Author: Neeraj Khanna
US Focus Long
• The U.S. Market remains Under Pressure due to an elevated distribution day count. The
S&P 500 and Nasdaq both have eight distribution days. Though the market remains caught
in a range, our indicators are showing a higher probability for a further decline. This gives us
reason to be cautious, generally avoiding buying in the near-term until we see distribution fall
and the major averages re-take key support levels.
• On the S&P 500, 2117 remains a key level to break above as this would make a higher high
and likely lead to additional leadership ideas from fundamentally sound companies. Until
then, we recommend a focus on stocks showing relative outperformance during the recent
decline, as these could lead if the market eventually catches support. The major averages are
still up 5-7% since the February 17 follow-through day.
European Focus Long
Fear of higher interest rates from the Fed as soon as June sent global
markets, including Europe, lower. However, a strong rally on Friday
pushed the major European indices into positive territory for the week,
up 0.4% on average. Countries gaining more than 1% were Finland
(+1.4%), Sweden (+1.3%), Denmark (+1.2%), Norway (1.1%), and
Switzerland (+1%). Three countries, Austria (-0.6%), Germany (-0.6%),
and Portugal (-0.5%), were lower.
Global Focus Developed Long
The Australia ASX All-Ordinaries Index was up 0.3% this week,
gaining for a sixth consecutive week. The index has slowly edged
higher over the past four weeks, gaining a total of 2%. It did pick up two
distribution days this week for a total of four over the trailing five weeks.
Global Focus Emerging Long
Mainland China markets are in a Downtrend as the Shenzhen fell
briefly below the 24-month moving average on Wednesday, logging
a fifth distribution day. The Shanghai remains the weaker of the two
indices and has already broken below the 24-month level in January
this year, this level (3,135) now serves as key resistance. Both markets
remain over 40% off 52-week highs and are in bear market territory.
Furthermore, alongside Japan, Mainland China markets are furthest
away (6-10%) from the 40-week moving average among 13 major APAC
markets. Chinese markets remain fragile at current levels and we believe
the risk of losses remains high with downside potential of at least 9-10%
to January lows for the Shenzhen and potential 7-8% downside for
the Shanghai. We advise holding back on any long positions until
markets show signs of strength.
Global Focus Frontier Long
US Focus Long
U.S. indices reversed their early week gains, closing down for the fourth straight week on
the Nasdaq and the third straight week on the S&P 500. Both major averages are now
trading below their respective 50-day moving averages. Though each index logged another
distribution day this week, two days also fell off due to time. The number of distribution days
remains elevated however, at seven, for both indices. With the market Under Pressure, we
continue to recommend a cautious approach. The major averages are still up 4-6% since the
February 17 follow-through day, but have lost 3-5% from April highs.
European Focus Long
European indices posted slight gains on average for the week after selling
off the prior two weeks. On average, major European markets gained
0.3% for the week as Friday’s trading gains helped the indices avoid
a third consecutive down week. The best-performing countries with
gains greater than 1% were Switzerland (+2.4%), Denmark (1.9%), and
Belgium (1.5%), while Austria and Portugal lagged, each declining 1.8%.
Global Focus Developed Long
The Australia ASX All-Ordinaries Index rose 0.7% this week,
gaining for a fifth consecutive week. However, it did close in the
lower half of the weekly range. It has now rallied about 7% since a
follow-through day on February 18 and is in a Confirmed Uptrend
for a twelfth consecutive week.
Global Focus Emerging Long
Mainland China markets remain Under Pressure with distribution days
at an elevated count of four. The Shenzhen in particular, is trading
right at 24-month long-term support. The last time it traded below
the 24-month was in 2011 and in 2007 when the market corrected
40%-70% off highs. We believe a break of this support level could
term downside to come. In the near term, we view downside of at
least 9% from current levels for the Shenzhen and a potential 7-8% slide
for the Shanghai if support is broken. This would bring indices to year
lows made in January. We advise caution and continue to recommend a
conservative approach as markets trade near crucial levels.
