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:

 

  • Since September 2, when the U.S. mega cap-led correction began, small growth/value are the top groups, up more than 20%, versus just 1-2% for the S&P 500/QQQ indices. QQQ still has a large lead over one-year versus all styles, but the gap with small growth has closed significantly.
  • Other areas like Asia and emerging markets are also strong, while Europe and large value are middle-of-the-pack.
  • The global rotation, however, is not as direct as it might seem. It has not been directly growth to value (see small U.S. growth outperformance) or necessarily sectorial.
  • Mega-cap U.S. dominance has been replaced by strong gains in many areas.
    • On a U.S. sector basis, small outperforms large across key Cyclical, Financial, Health Care, Retail, Tech (although Tech below $200B is also good).
    • Internationally, Consumer Cyclical shows up the most across key countries as an outperformer (value). But otherwise, it is very country specific.
      • In Japan/Taiwan it is Tech and Capital Equipment, but in India it is Financials, HK/Germany it is Retail, and South Korea it is Health Care among the top groups.
  • In conclusion, the change in recent months has led to much better breadth than prior. The next step may be when breadth decreases, to closely track which areas remain standouts.

O Neil Energy/Material/+ Weekly

Posted on by Kenley Scott

Long-term lagging Energy is shwoing the best short-term relative momentum of the four sectors as it tests resistance
from June highs. Global Transportation is holding solid above a break to 2+-year highs and is tetsing all-time highsrelative strength remains weak however. Basic Material is also still weak on a relative basis, but is also holding a break
above midpoint peaks from early-2019 and mid-2020.. Utility remains the weakest in the short-term, with a relative
strength line at decade lows. It ran into resistance at area of sharp March breakdown.

Encavis

Posted on by Kenley Scott

Key points from this report:

 

  • Encavis ( $3B market cap ) is an acquirer of ready-to-build, or operational wind and solar farms in developed European countries ( Germany, Spain, France, Italy, U.K., Denmark, etc ).
  • Within these core countries, governments have established some of the most aggressive targets for renewable expansion.
  • It has a seven-year revenue and EBITDA CAGR of 30% and 36%, respectively, and has grown its dividend payout by 17% annually.
  • It has a mix of subsidy-based FiT arrangements ( average life of 13 years remaining on these projects ), and more recently PPAs, which are growing in popularity in Europe thanks to declining new project costs.
  • Its forward 2025 plans calls for a doubling of contracted capacity, from 1.7GW to 3.4GW, annual weather-adjusted ( WA ) EBITDA growth of 9%, €1.5B-2.5B in spending on 15-20 new projects per year, and €100M in annual debt reduction.
  • Shares have consolidated for two months and are sitting just below a pivot of €18.9. Shares are a strong hold, and become a new buy on a break above this level.

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • Globally high breakout totals (through December 4) continue.
    • Initial break back above average in July and large spike in November for both global and U.S. markets.
    • If similar to late 2016 change, and from below to above average, closer to initial phase of cycle. This is supported by median bull market length which is two years. Ex: Six months from return to average number of breakouts now, versus 19 months in 2016-2018.
    • Could be a contrarian spike (ie: January 2018), but confirmation would be a high number of failed breakouts.
  • Using the 2016 through early 2018 example, a difference to now is better totals for global versus U.S. In 2016, the U.S. got off to better start after the presidential election.
  • Given six weeks of above average numbers, pauses are normal. Even through the strong global gains in 2017, there were several weeks at a time where the total fell.
    • Assuming a lull, watch the stocks that continue to work, as their relative strength within a market consolidation may signal leadership in the next leg. See recent breakouts in the full report, attached.

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • Large spread year-to-date for U.S. indices and sectors.
    • Since 1970, the average annual spread between best and worst index (of the three major indices) is 32% (Nasdaq +36%, Dow +4%). If this holds, it will be the largest spread since 2000, when the Dow lost 6% and the Nasdaq lost 39%. This followed a year (1999) in which the Nasdaq gained 86% and the S&P 500 gained 20%, the largest spread ever.
    • The average annual spread between best (average max of 30%) and worst sector (average min of -10%) is 40%. Through 11 months this year the spread is 68% (Retail/Tech +36%, Energy -32%). If this holds, it would be the largest annual spread since 2000, when Health Care gained 41% and Technology lost 40%.
  • Despite still large spreads, it was a huge November for U.S. Cyclical (best ever) and Energy (second-best ever).
  • Globally, there has been a big pickup in subsectors like base metal mining, oil & gas field services, autos, and banks. And although certain areas are very extended, there is also very good continued action from global semis and the re-emergence of several U.S. software names.
  • See the full report for a few dozen ideas from the above areas.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Long-term lagging Energy continues to show the best short-term relative momentum of the four sectors as it tests
resistance from June highs. Global Transportation is holding a break above several 2018-2020 peaks and is
tetsing all-time highs. Relative stsength remains weak however. Basic Material is also still weak on a relative
basis, but broke above early-2019 and mid-2020 highs. Utility, is now clearly the weakest in the short-term, with a
relative strength line back to multi-year lows.

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • Secondary indictors like bull/bear ratio, percentage of stocks above 30-WMA, and put/call ratios are at extreme high/low levels.
  • While price action is the primary indicator (remains very strong), we would watch key benchmarks/sectors/sub-sectors for signs of exhaustion/distribution as they are most very extended from 50/200-DMA.

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • After trailing large growth (IWF) by as much 25% year-to-date through early September, small growth (IWO) has outperformed by 16% since then. In just two weeks it is +14%.
  • The IWO index is now very extended from its 40-WMA, at +25%. This is the most since 2009 and among the most ever.
  • Although there are not that many examples of it being this stretched, in the past few times it has led to consolidation (2003: three times, 2009: one time).
    • In 2003, it continued higher two of the three times it was this extended. The third time, it had a major correction.
    • In 2009, it also continued higher after a few weeks of consolidation.
  • There are still quality stocks to buy (see the attached full report) but also some that are very extended and should be trimmed.