The CSI 300 dropped 0.7% for the week on lower volume. The market was downgraded to an Uptrend Under Pressure with four distribution days. It rallied for the first two sessions of the week, boosted by China’s cut of its reverse repo rate, and then reversed course for a three-day losing streak, erasing previous gains. About 65% of stocks were below their 200-DMA and previously leading sectors now lag the market. The market is still very weak and faces pressure from factors like the U.S.-China trade deal uncertainty and a possible economic downturn. Furthermore, fund managers tend to cash in profits as the end of the year approaches, which we believe caused leading sectors such as Consumer Staple and Health Care to plunge. In our view, Friday’s correction was more technical. Investors are advised to take a wait-and-see approach, staying cautious and patient. Don’t be too pessimistic and avoid chasing highs. Trim positions on extended ideas. We see the CSI 300’s next support at the 200-DMA (~3,780) following its break of 100-DMA support. Consistent resistance lies at the gap above (~3,950).
Tag: Uptrend
China A Shares Long
The CSI 300 rose 2.7% on average volume for the week. The index experienced a strong recovery after undercutting the previous low of ~3,296 and hitting a new low of ~3,257. We updated China to a Rally Attempt on Thursday. Volume has not been strong and we believe that investors were snapping up leading stocks hit by the previous selloff. The CSI 300 is trading 23% off highs and is still below key support levels. If the index undercuts 3,257, the next support would be ~3,050. Capital equipment, cement, steel, and rail stocks led the gain on expectations of China’s fiscal stimulus. We recommend keeping positions low and trying to find defensive leaders with strong fundamentals. In addition, we will continue to pay close attention to how leading names react to the H1 2018 earnings season next week.
China A Shares Long
China’s market is in a Confirmed Uptrend. The CSI 300 dropped 5.85% on average volume for the week. The index saw a three-day losing streak after it tested 3,500 and logged two new distribution days. Due to the Shenzhen Composite undercutting previous lows on Thursday, we have downgraded China to a Downtrend as a result of the failed follow-through day. We are becoming more cautious and looking for the CSI 300 to climb back to 3,500. We would be more positive if the index could stand above the 10-WMA (currently 6.9% below) on strong volume. The Capital Equipment and Basic Material sectors experienced a smaller decline for the week than household appliances and food beverages. However, the rising trade tensions between China and U.S. are causing uncertainties in the market. We recommend a conservative approach and continue to pay close attention to how leading names react to the H1 2018 earnings season next week.
China A Shares Long
China’s market is in a Confirmed Uptrend. The CSI 300 rose 0.8% on above average volume for the week. The index had a three-day losing streak with falling volume after its attempt to reach 3,600 failed. It is not surprising to see some pullbacks on its way to breaching key resistance at the 10-WMA. However, there were no new distribution days this week. We would be more positive if the index could stay above the 10-WMA (currently 3% below) next week on strong volume. If it does encounter resistance at the 10-WMA, we will be looking for ~3,500 to act as support in the near term. The Capital Equipment and Basic Material sectors rebounded this week thanks to the government’s possible fiscal stimulus. We will continue to pay close attention to how leading names are reacting to H1 2018 earnings next week.
China A Shares Long
China’s market is in a Confirmed Uptrend. The CSI 300 was flat for the week, experiencing a losing streak in the first four days but recouping all its losses on Friday with volume 29% higher than average. The index has one distribution day but remains in a Confirmed Uptrend. The upside reversal this week is a positive sign, but we are still cautious as the index is still 5% below its 10-WMA and 11% lower than its 40-WMA. There could be some resistance at ~3,500, and we would increase our conviction if the index could break above this level on strong volume. Lagging banking stocks rebounded on Friday due to the announcement of new wealth management product rules. We continued to pay close attention to how leading names react to the H1 2018 earnings season next week.
China A Shares Long
China’s market is in a Confirmed Uptrend. The CSI 300 rose 3.8% this week, its biggest weekly gain since March 2016. The index was up four out of five trading days. The index found strong support at ~3,300, the lowest level after the stock market crash in 2016. We saw a follow-through day this Thursday on increased volume and upgraded the market condition to a Confirmed Uptrend. However, we do not believe it is time to be aggressive, as the index is still below its 10-WMA and 40-WMA, which could serve as possible resistance. The CSI 300 is 5.3% lower than the 10-WMA and 11.2% lower than the 40-WMA currently. We would have more conviction if the index breaks through these moving averages on strong volume. The Health Care, Basic Material, and Consumer Staples sectors continue to lead. We are paying close attention to how leading names react to earnings season next week.
European Focus Long
European markets showed considerable weakness this week. We moved the Stoxx 600 to an Uptrend Under Pressure on Monday. As of Thursday’s closing price, the pan-European index was headed toward a weekly loss of almost 1%. Apart from the Stoxx 600, 11 of 16 European indices were downgraded this week.
European Focus Long
After recording two distribution days last week, the Stoxx 600 rebounded this week and, as of Thursday’s closing price, was up 0.38% on a weekly basis. This week, after hitting its highest level for the second half of 2017, the index pulled back on Thursday but avoided recording any additional distribution days. The total distribution day count remains at five, one of which will fall off due to time by the end of next week.
Market View
The U.S. market was downgraded to Uptrend Under Pressure after Wednesday’s broad based sell-off, which
caused indices to slice through their respective 50-DMA. However, leadership ideas, particularly across Technology,
have bounced back in strong fashion. Going forward, we would like to see the S&P 500 and Russell regain
and hold above their 50-DMA while stocks consolidate into areas of price or moving average support. If this can
happen while distribution remains low, we will likely move the U.S. market back into a Confirmed Uptrend in the
near future.
Stocks on our U.S. Focus List—Current Sentiment
Our USFL of 58 names declined 0.3% on average this week, outperforming the S&P 500 (-0.39%) and
the Nasdaq (-0.61%).
By Sector
USFL Technology ideas outperformed yet again, led by strong earnings from WB and AMAT, while VEEV continues
to trend higher along its 10-DMA. Strength within the Retail sector is due to e-commerce platforms including
BABA and BZUN. Capital Equipment ideas underperformed and were led lower by CRTO and MTZ.
Global Markets Re-Accelerates, Broad-Based Growth Stock Rally
Twenty-three developed markets gained 0.6% on average and 21 are in a Confirmed Uptrend, the 32nd week with a majority. Twenty-three emerging markets gained 1.8% on average and 17 markets are in a Confirmed Uptrend, the 13th week with a majority.
