European markets rallied as investor confidence was buoyed by
higher oil prices and the prospect of new economic stimulus
measures in China. Indices in Denmark (+7.5%), France (+5.3%),
Sweden (+5.2%), Germany (+4.4%), the U.K. (+3.9%), Spain (+2.8%),
Switzerland (+2.6%), and Italy (+2.3%) gained more than 2% for the
week.
Author: Neeraj Khanna
Global Focus Developed Long
The Australia ASX All Ordinaries Index gained 4.0% this week,
bouncing after hitting its lowest level since July last week. Volume was
above average all five days, three of which were positive days of 1% or
more. The index had a follow-through day on Thursday, gaining 2.2%
on 65% above average volume.
Global Focus Emerging Long
Mainland Chinese markets moved to Confirmed Uptrend on Tuesday
as the Shenzhen and Shanghai rallied 3% to 4% and finished the week
up 5.7% and 3.4%, respectively. Although a follow-through day is an
encouraging sign, the strength of the rally remains in question due to
volume being less than the 52-week average, although greater than the
previous day. Also markets must still push through multiple levels of
resistance at the 10-week and 40-week moving averages, which remain
6% and 17% away from current levels on average, respectively.
Global Focus Frontier Long
US Focus Long
U.S. Indices fell briefly below lows set in January as distribution continues to be widespread.
The Energy and Financial sectors were the weakest due to the yield on the 10-year treasury
and crude oil (WTI), which exhibited volatility and fell to levels not seen since 2012 and
2003, respectively. Ultimately, we would like to see price stability across sectors and the major
indices; a V-shape recovery would only bode more concerns for the future. Currently, we see
no signs of stability and anticipate more volatility.
• Since many defensive oriented groups are trading at rich multiples, we continue to advise
a defensive approach, while being selective of allocations. We would not be surprised if
the general market rallies higher as we are extremely oversold in the short-term. An early
indication of this was on Friday, when the laggard Energy and Financial sectors outperformed,
and the Utility sector traded down slightly.
European Focus Long
European markets resumed their slide to new year-to-date
lows on mounting concerns regarding the health of the
region’s banking system in a low-growth and low-interest rate
environment. Indices in Portugal (-8%), Spain (-7.5%), Italy
(-5.7%), France (-5.6%), Denmark (-4.6%), Switzerland (-4.5%),
Sweden (-4%), Germany (-3.9%), and the U.K. (-3.5%) slumped
more than 3% for the week.
Global Focus Developed Long
The Australia ASX All Ordinaries Index lost 4.3% this week, falling to
the lowest level since July 2013. The index is down about 10% year-todate
and is now 19% off 52-week highs.
Global Focus Emerging Long
Mainland Chinese markets were closed for the week for the Lunar New
Year and Spring Festival. The market is in a Rally Attempt but remains in
a Correction.
Global Focus Frontier Long
US Focus Long
U.S. indices ran right into resistance this week, reversing their big gains from last Friday.
There continues to be multiple signs of weakness from a sector level all the way down to
individual ideas. Lagging sectors are bouncing, defensive sectors are leading, and constructive
growth ideas are being heavily sold. Facebook and Alphabet both reported solid earnings,
and both stocks have begun to trade sharply lower—confirming the weakness in the market.
Quality growth is beginning to break multiyear trends.
• This is now the fifth week in a row we have been advising to rotate into defensive sectors.
With technicals beginning to deteriorate at the individual stock basis, the market is likely
to take even longer to recover. Continue to avoid buying the dip, and also be wary of any
potential short squeeze into resistance. The follow-through last week has already failed on the
Nasdaq, and we expect the same will occur with the S&P 500 in a matter of time.
