most asset classes have made positive moves in
unison; U.S. bonds, U.S. stocks, oil, and metals have all risen. Every single one of our 11 sectors has posted
strong returns as well.
In addition, the spread between the best-performing sector, Technology (+20.7%), and the worst, Consumer
Staple (+9.6%), is 1,010bps. Technology’s gain is only 6% greater than the average, while Staples lags the
average by approximately 4%.
On a relative basis, Utility is still the best performer over the trailing one-year, and recently reached a historical
extreme of +20% versus the S&P 500. In fact, it may be near a relative peak, especially if the worst of the 10-
year yield slide is over. Materials are by far the worst over the trailing one-year, lagging Utility by nearly 30%.
This could be at a trough, but this sector likely needs improvement in the economy to revert.
Elsewhere, Technology is slightly outperforming the S&P 500 over the trailing one-year but is trending positively
(particularly in semis and software), while Retail still holds a large lead, but continues its relative deceleration.
Lastly, Energy’s relative trend is improving, but it still has some distance to make up before it becomes a leader.
So far, this rally has rewarded investors regardless of the sectors in which they are invested. Going forward, we
expect performance to be much more dispersive, and the importance of selecting the correct sectors to invest in
will be much higher.
As mentioned in our Global Sector Commentary on February 22, once breadth (as measured by the percentage
of NYSE stocks above their 30-week average) moves higher than 75%, further market gains tend to be met with
a narrowing of breadth. As a result, we expect larger divergences for the remainder of the year.
