Like clockwork, the MSCI has found support at the 200-DMA. This level has remained a key support level all year and as long as it holds, the overall trend remains largely unchanged. The index continues to be stuck in this sideways pennant pattern and a definitive direction has yet to be determined in our view. Until the index rises above March highs, we believe a cautious approach is warranted. Distribution days in individual markets have decreased somewhat from last week, as nearly all markets have traded higher following a volatile week. The majority of markets in an Uptrend are still Under Pressure but we upgraded Taiwan to a Confirmed Uptrend due to Monday’s follow-through day.
Author: Derek Higa
Derek Higa is a senior equity analyst and a lead for the APAC region and the Consumer Cyclical sector. He serves on the Global Focus List Committee, which approves all equity recommendations for developed, emerging, and frontier markets, and compiles Asia Watch, a weekly recap of regional investing news. Since joining William O’Neil + Company in 2005, he has lent his market expertise to alpha capture, product development, and historical studies on outperforming stocks. Derek graduated summa cum laude from California State University Los Angeles with a B.S. in Finance and Information Systems. He holds a Series 65 securities license.
APAC Weekly Summary
Despite the volatility this week, the MSCI Asia has yet to determine a clear direction. It is still trading in a sideways consolidation since its first test of the 200-DMA in February of this year. We continue to look for the 200-DMA to serve as support and remain in “wait and see” mode until a change in trend. Overall, we recommend a cautious approach and being more selective in buying stocks. If the index continues to weaken, we view February lows as the next support level (~4% lower). In individual markets, pressure is increasing. This is noticeable in the rising average distribution day count. Nearly all markets in a Confirmed Uptrend (with the exception of New Zealand) are Under Pressure. We also downgraded Malaysia to a Downtrend.
APAC Weekly Summary
Wait and See, Low Distribution, HK Cyclical Themes, Guangzhou Auto, Geely Auto, China Maple Leaf
The MSCI Asia is testing the 200-DMA again, a common occurrence since February of this year. The index is Under Pressure and has yet to determine a significant change in trend. We are still in “wait and see” mode and looking for either a significant break below the 200-DMA to serve as a bear indicator or a break above March highs to be become more bullish. Until either happens we recommend staying patient and being selective on buying stocks in the region.
This week, we saw no significant change to market conditions. Individual markets are still tilted bullish although many are still Under Pressure due to testing of major support levels. Average distribution is low despite one being recorded on Wednesday (today) for several markets. In Sector Rotation, we revisit HK Cyclicals which have shown signs of improvement recently. We provide an O’Neil view on key themes. The sector is currently being driven by China education. We are bullish on K-12 stocks, including China Maple (MAPZ.HK; 1317:HK), but shares are currently extended. Auto shares are still lagging despite finding support off recent lows. We still do not believe the timing is right to be buying China autos in general. Auto makers Guangzhou (GAG.HK; 2238: HK) which was removed and Geely (MANR.HK; 175:HK) on our Focus List are still displaying signs of weakness.
APAC Weekly Summary
MSCI Head Fake, Japan Upgrade and Sector Rotation, Kose Actionable, Tencent Update
On May 10, the MSCI Asia broke above the 50-DMA and out of a pennant formation only to undercut it again three days later. This could just be a “head fake” before the index begins a more definitive trend. Nonetheless, it has yet to prove it can rise and hold above this key resistance level. Looking ahead, we believe if it does this and rises above March highs, it would be a more confirming bullish indicator. In the meantime, we continue to wait and see if the 200-DMA continues to serve as primary support.
This week, we review our upgrade of Japan’s market condition which we sent out as a note to clients on May 14. The market is now in Confirmed Uptrend. On a sector level we believe clients should focus on Japanese Retail, Staples and Transportation. We provided several names that screen well from a O’Neil perspective. Kose (OSEC.JP; 4922: JP) is still actionable on our Focus List. And last we provided an update on Tencent (TCNT.HK; 700:HK). We believe the stock is at an aggressive buy point after the Company’s recent Q1 results.
APAC Weekly Summary
We are upgrading Japan to a Confirmed Uptrend as of May 11 due to the following reasons:
- Although both the Nikkei and Topix have not had a daily gain that would constitute a strong follow-through day (greater than 1.7%), multiple daily gains of more than 1% have occurred since April.
- Both indices have risen 10% or more from March lows. The Nikkei has risen for seven consecutive weeks and is trading above March resistance.
- Volume has improved. Accumulation volume was above average last week. A/D Rating is now B-.
- Furthermore, the Nikkei has only had one distribution day since early April.
Asia Watch
Today’s must-reads in Asia, curated by O’Neil Research Analysts. Asia Watch. |
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| May 11, 2018 | Derek Higa 310.448.6910 |
Retail/Consumer CyclicalIndia’s largest carmaker is more excited about natural gas than electric vehicles (qz) Gucci, Chanel, and Dior Lead on Chinese Social Media: PARKLU Report (jingdaily) Chinese superheroes Sword Master and Aero join the fight against evil in Marvel universe (scmp) TechnologyXiaomi can credit its global success to a decidedly anti-Apple strategy (qz) For Xiaomi, the real money is not in gadgets (techinasia) China’s web users care about privacy? (techinasia) Opinion: Chinese tech is losing its individuality, and that’s disappointing (techinasia) Alibaba grows empire yet again with South Asia acquisition (techinasia) Clean EnergyChina’s war on pollution targets illegal waste dumping (scmp) MacroeconomicChina is firing on all cylinders as it ramps up its trade war with the US (bi) South Korea wants to build a $35 billion high-speed railway to connect North Korea with the world (bi) MISCHis Predecessors All Failed. Can Moon Jae-in Achieve Peace with North Korea? (nytimes) H-1B approvals for Indian IT companies drop by 43% between 2015-17: Report (indiatimes) Peppa Pig, Unlikely Rebel Icon, Faces Purge in China (nytimes) Southeast Asian governments almost never lose elections. Malaysia’s just did (qz) Korea’s hot new tourist trend: Copying Kim and Moon’s historic handshake (qz)
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APAC Weekly Summary
The pendant pattern for the MSCI Asia is getting tighter. Highs over the last several weeks are lower, while the 200-DMA continues to serve as a clear support level. From a broad view, Asian markets seem to be coming closer to an inflection point where we believe there will be a clearer signal for market direction. To turn more bullish, we would like to see a break above the 50-DMA. A break below the 200-DMA would be a signal to get more bearish. We are also looking at volume closely. Above average daily volume alongside a strong move in the index could provide greater conviction for a sustainable trend change.
This week, we focus our attention again on Chinese markets. Both Mainland China and Hong Kong markets have quickly shifted to an Uptrend Under Pressure, but the recent follow-through days are still intact. In Sector Rotation, we are seeing much of the same as previous weeks. Health Care stocks have pulled back in relative performance, but some could be at a good point to add to positions (we like SBIL.HK, CPHA.HK, and WXBO.HK in particular). We focus in on Energy again along with Utilities this week and highlight China’s Clean Energy Theme. China Gas (IWAI.HK; 384: HK) on our Focus List is currently actionable.
APAC Weekly Summary
The MSCI Asia continues to trade in a downward trend since January’s peak. The trading range is also getting tighter along the 200-DMA, forming a pendant-like formation. This makes us believe we are getting close to an inflection point that will give us a more definitive signal on direction. Until then, APAC markets remain in ‘no man’s land’ and we continue to be on the side of caution in general.
This week we had a follow-through day in Hong Kong on April 30. The Hang Seng rose strongly for the day and was upgraded to Confirmed Uptrend. This follows Mainland China’s upgrade on April 24. We also shifted a few markets, including Taiwan and Indonesia, from a Downtrend to a Rally Attempt. In Sector Rotation, we focus in on Material and Energy and provide names that we believe should be kept on your radar. We also point out Financial which could be turning more bullish. Indian Banks in particular, are gaining strength recently. We list our top picks in the theme. Lastly, we highlight recent addition to our Focus List Reliance Industries ( REL.IN; RIL: IN).
APAC Weekly Summary
We are upgrading the Hong Kong market to a Confirmed Uptrend. The Hang Seng rose 1.7% on greater volume than the previous day. Despite volume being higher, it remains below average and we have yet to see volume pick up significantly to the upside. Additionally, the Hang Seng is testing the 50-DMA for the fifth time since declining below it in early February. Going forward, we want to see if the index can hold above the 50-DMA and trade above 32,000 to further confirm the bullish change in trend. Until then, we recommend a gradual approach to buying stocks. The index must hold above 29,500 or the 200-DMA for the follow-through day to remain intact and avoid failure. We have included names to keep on your radar in our note.
APAC Weekly Summary
The MSCI Asia finally caught a bid today after trending down over the past five straight days. The index is testing the 200-DMA for the third time this year, increasing the probability that it will break below. Asian markets continue to be volatile and there is no change in our overall sentiment on the region; we continue to be cautious.
This week we shifted Mainland China back to a Confirmed Uptrend on a follow-through day on April 24. This came on the fifth day of a Rally Attempt. The CSI 300 remains volatile and although we are not confident that this trend will hold, we will keep to our rules that are unbiased. We also downgraded Taiwan to a Downtrend and shifted Indonesia back to a Downtrend from a Rally Attempt. Seven out of 13 APAC markets are in correction mode and four are now in a Rally Attempt. Many markets (HK and SE Asia especially) continue to be weak and we still think markets have yet to determine a definitive trend. There are names on our Focus List that are testing support levels and we are watching closely (provided below). A break below technical support would be concerning. In Sector Rotation, we are noticing a pullback in Health Care and continued strength in Retail and Staples. Material and Energy also look interesting short term. Lastly, we highlight Education and Mengniu Dairy (MNDA.HK; 2319:HK).
