Author: Neeraj Khanna
US Focus Long
U.S. indices continued to fall this week, led again by the Nasdaq, which has now declined
for three straight weeks. Distribution has also risen to elevated levels. There are now eight
distribution days on both the S&P 500 and the Nasdaq, enough for us to shift both indices
to Under Pressure. The S&P 500 is now testing its first level of support at the 50-day moving
average, while the Nasdaq is trading 2% below that level.
The last two times we saw distribution levels this high were in early August 2015 and early
December 2015, both just before heavy market declines. Because of this, we recommend
holding off on any further stock purchases until we see support come into the market. We
continue to view 2117 on the S&P 500 as a key level to break and hold above. The market is
now up just 4-6% since the February 17 follow-through day.
European Focus Long
News of slower Chinese manufacturing and reduced growth expectations
for the eurozone sent stocks lower globally for the week. On average,
major European indices were down almost 3% following last week’s
losses of close to 2%. Three countries, the U.K., Sweden, and the
Netherlands, fell into a Downtrend, and Austria, Belgium, Denmark,
and France moved to Under Pressure through Thursday. Every developed
European market declined for the week, with Switzerland (-3.1%), France
(-3.4%), and Sweden (-3.9%) down more than 3% and Spain (-4.1%),
Italy (-4.3%), and Austria (-4.4%) down more than 4%. Portugal
(-1.3%) was the only country to post a loss less than 2%.
Global Focus Developed Long
The Australia ASX All-Ordinaries Index rose 0.8% this week, gaining
for a fourth consecutive week. It reached its highest level since October
2015 after the central bank recently cut interest rates for the first time
since May 2015. The index is in a Confirmed Uptrend for an eleventh
consecutive week, with three distribution days over the past five weeks.
Global Focus Emerging Long
China markets have come Under Pressure this week as the market
logged another distribution day, bringing the total count to four and
three in the last five weeks for the Shenzhen and Shanghai, respectively.
The Shenzhen and Shanghai declined 0.1% and 0.9%, respectively, for
the week. They tumbled on Friday, with the Shenzhen falling 3.6%
and the Shanghai sliding 2.8% – a significant indicator of continued
market weakness in our view. The Shenzhen in particular, continues
to find strong resistance near the 40-week moving average. This can
be noticed in high volume sell offs by institutional funds on April 20
and May 6. The market is now trading near key support at the 10-week
moving average. If this should fail, we view downside potential to be
13% from current levels, back to February lows. We advise extreme
caution and recommend holding back on any positions as the
markets trade around crucial support levels.
Global Focus Frontier Long
Economic Summary
Q1 GDP growth comes in lower than expected, hurt by the curtailed export due to the strong dollar.
Economic growth rate slumped.
The Q1 GDP growth weakened sharply at 0.50%, the slowest pace in two years and lower than earlier
estimates of 0.70%. Softened consumer spending and fewer exports due to the strong dollar weighed on the
economy.
US Focus Long
U.S. indices pulled back this week, led by a big sell-off in the Nasdaq despite very strong
earnings results from both Facebook and Amazon. The Nasdaq fell more than 2%,
undercutting both its 50- and 200-day moving averages in heavy volume. The Russell and
S&P 500 fared better, both still holding above their key moving averages. Distribution,
however, did pick up in all the indices, with the Nasdaq and S&P 500 showing five and six
days, respectively. We become concerned when this number rises above seven over a five- to
six-week period, and at that point, would change the market’s status to Under Pressure.
Leadership ideas from growth-related sectors continue to be limited overall, as Basic Materials
and a resurgence in Energy move sharply higher. Overall, the market continues to be trapped
in a range, still unable to make a higher high. We continue to view 2117 on the S&P 500 as a
key level to break and hold above. The market is now up 5-7% since the February 17 followthrough
day.
European Focus Long
Positive news of the eurozone’s GDP increasing 0.6% in Q1 2016, the
best growth since Q1 2015, did little to spur European markets as
they sold off on Friday. The major indices were down 1.5% on average
Friday and 1.4% on average for the week. After rallying the prior two
weeks, several of the indices, such as Germany and France, approached
resistance at their 40-week moving averages. They displayed strength
despite concerns of slowing GDP growth in the U.S. and the Bank of
Japan’s decision to leave rates unchanged. A pause in upside momentum
and some profit-taking is not unexpected at this point. For the week, only
Norway (+1.6%) and Italy (+0.2%) managed to gain, while five markets,
Germany (-2.8%), France (-2.7%), Sweden (-2.6%), Belgium (-2.3%),
and the Netherlands (-2.2%) declined more than 2%.
Global Focus Developed Long
The Australia ASX All-Ordinaries Index gained 0.3% this week,
consolidating on lower-than-average volume after two weeks of solid
gains. The index is in a Confirmed Uptrend for the tenth consecutive week,
but added two distribution days for a total of four over the past five weeks.
