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

Global Markets Recap

Twenty-three developed markets declined more than 2% on average after a respite from the gains of the last two weeks. Six markets are in an Uptrend Under Pressure, where the U.S. was shifted this week, and the other 17 are in a Rally Attempt.

• The Stoxx 600 fell 3.6% this week, re-testing February lows. We shifted the benchmark index back into a Downtrend after Friday losses.
• EMEA markets once again underperformed, with Germany, Denmark, Finland, and Norway falling a least 3%. Japan also fell 3% as it approached
February lows.
• In the U.S., the Nasdaq fell just 1%, versus the S&P 500 and DJIA, which fell 2-3%.

Twenty-four emerging markets declined 1.3% on average, putting a dent in the market recovery from last week. Twenty markets are in a Confirmed Uptrend (including 10 in an Uptrend Under Pressure), while two are in a Rally Attempt and the rest in a Downtrend. It is the 62nd week with a majority of indices in an uptrend, which is still much better overall than in developed markets.
• China and a few small markets like Egypt and Thailand managed gains.
• In general, despite the much higher proportion of markets still in an uptrend, distribution day counts are very elevated. The average is greater than five days and nine markets have at least six.

Global Sector Commentary

Posted on by Kenley Scott

Key points from this week’s commentary:

*   In the seven prior periods (1970-2006) when the U.S. Federal Reserve raised interest rates multiple times with no decreases in between, commodities usually sharply outperformed stocks.
*   The Energy and Material sectors have the best averages for equities, but Energy has a weak median gain (due to two periods with huge gains). Materials and Health Care have the best median performance.

*   Since December 2015, when the Fed raised rates from 0.75%, they have been raised four additional times, to 2.0% currently. Three or four 2018 hikes are expected.
*   Commodities are outperforming as they normally do, as is the Basic Material sector. However, Energy has been very weak despite crude gains, and Health Care has uncharacteristically underperformed.

Global Sector Commentary

Posted on by Kenley Scott

U.S. Market Posts Follow-Through Day
Global Markets Recap
Twenty-two developed markets gained 2.8% on average following the major decline over the last two weeks. Five markets are in an Uptrend Under Pressure, the other 17 are in a Downtrend (including nine in a Rally Attempt).
• EMEA and APAC markets all bounced after sharp losses last week. Outperformers included Hong Kong, Finland, Denmark, and France, which rose 3.9-5.5% apiece.

Twenty-four emerging markets gained 2% on average, recovering from earlier in the week. Nineteen markets are in a Confirmed Uptrend (including 11 Under Pressure), while five are in a Downtrend. In the 60th consecutive week with a majority in an Uptrend, sentiment is better than in developed markets, but remains subdued.
• Russia, South Africa, Brazil, and China led, gaining 3.6-6.6% apiece.
U.S. Leads Quick Recovery
U.S. indices gained back all of the prior week’s losses, which were their worst weekly drops in more than two years. The DJIA, S&P 500, and Nasdaq indices all neared or touched 40-WMA support before bouncing. The Nasdaq led with a 6% gain, retaking its 10-WMA in the process. It had what we call a follow-through day (>1.7% gain on volume greater than the prior day) on February 14, so we shifted the market status back to a Confirmed Uptrend. While still 3% below alltime highs, it is 10% off intraday lows from January 26. We know historically that every follow-through day does not lead to sustained gains, however, we view it as a valuable indicator to begin buying stocks once again. Signals of a rally failure would include a clustering of market distribution and an undercut of the lows from the follow-through day (NDQC: 6,977) over the next couple of weeks.

Global Sector Commentary

Posted on by Kenley Scott

Key points from this week’s commentary:

*   The U.S. market is in its first correction since mid-2016. Volatility rose the most ever in a week to intraweek highs (+270%).
*   Stoxx 600, EFA, EEM indices also in a correction.
*   Developed market conditions are much worse than emerging. Southeast Asia (Thailand, Indonesia, Malaysia) and Brazil are holding very well, within 5% of highs.

Global Sector Commentary

Posted on by Kenley Scott

Key points from this week’s commentary:

*   U.S. markets worst weekly drop in two years. VIX index breaks out of a two-year downtrend, gaining 57%.
*   U.S. Focus List count of growth stock leaders off high of 80, but still near four-year highs.
*   Russell Global Index worst weekly loss in two years. It was 13% above its 40-WMA before pullback, the most since 2011.
*   Despite losses, a majority of 47 global markets remain in a Confirmed Uptrend. We will remain generally bullish until the proportion significantly drops.
*   Most at-risk markets currently include Sweden, Switzerland, Denmark, and the U.K.

Global Basic Material Sector

Posted on by Kenley Scott

Key Points:

U.S.

  • Basic Material leading the S&P 500 slightly over six months, but decelerating a bit.
  • Strength in Steel ( including ADRs ), Mining-metal ores ( including ADRs ), and Paper & Paper Products. Weakness in Bldg-Cement/Concrt/Ag and Mining-Gold/Silver/Gems.
  • Large discrepancies in terms of fundamental and technical strength/weakness within groups so looking for pair trades:
    • Example: Steel-Producers – STLD ( long ), AKS ( short )

EMEA

  • Basic Material leading the Stoxx 600 by wide margins over six months and one year, but decelerating.
  • Strength was widespread, coming from Mining-Metal Ores, Steel, and Chemical groups.
  • Pair trade example: Mining-Gold/Silver/Gems – SAM.SA ; MAADEN: AB ( long ) , RRS.GB ; RRS: LN ( short )

APAC

  • Basic Material on par with O’Neil All APAC over six-months, but decelerating over six weeks.
  • Pair trade example: GFL Pick VED.IN ; VEDL:IN ( long ) , INI.KR ; 004020: KS ( short )

Global Sector Commentary

Posted on by Kenley Scott

Key points from this week’s commentary:

*   The main U.S. indices ( S&P 500, DJIA, NDQC ) are up 7-8% in January, the biggest monthly gain for each since October 2015.
*   The iShares MSCI Developed Markets ETF ( EFA ) has risen 6.9% so far in January, its biggest monthly gain since September 2013. The index made a fresh all-time high this week, breaking through July 2007 highs.
*   The iShares MSCI Emerging Markets ETF ( EEM ) is up 10.3% in January, its biggest monthly gain since March 2016. The index is still about 7% below all-time highs, but at decade highs nonetheless.

Global Sector Commentary

Posted on by Kenley Scott

We are reiterating our Statregy View — U.S. Dollar Weakness from January 18.

Given U.S. dollar weakness, S&P 500 companies with 10-30% or more of revenues from Europe reported better median Q3 sales/EPS growth, more sales/EPS surprises, and better Q4 sales/EPS growth.

Top Focus List picks with high revenue exposure to Europe include ATVI, ALGN, FB, MCHP, ILMN, WP, FLIR, VRTX, CRM, PYPL, NVDA, GOOGL, AMAT.

Global Sector Commentary

Posted on by Kenley Scott

The Dow Jones Industrial Average continues its record for the longest run without a 5% or greater correction. The period of 394 trading days beginning June 27, 2016 is nearly three months longer than the prior record from 1994-1996. While the velocity of gains had been very low for much of the streak, it has accelerated, with the index having gained 15% since the end of September 2017. The total 51% gain during the streak is the third-best rally of all time (with no 5% correction).

Energy/Materials are leading to start the year, up 7-8% apiece. Both still have a lot of room to make up given a wide lag from 2010-2017 versus the market and versus their own historical averages.

Yield plays, including Utility and REITs, are laggards as U.S. bond yields rise. However, in the case of the Utility sector, underperformance versus the S&P 500 is reaching an extreme, at -16% over the trailing six months.

Historically, the Utility sector is not always negatively correlated with yields.

Look for support at lows of the two-year upwardly-trending channel to hold. It is right at that level now.

Global Sector Commentary

Posted on by Kenley Scott
  • During 2017, markets shook off high distribution day counts several times. Most recently, in mid-December, markets had more than four on average and a dozen or so markets had 6+. Hence why this indicator alone is not enough to change our stance.
  • Currently, there is an average of just 2.5 distribution days across all markets in an uptrend.
  • Across all geographies currently, we are finding many actionable growth stocks. This number has increased significantly just this week, as more names are breaking out from periods of consolidation and into 52-week highs.
  • Further, risk-on sectors, including Consumer Cyclical, Transportation, and Technology, stable growth such as Retail and Health Care, as well as Basic Material and Energy, are all performing well globally.
  • Top picks include Alibaba (

    ), Nvidia (

    ), Netflix (

    ), Kering (KER.FR), 3SBio (SBIL.HK), Supergroup (SGP.GB), Harmonic Drive Systems (HARM.JP), Localiza (LOC.BR), JSW Steel (JVS.IN), Avenue Supermarts (AS.IN), BCPG (BCPG.TH), and Muangthai Leasing(MUTH.TH).