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 Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • U.S. breadth remains fairly weak despite major indices continuing into all-time highs.
    • The percentage of stocks above their 30-week on the NYSE and Nasdaq are in the 40s.
    • This is fairly typical for a normal market pause and makes sense with Finance, Material, Industrials, and Cyclicals (and small caps) all consolidating.
    • The number of breakouts is also still low. The last three weeks has averaged ~50, about half of the long-term weekly average. This week the total did rise into the week’s end.

Global Sector Commentary

Posted on by Kenley Scott

Attached is the latest Global Sector Commentary from Director, Research Analyst Kenley Scott.

 

Key points from this report:

 

  • The slide in China ( KWEB, 0CHSS300, 0HNGKNG ) stocks risks spilling over to U.S./global stocks if recent history is a fair gauge.
    • 2015-2016: U.S. selloff after second leg down in KWEB/CSI 300, Hang Seng indices.
    • 2018: Secondary U.S. selloff starting in September after prolonged downside in China indices.
  • Currently, the U.S. market (large indices) have been relatively unaffected by slides in China indices.
  • One difference from past instances is that the broadest China index, the Shenzhen Composite, has not fallen along with the others, as it did in 2015/2018.
    • This index is weighted heavily toward manufacturing (both industrial and Technology manufacturing) and has very small IT/Financial weights. If China were to actually aggressively tighten monetary conditions, we should see the effect here.
  • So, while investors should be cognizant of past selloffs arguably spurred by China, this time around the Shenzhen could be key to watch for signs of danger. For now, the downside has been contained in China internet/mega-caps.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

TFI International ( TFII ) – $9B market cap – Technicals: The stock broke out of a stage-three six-week flat base this
week. Technicals have remained strong for past two months with a strong RS Rating from 93-95. Actionable in the range
$96.5-101.3. See annotated chart here. Company Description: TFI International is a North American logistics company,
operating across the U.S., Canada and Mexico through its subsidiaries. It serves through following segments: Package
and Courier, Less-Than-Truckload, Truckload, and Logistics. Fundamentals: The company announced solidQ1 results
on 27th April. Revenue increased 26% y/y to $1.06B led by acquisitions and growth across segments except in LTL but
missed consensus. Adjusted net income rose 40% y/y to $74M, or to $0.77/diluted share, beating consensus. Recent
News: On July 13, TFII announced that its recently acquired TForce Freight operating company (formerly UPS Ground
Freight) expects to report an adjusted operating ratio below 95% in Q2 versus a previously expected 96%-97%. This
should led to meaningful upside versus Qs consensus estimates. 2021 Expectations: Consensus estimates Q2
revenue growth of 78% y/y and adjusted EPS growth of 30% y/y. Next catalyst: Q2 earnings results on July 26
aftermarket.

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • S&P 500 growth with RS gains for six of the past eight weeks, now RS line not far off the September 2020 peak.
  • Prior three-quarter periods of outperformance for value:
    • 2012-2013: Growth bottomed but did not make it back to RS highs for about a year after lows. Then led for another year and a half.
    • 2016: Growth bottomed and fairly quickly retook prior highs within two quarters. Then led for another two years.

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • Very strong first half for indices with each up double digits and solidly outperforming their long-term averages.
  • The second half is very favorable given this backdrop.
    • S&P/DJIA up 5% on average, just three times negative out of 16 prior years.
    • Nasdaq up 9% on average, six times negative out of 24 prior years.
  • In the first year of a presidency, below are listed the years that had double-digit returns in the first half. Note how solid the second half is in most case

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • Tech/high growth resurgence fully in gear.
  • From our commentary three weeks ago, we highlighted stocks that were already leading their respective groups and the overall market, attempting to find true leaders while Industry Groups were still consolidating.
    • The first step is finding RS leadership in consolidation, second, the follow-through if/when the group improves overall.
    • Listed 42 stocks that were RS leaders at the time, about half of which have gone on to lead over three weeks.
    • Very strong examples include NET, ASAN, GLBE, SPT, DOMO, LSPD.
  • Now we perform a similar exercise for the currently consolidating Cyclical, Industrial, Financials, and Material areas.
  • Looking at weak Industry Groups for standouts, also with a strong three-month RS Rating versus the overall market.
    • 17 examples, two particularly strong include Friday USFL addition Kornit Digital (KRNT) with an Industry Group Rank of 120 and Skyline Champion (SKY) with an Industry Group Rank of 172

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • The EEM as an index still consolidating, now four months in a base. But since the mid-February peak, a majority of individual markets are up, including 10 by double digits.
  • The reasons for the lag are that Hong Kong/China are underperforming and heavyweight individual stocks are lagging.
    • Top 20 weights make up 37% and have a three-month RS Rating of 36.
    • Top 50 weights make up 48% and have a three-month RS Rating of 42.