U.S. indices traded sharply higher in muted holiday volume this week, recovering from
Friday’s heavy sell-off. The gains largely came from Energy and Basic Materials, which have
been trading at multiyear lows. Though it will be positive for the overall market if these
sectors flatten out, a sustainable rally will need the support of fundamentally sound leadership
and not just a dead-cat bounce from broken down sectors.
The current narrow group of leadership from the U.S. Focus List remains in consolidation,
while the major averages continue to bounce around in increased volatility. Range-bound
trade continues, with support for the S&P 500 at ~2000 and resistance at ~2116. We remain
patient here, continuing to watch for the emergence of new leadership. The market is now
nine days off its most recent bottom (12/14) and remains in a Rally Attempt.
Author: Neeraj Khanna
European Focus Long
European markets ended the short trading week with notable gains,
as investors cheered the recovery in oil prices, which had experienced
some price volatility in recent weeks. Indices in the U.K. (+2.9%), the
Netherlands (+2.3%), Sweden (+1.7%), Germany (+1.1%), Switzerland
(+1.1%), Italy (+1%), and France (+0.8%) logged modest gains. Major
bourses such as the U.K., Germany, and France are now in a Confirmed
Uptrend.
Global Focus Developed Long
The Australia ASX All Ordinaries Index gained 1.9% through
Thursday of this week, building on last week’s gains. It has recovered
losses from the two weeks prior to last week and has retaken its 10-week
moving average. Still, it is in a Rally Attempt, awaiting a follow-through
day, and remains about 4% below its 40-week moving average.
Global Focus Emerging Long
Mainland Chinese markets traded higher through Thursday. The
Shenzhen, up 0.5% for the week, broke above resistance, although on
light weekly volume. The Shanghai, up 0.9%, is still trading 5% below
its 40-week moving average. The market was moved into a Confirmed
Uptrend from Under Pressure due to the Shenzhen’s move, but it
could be quickly put back into Under Pressure, if distribution begins
to pick up again. We remain cautious, with our main concern being
light volume over the past several weeks. A stronger volume push on both
indices and trade remaining above resistance levels would provide a more
bullish signal.
Global Focus Frontier Long
US Focus Long
U.S indices traded in volatile action throughout the week, ultimately erasing much of their
earlier gains and closing relatively flat. Range-bound action continues, as the majority of
leadership ideas hold up well, while energy and basic materials continue to drag down the
major averages. There remain multiple alpha-generating ideas within the U.S. Focus List that
we recommend holding as long they continue to trade constructively above levels of support.
If the energy sector (WS002), which makes up roughly 7-8% of the S&P 500, is able to at
least trade flat, the action of the market and these leadership ideas will likely improve.
• We recommend a very selective process, as the overall market has still not picked a direction.
The U.S market is now five days off its most recent bottom and back into a Rally Attempt.
We are still looking for a significant break through resistance at 2116 on the S&P 500 backed
by the emergence of fundamentally strong growth ideas.
European Focus Long
European markets posted strong weekly gains in the wake of the first
interest rate hike by the U.S. Federal Reserve since 2006, removing
any market uncertainty on the timing of such a move. Indices in
Germany (+2.7%), Denmark (+2.3%), the U.K. (+2.2%), Finland
(+1.9%), France (+1.7%), Switzerland (+1.7%), and Italy (+1.6%) gained
more than 1.5% for the week. Most indices in Europe are now in a rally
attempt.
Global Focus Developed Long
The Australia ASX All Ordinaries Index gained 1.5% this week, rising
for the first time in four weeks. It tested September lows early in the
week before rallying nearly 4% in the final three days of trading. After
being moved into a Downtrend last week, it is now in a Rally Attempt.
Global Focus Emerging Long
Mainland Chinese markets had a strong week with the Shenzhen and
Shanghai rising over 6% and 4%, respectively. Despite the move, volume
remained below average as the markets continued to trade at resistance
levels. Volume over the past three consecutive weeks has been relatively
weak compared to October volume when the markets rallied off year
lows. This week’s move was impressive but we remain cautious until
volume begins to pick up to the upside.
