The S&P 500 and Nasdaq rallied for four straight days after another massive Brexit selloff
on Monday. The major averages retook their 50-day moving averages in very heavy volume,
completely erasing the losses from Friday and Monday. Leadership ideas also bounced back,
with a handful hitting new highs. Most, however, shook many investors out and then closed
up for the week, which can be viewed as bullish action within the base.
• We are now looking for the major averages to consolidate these sharp gains above their
10-week moving averages in conjunction with leadership ideas emerging from new
basing patterns. If this action occurs early next week, the Uptrend will have resumed and we
can anticipate yet another attempt at a breakout into new highs.
Author: Neeraj Khanna
European Focus Long
The rebound in the European markets following the “Brexit” selloff was
impressive as many of them had their best week since the end of May. On
average, the major indices increased more than 3%, led by gains of more
than 4% from the U.K. (7.2%), Spain (6.3%), Denmark (4.5%), and France
(4.1%). Sweden (-1.5%) and Finland (-0.3%) were the only countries to post
losses since they were closed last Friday, resulting in unusually large losses on
Monday.
Global Focus Developed Long
The Australia ASX All-Ordinaries Index gained 2.6% this week, its first
weekly gain in five. After breaking below its 40-week moving average to end
last week, we moved the market into a Downtrend. Currently, at three days off
the lows, the market is in a Rally Attempt and awaiting a follow-through day.
Global Focus Emerging Long
Chinese markets had a strong week with the Shenzhen rising 3.7%
and the Shanghai advancing 2.7%. The Shenzhen is now trading above
the 40-week moving average, a level not achieved since December
2015. Volume was also strong coming in at over 1.5 times the average
weekly volume, which is encouraging. The Shanghai is still trading 5%
below the 40-week moving average and remains the weaker of the two
markets, although accumulation volume was strong after three weeks of
distribution. Markets have shifted to Confirmed Uptrend again and
going forward we look for the Shenzhen to hold above the 40-week
moving average. If momentum continues we view 2,400 as the
possible next level of resistance which would imply 22% upside.
Global Focus Frontier Long
Economic Summary
Q1 GDP growth comes slightly stronger than earlier, owing to strong business spending.
Economic growth rate inched up.
The Q1 GDP growth revised upward to 1.1%, slightly above than the consensus estimate of 1.0%, the weakest
performance since Q1 2015. A Strong dollar and sluggish global demand have eroded the export.
US Focus Long
U.S. indices closed down nearly 2%, as sharp gains earlier in the week were completely erased
after Brexit. The market was setting up for a breakout with multiple growth ideas beginning
to surface before the selloff on Friday. These ideas have all pulled back into their respective
basing patterns, similar to what we are seeing in the major averages. Range bound action
continues as we now look towards the 200-day moving average for support on the S&P 500.
We did pick up a distribution day on Friday, but overall, the count remains fairly low, with
just three on the S&P 500 and four on the Nasdaq. The market has now been moved to
Under Pressure due to this very concerning sharp price break back below the 50-day moving
average.
If the market is able to hold above support levels next week, we will again be turning to
relative outperformance during the selloff, looking for constructive pullbacks above 50-day
moving averages. If, however, the market breaks support, we anticipate even greater volatility
and will be looking towards defensive ideas, specifically from Consumer Staples, Retail,
Health Care, and Utilities, as they also pull back towards support. We anticipate more color
next week as the U.S. market absorbs this initial reaction to Brexit.
European Focus Long
Fears of a Brexit consumed markets this week, and a Friday
rally was only able to minimize the damage. On average, major
European indices declined 2.6%, including an average gain of
1.6% on Friday. This was the third consecutive week that the
indices finished lower, with most of them now in a Downtrend.
Finland and Luxembourg are the only two countries not in a
Downtrend. Four countries, Belgium (-3%), the Netherlands
(-3.3%), Portugal (-4.1%), and Denmark (-5.1%), fell more
than 3% this week, while four countries, Sweden (-1.5%), the
U.K. (-1.6%), Italy (-1.6%), and Spain (-1.7%), fell less than
2%.
Global Focus Developed Long
The Australia ASX All-Ordinaries Index lost 1.1% this week,
its fourth consecutive weekly loss. It traded higher through
Thursday, before selling off more than 3% on Friday. The market is
5.4% off recent highs and below its 40-week moving average, so we
have shifted it into a Downtrend.
Global Focus Emerging Long
The Shenzhen finished flat while the Shanghai declined over 1% for
the week. Friday’s action logged another distribution day bringing
the count to now five for both indices. Volume over the last two
weeks has also been above average as both markets continue to
churn below key moving averages. Markets remain Under Pressure.
