US Focus Long

U.S. Indices traded higher this week with the majority of gains coming Friday after the
August non-farm payrolls number was released. The market was still unable to break out of
this now two month range. This sideways action has allowed the 50-day moving average to
catch up to current prices, which is now acting as a clear level of short-term support. The
majority of leadership ideas remain constructive though most have begun to mimic this index
action. Going forward, we would like to see the indices break into new highs coupled with an
increase in U.S. Focus List ideas. If, however, the S&P 500 closes beneath its 50-day moving
average and leadership begins to fall off, our current bullish stance on the market will likely
change. Currently, we remain in a Confirmed Uptrend with five distribution days on the S&P
500 and three on the Nasdaq.

US Focus Long

The S&P 500 and Nasdaq are now up three weeks in a row, rising further into new highs
on subdued summer volume. Positive reactions to earnings from large cap bellwethers in the
Financial and Transportation sectors aided this week’s move. Earnings will be coming in at a
steady pace beginning next week, playing a critical role in the direction of the major averages
from here. We believe a pullback is likely after such a sharp rally, but as long as there is no
meaningful rise in distribution, we continue to recommend buying fundamentally sound
ideas at proper pivot points or as they emerge from areas of support. We would like to see
2,100-2,120 hold on the S&P 500 and 4,970-4,980 hold on the Nasdaq should this occur
over the next few days. The market remains in a Confirmed Uptrend with no distribution
days.

US Focus Long

• The U.S. Market remains Under Pressure due to an elevated distribution day count. The
S&P 500 and Nasdaq both have eight distribution days. Though the market remains caught
in a range, our indicators are showing a higher probability for a further decline. This gives us
reason to be cautious, generally avoiding buying in the near-term until we see distribution fall
and the major averages re-take key support levels.
• On the S&P 500, 2117 remains a key level to break above as this would make a higher high
and likely lead to additional leadership ideas from fundamentally sound companies. Until
then, we recommend a focus on stocks showing relative outperformance during the recent
decline, as these could lead if the market eventually catches support. The major averages are
still up 5-7% since the February 17 follow-through day.

US Focus Long

• U.S. indices declined this week but continue to consolidate along key moving averages. Nine
of 11 O’Neil sectors declined, with the only net positive gains in Energy and Healthcare.
Strength in crude and bio-techs contributed to the gains in the aforementioned sectors. In
addition, Consumer Cyclical remains an area to monitor as the breath of quality names in
housing-related groups have increased. The market is looking forward to earnings season next
week despite the weak outlook. For S&P 500 companies, Q1 Sales and EPS are expected to
increase by a median of 1.2% and 1.9%, year-over-year respectively.
• Although volume has been and remains a concern, growth ideas continue to build
constructive bases and we look toward Q1 to gauge the fundamental outlook. The market is
in a confirmed uptrend. The S&P 500 and Nasdaq have risen 8% and 7%, respectively since
the follow through day, however, each now has four distribution days in the past five weeks

US Focus Long

U.S. indices have continued their sharp move higher, now extending gains for a fifth straight
week. We saw a similar six straight weeks of gains from late September to early November
2015. Leadership, however, differs entirely when comparing the two rallies. We were led
by big cap tech then, compared with defensives, commodities, and cyclicals now. A mean
reversion has occurred among value-oriented ideas, in addition to the short squeeze in
commodity-related sectors.
• Growth has had some time to develop after this current run, but it remains limited overall.
Consolidation in the major averages could allow rotation to develop, and additional growth
leaders may now emerge after recovering for several months. We are encouraged by seeing a
handful of ideas come into play this week, but we still expect to see far more, especially after
this very strong move. The February 17th follow-through day continues to work well, now
up ~6% with no distribution days.

US Focus Long

• U.S. indices undercut their lows from last week, picking up multiple distribution days along
the way. The S&P 500 staged back-to-back distribution days on Tuesday and Wednesday this
week, bringing the total count up to eight. There have also been four distribution days in
the last week. All three major averages (S&P 500, NASDAQ, and Russell) staged downside
reversals on Wednesday, sending the S&P 500 below its 50-day moving average for the first
time since the follow-through day. This was the third test of that key support level, and it
failed.
• Additionally, the lack of breadth has continued to be a concern. Though the S&P 500 and
Nasdaq were trading just a few points off record levels, a large percentage of their constituents
have been trading more than 20% off their highs. The indices have been supported by a
narrow group of large-cap ideas that will need the support from several other factions in order
to break out into new highs. We have moved the market’s status to a Correction from Under
Pressure earlier in the week, and advise a defensive approach until more constructive action
materializes.

US Focus Long

U.S. indices closed relatively flat, despite a spike in volatility during the week. Unable to rally
through the resistance, the market declined over 2% mid-week on a slew of global economic
data, only to rally back after a strong U.S. jobs report. The volatility put pressure on a
handful of USFL ideas and increased the number of distribution days (signs of institutional
selling) over the short term.
Despite the volatility and increased pressure on the market, ideas across the USFL either remain
strong or were able to find support constructively along areas of consolidation. Ultimately, we
recommend remaining focused on the USFL ideas (14% YTD) for now. Our research team is
constantly scanning the market for new ideas, and we will be looking to see if the S&P 500 can
break through upside resistance (2100 and 2116). Currently the market condition is Confirmed
Uptrend with seven distribution days.

US Focus Long

U.S. indices moved higher for a fifth straight week, supported by a nice bounce in the Health
Care sector and a further rally in large cap growth ideas. Though breadth is still isolated in
large caps, a handful of good earnings reports sparked a rally in the Russell on Wednesday. A
further rally in small/mid-caps would be encouraging, as outperformance is still coming from
just a select group of leadership ideas.
• We continue to monitor the emergence of new growth ideas, with earnings still being the key
catalyst over the next few weeks. We still recommend adding to or buying our U.S. Focus List
ideas as they emerge from areas of support. The market remains in a Confirmed Uptrend,
currently showing few signs of weakness and a limited amount of distribution days.

US Focus Long

U.S. indices moved higher again this week, rising on the back of strong earnings results
from major technology bellwethers and U.S. Focus List constituents Amazon and Alphabet.
Money continues to flow out of Health Care and into large cap Technology as well as sharply
improving sectors such as Transportation. We view ideas from the Technology sector as the
true growth leaders of this current marketplace and continue to recommend holding these
ideas, despite some very strong moves already occurring.
• We continue to look for further leadership in growth to support the sharp move off the
bottom in the major averages. Look for the indices to consolidate above their respective 200-
day moving averages with earnings results continuing to act as the key catalysts going forward.
The market remains in a confirmed uptrend with a limited amount of distribution days.

US Focus Long

U.S. indices continued to move higher this week, with the big move coming on Thursday.
Leadership is gradually emerging, but major support for this move is still coming from lagging
sectors (Energy, Basic Materials, and Transportation) and a recent surge in defensive sectors
(Utilities and Consumer Staples).
• Growth ideas remain limited, though a select group from the U.S. Focus list is continuing
to work well. Earnings will play a pivotal role in the health of the general market and these
leadership ideas going forward. If results begin to beat expectations, the number of growth
ideas will increase and send the major averages above the resistance levels we are currently
testing. Similar to last week, we recommend buying these ideas as they emerge from areas of
support. The market remains in a Confirmed Uptrend, with two distribution days each on the
S&P 500 and Nasdaq.