Twenty-three developed markets reversed from substantial early-week losses to close flat on average this week. Over 4% average losses on Monday followed 4% average losses last week, sent all but a few markets to year-to-date lows. Canada (2.2%), Ireland (2.2%), and Germany (1.2%) outperformed, while Hong Kong (-3.6%), Japan (-1.5%), and the U.K. (-1%) were among nine markets that closed down for the week.
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.
Market View
U.S. indices traded with extreme volatility this week, breaking down to levels not seen since last year before snapping back later in the week. On Monday, the S&P 500 traded nearly 13% off all-time highs, while the Nasdaq traded 18% off highs. Many leadership ideas broke down and are now trading below key moving aver-ages even after the dead cat bounce in the general market. We expect this volatility to continue. We recommend a defensive approach, lightening up on positions until the market firms and a new follow-through day material-izes. We do not expect a V-shaped recovery, but remain objective to the possibility if the averages and leading ideas alike show constructive action again. Day 1 of a new rally attempt began on Wednesday. This rally at-tempt will remain, until either we undercut Wednesday’s lows, or a new follow-through day occurs.
Global Correction Accelerates
Twenty-three developed markets lost 4.0% this week, the largest weekly average loss of the year. All markets, except New Zealand (1.0%), fell, 15 by at least 4% and five (Germany, Japan, Hong Kong, Denmark, and Finland) by at least 5%.
Market View
U.S. indices broke through support levels this week, falling below the lower end of a six-month range. Leader-ship ideas sold off, with many now testing shorter-term price or key moving average support. These ideas are likely to chop around, with increased volatility, for at least the next few weeks, as they form new basing pat-terns. We recommend a cautious and defensive approach, avoiding any new buys, especially those that have lagged the market this year. The market has moved into a correction and is now trading 5-8% off all-time highs.
Most Markets Fall Further, Still a Few Bright Spots
Twenty-three developed markets lost 1.8% this week. Twenty-one markets fell, including 12 by at least 2%, and five (Germany, France, Netherlands, Belgium, Norway) by at least 3%. The U.S. (0.7%) and Israel (0.6%) were the only markets that gained.
Market View
U.S. indices traded in volatile action throughout the week, ultimately finding support and closing relatively
flat. The story continues to be much the same: a select group of growth ideas remains constructive, while lagging
ideas from broken sectors continue to bounce around in volatile action, well off their highs. We recommend
sticking with what has been working and avoiding lagging ideas. Again, if the market is able to break out
of this range, high relative strength ideas will lead and make higher highs. The status of the market remains Under
Pressure.
Growth Stocks in the U.K. and France Buck Global Weakness
Twenty-three developed markets rose by 0.2% on average for a second week. Fourteen markets gained; however, just five (Germany, France, Italy, Belgium, Ireland) gained by at least 1%. Of the eight markets that fell, Australia (-3.6%), the U.S. (-1.5%), and Portugal (-1.6%) fell by more than 1%.
Market View
U.S. indices retraced their prior week’s move, making it the fifth straight week of back and forth between positive and negative closes. Leadership weakened, with the majority of ideas pulling back after strong moves the prior week. There has yet to be a big break in either direction, and if recent history repeats itself again, the market will find support and move higher next week. At some point, however, this pattern will break, so we recommend waiting for support to show itself, before attempting to add to any leadership idea. We also continue to recom-mend sticking to ideas with high Relative Strength that are bucking the downturns and acting constructive. The status of the market has moved back to Under Pressure.
Weak U.S. Earnings Season Thus Far
Twenty-three developed markets gained 0.3% this week. Performance was mixed as 15 markets gained, including eight (U.S., Australia, U.K., Canada, Spain, Switzerland, Finland,
Netherlands) by at least 1%. Seven market fell, including Singapore (-4.5%) and Hong Kong (-2%) which were decisively lower.
Market View
U.S. indices rallied about 1% this week, continuing to trade within a range. Despite the choppy action of the ma-jor averages, growth ideas have maintained their leadership positions, rising into higher highs and outperform-ing each time the market rallies. We continue to view leading stocks as the most valuable indicator of general market health. As long as they continue to show constructive action, the market will find support as it has man-aged to do multiple times throughout the year. We believe these ideas should still be held as we remain in a Confirmed Uptrend.
