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:

U.S. indices entered the week overbought in the short term after a +18% rebound by the S&P 500 from the December 24, 2018 low.

Using past historical examples, a downward leg of 5–8% from the recent peak closing price of 2,803 on March 1 would be normal for the S&P 500.

If the market has another substantial up leg, we would expect breadth to be narrower than the December 24 to March 1 move at both a sector and individual stock level.

The U.S. market is in an Uptrend Under Pressure. Indices pulled back and broke below support at their respective 200-DMA after picking up three distribution days this week.

Cautious approach: Although the majority of leading ideas remain constructive, we would prefer to see indices find support and consolidate before deploying additional capital.

Actionable Focus List ideas: Dexcom ( DXCM ), Fiserv ( FISV ), Freshpet ( FRPT ), Globant ( GLOB ), Global Payments ( GPN ), Mastercard ( MA ), Nike ( NKE ), Nextera Energy ( NEE ), NMI ( NMIH ), Palo Alto Networks ( PANW ), Visa ( V ).

Global Equity Strategy Webinar with Kenley Scott and Randy Watts, 3/7/2019 at 11am EST

Posted on by Kenley Scott

In this week’s webinar, William O’Neil + Co. Director, Research Analyst Kenley Scott and Chief Investment Strategist Randy Watts discuss current market conditions, including the overbought nature of the U.S. and other markets in the short term, but a potentially positive setup for the long term. Globally, they will examine investment themes where favored and actionable growth stocks are most prevalent. These include digital payments, SaaS, 5G telecom, disruptive medical technology, China’s recovery, India’s secular consumer growth, Brazil’s return to growth, and more.

Global Sector Commentary

Posted on by Kenley Scott

Key Points:

  • Global breakouts are back above their long-term weekly average for the first time since August 2018.
    • The largest contributors are the U.S. and China, with more recent pickup in Europe.
  • The number of names on each of our Focus Lists is sharply rising.
    • Since the beginning of February, we have added a total of 47 ideas: 19 developed, 16 emerging, and 12 U.S.
    • Of the 47, 38 are actionable now; please see the attached for buy-able names.

Global Sector Commentary

Posted on by Kenley Scott

Key points:

 

  • The possibility of an earnings trough in early 2019, and recovery in late 2019 and into 2020 are driving a portion of gains.
  • Breadth is at a possible near-term peak (the percentage of NYSE stocks above the 30-week moving average is at ~75%) after the above-average ‘leg’ from December 2018 lows.
    • Breadth is likely to decrease when/if these market gains pause for a few weeks (in line with the past two major corrections in 2011, and 2015–2016).
    • Lower breadth on the next ‘leg’ up would be normal (that is, more winners and losers).
    • Divergence between forward winners and losers may become more apparent in a pause/pullback.
  • We still remain bullish until a down leg appears, as the exact timing is not known. Stocks with little-to-no signs of heavy distribution should be held until such a move appears.
  • Best actionable ideas on the U.S. Focus List include SSNC, MLNX, GPN, VIAV, V, ZTS, and ISRG.

Global Sector Commentary

Posted on by Kenley Scott

Global Market Recap
Twenty-three developed markets ended with a 2.2% gain on average for the week. Twenty mar- kets are in a Confirmed Uptrend, including nine in an Uptrend Under Pressure. Two markets are in a Rally Attempt, and one is in a Downtrend.

• In the U.S., the Dow, Nasdaq, and Russell 2000 indices rose for an eighth consecutive week, while the S&P rose for a seventh time in eight weeks. European markets closed the week with solid gains after a strong Friday move. APAC markets also rose, led by Japan, which retook its 50-DMA.
Twenty-four emerging markets gained 0.3% on average during the week. Sixteen markets are in a Confirmed Uptrend, including six in an Uptrend Under Pressure. Seven markets are in a Rally Attempt, while one market is in a Downtrend.
• China led all markets with a 6% gain, while the rest of APAC was mixed. South Africa and Egypt led a generally positive EMEA region, and Brazil once again led LatAm markets. Conversely, we moved Mexico back into a Downtrend.

Global Sector Commentary

Posted on by Kenley Scott

Key points:

EEM is first among global benchmark indices to move back above its 200-DMA.

Relative 12-month EEM performance versus the S&P 500 has improved more than 10% since September, but still lags by more than 10% for the entire 12-month period. Catchup trade could still have room.

In addition to continued smaller market (Brazil, Turkey, Russia, etc.) strength, large markets Hong Kong (31% of EEM) and South Korea (14% of EEM) are now supporting the index.

A now slightly weakening U.S. dollar could provide another boost.

The breadth of buyable stocks is improving from mainly India and Brazil to China, Taiwan, Thailand, Egypt, etc.

Global Sector Commentary

Posted on by Kenley Scott

Key points:

  • In the U.S., there is a potentially positive historical setup developing. The S&P 500 is up more than 6% in January after losing 9% in December.
  • Only 13 times since 1970 has the S&P 500 lost at least 5% in one month and then gained at least 5% the next month.
    • In these cases, forward six month gains were well above the norm (see table).
  • Only five times has the S&P 500 lost at least 7% and then gained at least 7% the next month.
    • Likewise, forward six month gains in these cases are very good (rows with  asterisks below).

Global Sector Commentary

Posted on by Kenley Scott

Key points:

  • As many markets, including the U.S., retook their 50-DMA this week, the recovery continues.
  • Global breakouts have bounced from two-year lows to the highest level since early December.
    • Last week’s total (357) is still well below a ‘heathy‘ bull market norm of 800-1,000 weekly, but the first step in the recovery process is complete. We expect a further increase once this week’s total is official.
    • Several weeks of 500+ could be the first step in the trend change that we have talked about as necessary for a sustained rally.

Global Sector Commentary

Posted on by Kenley Scott

Key points:

Key tests of resistance are coming for many developed markets that remain below their 50-DMA. Moving averages are still broadly trending lower.

Emerging markets are better, with many more above 50-/200-DMA and some with upward-trending moving averages as well. Brazil, India, Qatar, and Indonesia have the most favorable market stats.

Global Sector Commentary

Posted on by Kenley Scott

Key points:

Follow-through days in Europe and potentially in the U.S. mark the beginning of a new possible uptrend. However, a sustainable change in trend is likely much further away.

One key indicator is the extremely low level of stock breakouts globally. Last week marked the lowest weekly total since January 2016.

While a week or two of spikes in the number of breakouts would be nice to see, a real trend change will likely take several months, as many stocks are just beginning to build the right sides of bases.

Of the stocks that did break out this week (a slight increase from last week is probable based on early readings), there are four Focus List names.

Northern Star ( NST.AU; NST AU ), Asian Paints ( API.IN; APNT IN ), Jiangsu Expressway ( JEX.CN; 600377 CH ), and Localiza Rent-a-Car ( LOC.BR; RENT3 BZ ). Several others, including Atlassian ( TEAM ) and Jollibee Foods ( JFC.PH; JFC PM ), are former Focus List ideas.