The Shenzhen and Shanghai indices finished up 0.9% and 1%,
respectively, for the week. Mainland Chinese markets continue to
test short term peaks; they are now trading in the upper range of a flat
channel since the market bottomed in January. Despite the market
status being Under Pressure, we are slightly more bullish due to the
current action. Weekly volume has been above average as both markets
gained for three consecutive weeks while remaining near monthly highs.
We are now waiting for a move to the upside that would breach short
term resistance. A strong move would signal that markets are advancing
to the 40-week moving average, where the next resistance could be
(approximately 4% higher for the Shenzhen and 10% for the Shanghai).
Author: Neeraj Khanna
Global Focus Frontier Long
Economic Summary
Q4 GDP growth comes higher than expected, driven by the steady consumer spending.
Economic growth rate revised upwards.
The Q4 GDP increased by 1.4%, higher than the earlier estimate of 1%. Strong consumer spending offset the
impact of inventory overhang and helped the GDP growth.
US Focus Long
U.S. indices pulled back in light volume during this holiday-shortened week. The S&P 500
remains slightly above its 200-day moving average, while the Nasdaq is finding resistance just
below that same level. The action of the major averages remains constructive overall, though
upside volume has certainly been lacking. Beneath the surface, much of the same remains.
Growth leadership is still minimal, and quality ideas advancing into higher highs after
emerging from consolidation have occurred only on a very small scale.
• The initial recovery in commodity-related sectors was sparked by short covering, which,
overall, led to the current rally. Earnings growth has not been a major factor yet. Stocks
(>$500 mil market cap) that have significantly outperformed over the past eight weeks
(>30%) have an average EPS Rank of just 43 and are still trading 30% off 52-week highs on
average. We still believe there needs to be a transition to quality growth in order for this to be
a continuation off the 2009 lows, rather than just another bear market rally. As the market
pulls back, we remain watchful of distribution days, which have been a non-factor lately. The
February 17th follow-through day remains intact, despite the lack of actionable growth ideas.
European Focus Long
European indices sold off on Thursday, as energy and commodities fell
and the dollar strengthened, concluding a short week with all markets
closed Friday for Good Friday. The major markets in Europe were
down 1.7% on average for the week. The worst-performing markets
with losses exceeding 2% were Austria (-3.9%), Sweden (-3.3%), France
(-2.6%), Finland (-2.6%), Spain (-2.6%), and Italy (-2%). The bestperforming
markets with losses less than 1% were Switzerland (-0.2%),
Denmark (-0.3%), Germany (-0.5%) and Norway (-0.9%).
Global Focus Developed Long
The Australia ASX All-Ordinaries Index lost 1.7% through Thursday of
this week after gaining for three weeks. It traded slightly above its 40-
week moving average before reversing below the resistance level to end
the week. The market remains in a Confirmed Uptrend but now has
three distribution days over the past four weeks. It is closed on Friday
this week and Monday next week for the Easter holiday.
Global Focus Emerging Long
Mainland Chinese markets are now testing year highs with the Shenzhen
and Shanghai up 2% and 0.2% for the week, respectively. As mentioned
last week, we are watching intently to see whether markets will rise above
short-term peaks or continue to consolidate near 52-week lows. We view
the markets action in the short term to be telling if a move to the 40-
week moving average (next resistance) is likely. Until the market breaks
current resistance levels, the condition will remain Under Pressure.
Global Focus Frontier Long
US Focus Long
U.S. indices have continued their sharp move higher, now extending gains for a fifth straight
week. We saw a similar six straight weeks of gains from late September to early November
2015. Leadership, however, differs entirely when comparing the two rallies. We were led
by big cap tech then, compared with defensives, commodities, and cyclicals now. A mean
reversion has occurred among value-oriented ideas, in addition to the short squeeze in
commodity-related sectors.
• Growth has had some time to develop after this current run, but it remains limited overall.
Consolidation in the major averages could allow rotation to develop, and additional growth
leaders may now emerge after recovering for several months. We are encouraged by seeing a
handful of ideas come into play this week, but we still expect to see far more, especially after
this very strong move. The February 17th follow-through day continues to work well, now
up ~6% with no distribution days.
European Focus Long
The European markets were flat on average this week after rallying
the previous two weeks. Portugal’s market was the strongest for the
week, up 3.8% and continuing to build on momentum from previous
weeks. Other indices posting gains greater than 1% for the week included
Finland (+1.8%), Austria (+1.7%), the U.K. (+1.1%), and Germany
(+1%).
