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
Key points from this report:
- Several markets have become very extended (small-cap U.S. and Japan on developed side and South Korea, Taiwan, India, Brazil on emerging side) from their 200-DMA.
- Two markets that look to be at favorable spots more near to the start of a potential strong trend are China (Shenzhen Index) and Hong Kong.
O’Neil Energy/Material Weekly
Global Energy is now above its June peak and set to test a very key level of the March 2020 breakdown which had
perviously acted as support from 2016-2019. Its relative strength line is sharply higher since November 2020.
Basic Material has sharply improved on a relative basis over the past month, and has also made fresh decade
highs, breaking above Jan. 2018 peak. Transportation has showed good absolute performance and recently
broke to all-time highs, however, its relative trend is still very poor. Utility remains the weakest in the short-term, and long-term with a relative strength line at decade lows. It continues to struggle below resistance at area of sharp
March breakdown.
Global Sector Commentary
Key points from this report:
- The 12-year bull market from 1949-1961 was broken up by a relatively short bear market that lasted just 32 weeks and fell 29%. It was then followed by another four-year run and the market was back to all-time highs 22 months after prior highs.
- The five-year bull market from 1982-1987 was broken up by a bear market that lasted just eight weeks and fell 41%. It was followed by the most powerful run ever, a 600%+ gain from 1987-2000. The market made it back to all-time highs two years after prior highs.
- The 11-year 2009-2020 bull run was broken up by the shortest bear market ever of just six weeks. The DJIA made it back to highs nine months later, while the Nasdaq Composite was back at highs within just four months.
- It does seem more likely that the current bull market will continue given an historically immediate return to all-time highs following a severe drawdown and a subsequent lack of overhead.
- Next week, we’ll examine the similarities between the late 1990s and now, particularly as they relate to the (multi-year) growing spread between the Nasdaq, S&P 500, and DJIA indices.
2021 Investment Themes
Sika
Key points from this report:
- This is a technical reiteration of a buy recommendation for shares of Sika. After an initial buy recommendation on June 16, 2020, we suggest buying or adding to positions as the stock is breaking out of a stage-two eight-week cup base this week. Shares are a reasonable 7% above the 50-DMA and are not overly extended from the 200-DMA (+23%).
- Solid fundamental ratings: EPS Rank of 78 driven by three-/five-year EPS growth of 9% and 13%, respectively. Its EPS Rank has fallen slightly given this year’s challenges but is set to rebound with 20%+ EPS growth expected in 2021. Composite Rating of 90 and SMR Rating of B, driven by three-/five-year sales growth of 11% and 9%, respectively, 12-14% P/T margins, and rising ROE, now above 30%.
- Stable technical ratings: Up/Down Volume ratio of 1.0, A/D Rating of C+, and RS Rating of 83. RS line in an uptrend, with just a few blips, for more than a decade.
- Institutional ownership has been increasing for at least two years. Currently, 1,719 funds hold the stock, an addition of 221 funds y/y.
Global Sector Commentary
Key points from this report:
Global Markets
- Solid market conditions. Global index at all-time highs. Relative trend of global improving versus the U.S.
U.S. Market
- Long 2009-2020 bull market ended. Shortest bear market ever at six weeks. Nine months into new bull. Positive current technical status.
- U.S. small-cap growth took over leadership from large growth. Still large growth remains +30% versus other areas (large and small value).
- First year of presidency has solid average gains since 1970. Following a strong year (+15% or more for S&P 500), the next year averages a 7% gain.
- After March low, several months before breakout totals returned, but have since had 6 months of strong weekly totals.
- Short-term, stretched secondary indicators (Bull/Bear, Put/Call, etc) and extended areas of market (small-growth, IPOs, alt energy).
Developed Markets
- EFA approaching January 2018 all-time highs.
- Japan is our favored developed market. Europe is OK; the U.K. could start to recover but overhead remains.
- Good trend in breakout numbers.
Emerging Markets
- EEM approaching January 2018 decade highs, 6% from all-time highs.
- Favored markets South Korea, China, India, Brazil, Taiwan.
- U.S. dollar weakness a tailwind for EEM Index, which is near decade highs.
- Good trend in breakout numbers.
Part two of this report, on global themes and top investment picks for 2021, coming next week.
O’Neil Energy/Material Weekly
Looking this week at the daily charts of these four sectors, long-term lagging Energy still has the best relative
strength trend. It continues to test a retake of June resistance. Basic Material is holding near 52-week highs, and
has seen its relative strength improve a bit recently, and is trending solidly along the rising 21-DMA. Transportation
is also holding a Nov. break to 52-week highs, however, its relative strength has slipped noticebly over two months.
Utility remains the clear laggard, with a relative strength line still right at multi-year lows. It is also stuck below
21/50-DMAs.
Orsted
Key points from this report:
- Largest offshore wind farm operator in the world, Orsted, is set to double existing capacity over the next several years and add plenty more to backlog given the massive upcoming auctions in Europe, the U.S., and APAC.
- We recommend buying shares or adding to existing positions as the stock is breaking out of a six-week flat base. It has solid support at its 50-DMA.
- Improving fundamental ratings: Composite Rating of 76, SMR Rating of D, and EPS Rank of 52. EPS Rank is expected to rise following double-digit 2020 EPS growth estimates.
- Technical ratings slightly improved the last three weeks: Up/Down Volume ratio of 0.8 and A/D Rating of C+. RS line is in an uptrend since inception (2016), while its current RS Rating of 83 is solid.
- Institutional ownership more than tripled in the last three years to 1,867 funds.
Xinyi Energy
Key points from this report:
- We recommend adding to positions in solar farm operator Xinyi Energy after a breakout from a 10-week cup-with-handle pattern early this week. Shares rose 16% on 350% above average volume as they broke into the pivot range of HKD 4.70-5.00.
- Very strong fundamental ratings: EPS Rank of 95 and three/five-year EPS growth of 12%/22%. SMR Rating of A, three/five-year sales growth of 20%/31%, 2019 annual pretax margins of 64%, 2019 ROE of 11%. Composite Rating of 98.
- Technical ratings also very good: RS Rating of 96, RS line broke to all-time highs. A/D Rating is B+ and Up/Down Volume has remained >1.1 throughout the basing structure.
- Energy-Solar and Energy-Alternative/Other are ranked #2 and #18 of 183 total Hong Kong groups, respectively, by price performance. Xinyi Energy is the only one of the group that is at a new pivot now. Most, including standout Xinyi Solar, are extended, while a couple others such as Flat Glass Group are approaching pivot points but still below. Xinyi Energy also has the best EPS Rank of the group, driven by a combination of three/five-year EPS growth and stability and most recently reported EPS growth.
