Author: Kenley Scott

Kenley Scott is a senior equity analyst and sector strategist covering the APAC region and the Energy sector. He is a member of the Global Focus List Committee, which approves all equity recommendations for developed, emerging, and frontier markets. Kenley also writes the Global Sector Summary, part of the Sector Strategy service, which identifies emerging sector strength and weakness across 46 countries every week. After working as a commodities broker, Kenley joined the firm in July 2006. He has a B.S. in Statistics from the University of California, Riverside and also holds a Series 65 securities license.

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

  • Recent index breakouts reminiscent in some ways of the turn higher in 2002-2003, where:
    • From market lows to first major “higher high” was about seven months.
    • The Nasdaq became the clear leading index from the October 2002 lows, and lasted through 2003.
    • The S&P 500 began to consolidate a couple of weeks after the breakout surge. This lasted for 11 weeks (6% depth). However, the Nasdaq’s consolidations were much shorter, lasting 3-5 weeks at a time as the 10-WMA caught up.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Chord Energy Corporation (CHRD) – $6B market cap – Technicals: The stock is breaking out of a stage-one 27-week double-bottom base. It has mixed fundamental ratings: EPS Rank 32 and SMR Rating of B. Technical ratings are strong (RS Rating of 81, A/D Rating of B+, and Up/Down Volume ratio of 1.3) indicating strong money flows. Pivot range is $151.19–158.75. Company Description: Chord Energy is a leading U.S.-based oil and gas exploration and production company with largest acreage position in Williston Basin.

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

  • Laggard areas of the market (equal-weight S&P, mid-cap, small-cap) surged to end the week.
    • RSP, MDY, IWO, DIA indices outperformed S&P and Nasdaq indices for the week after a massive lag over three months.
    • These still have overhead up through February/March highs and are in need of follow-through to confirm the short-term improvement.
  • As the breadth suddenly looks a bit better, an interesting look at the Volatility Index (VIX).
    • The gauge was already starting to break down, but accelerated to the downside, falling 19% for the week and to 15-month lows.
    • At the end of the last two major bear market cycles, the gauge similarly broke a multi-year uptrend represented by “higher lows”.
    • In 2003, the breakdown led to a lower volatility period and strong market gains from 2004-2006.
    • In 2009, it took longer to play out, with a couple of breakdowns and subsequent rallies amid sharp market corrections, before a sustained prior of lower volatility and strong mkt gains from 2012-2014

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

  • From checkup a month ago, concentration in the U.S. market has become even more pronounced.
    • Ex: QQQs are up 31% YTD versus 2% for equal-weight S&P 500 (RSP) and -2% for the Russell 2000 (IWM).
    • The top decile of mkt cap in the QQQs is making up 90% of the YTD gains, with an average of +57%.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Nagase (NGSE.JP) – $2B market cap – Technicals: The stock broke into multi-year highs from a stage-one cup base. Moderate fundamental profile:
EPS Rank 56, Composite Rating of 78, and SMR Rating of C. Strong technical profile: RS line broke out above a multi-year high, with RS Rating
improving to 83 from 53 in the past seven weeks. Good Up/Down Volume ratio of 1.3. A/D Rating has been turning increasingly positive in the past
month.

Global Lithium Sector

Posted on by Kenley Scott

Key Points

 

  • Li prices appear to have bottomed out and are showing initial signs of a recovery after months of inventory destocking. Buyers are returning to the spot market in China after inventories declined to unsustainable levels. We are starting to see the first signs of tightness in supply as marginal converters are shutting down production due to negative profit margins.
  • Near-term dynamics: The market deficit is expected to narrow by 2027, as new supply comes on-stream, but the deficit will expand later due to high turnaround time of 10—15 years to bring new supply on-stream.
  • Long-term dynamics: The demand environment remains strong due to increasing EV penetration and ambitious targets announced by auto OEMs.
    • We are seeing many instances of OEMs moving up the value chain to secure their supply, which is a considerable shift from earlier practice of signing long-term off-take agreements. Auto OEMs and battery manufacturers are signing off-take agreements with junior miners with a focus on sustainable Li production.
    • China is the market leader in downstream Li processing, accounting for ~60% global share. We expect this share to fall, led by localization of supply chains as countries draft legislation to regulate critical minerals.
    • We see downstream capacity expansion in Australia over the next three to four years, with major upstream producers like Mineral Resources (MIN.AU), Pilbara Minerals (PLS.AU), and Igo (IGO.AU) becoming integrated producers.
  • Looking forward: We expect to see some consolidation in the industry due to the sharp correction in Li stocks led by a decline in the prices. There is increased investor activity in Argentina, a part of the Li triangle in South America, due to its investor friendly policies.
  • Refer to page 10 for the list of Li-related stocks mentioned in this report.
  • Stocks to keep on radar: Refer to pages 11 – 17 for annotated datagraphs.
    • Stocks testing/reclaiming first levels of resistance: Albemarle (ALB), Livent (LTHM), Sqm (SQM), and Mineral Resources (MIN.AU).
    • Stocks setting up: Pilbara Minerals (PLS.AU), Igo (IGO.AU), and AMG Critical Materials (AMG.NL).

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

  • Checkup on Nasdaq/ARKK comparison (last done in December 2022).
    • Comparison still holds as the most recent leg lower and subsequent bounce were very similar.
    • ARKK has an opportunity to break comparison if it can make a higher high, above the February peak, something the Nasdaq could not do from a similar position in Q1 2002.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Vestas Windsystems (VEW.DK; VWS:DC) – $30B market cap – Technicals: The stock is breaking above its 50- and 100-DMA while forming a stage-two consolidation (pivot: DKK 217.45). Fundamental profile is weak due to a poor industry environment in 2022 but set to improve sharply through 2024. Solid technical setup: RS Rating of 79 and A/D Rating of C+ indicate strong money flows.

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

  • Large cap indices near breakout levels (QQQ, SPY, etc.), while others (RSP, IWO, IWN) have much more overhead to work through.
  • Despite the better action from large-growth, overall, indices have basically gone nowhere in 14+ months, resulting in ongoing frustrations.