• U.S. indices undercut their lows from last week, picking up multiple distribution days along
the way. The S&P 500 staged back-to-back distribution days on Tuesday and Wednesday this
week, bringing the total count up to eight. There have also been four distribution days in
the last week. All three major averages (S&P 500, NASDAQ, and Russell) staged downside
reversals on Wednesday, sending the S&P 500 below its 50-day moving average for the first
time since the follow-through day. This was the third test of that key support level, and it
failed.
• Additionally, the lack of breadth has continued to be a concern. Though the S&P 500 and
Nasdaq were trading just a few points off record levels, a large percentage of their constituents
have been trading more than 20% off their highs. The indices have been supported by a
narrow group of large-cap ideas that will need the support from several other factions in order
to break out into new highs. We have moved the market’s status to a Correction from Under
Pressure earlier in the week, and advise a defensive approach until more constructive action
materializes.
Author: Neeraj Khanna
European Focus Long
European market losses continued for a second consecutive week
as investor sentiment was dampened by weakness in commodities,
notably oil, which hit new multi-year lows on Friday. A recent OPEC
meeting failed to arrive at an agreement for an oil production ceiling
and the International Energy Agency (IEA) mentioned in a report that
the world oil market may remain oversupplied until late 2016. Indices
in Sweden (-5.3%), Italy (-4.4%), the U.K. (-4.3%), Spain (-4.2%),
Germany (-3.7%), France (-3.5%), Switzerland (-3.4%), and Denmark
(-3.3%) ended the week with 3% or more in losses. The statuses for
Germany, France, Italy, and Spain are now in a correction.
Global Focus Developed Long
The Australia ASX All Ordinaries Index lost 2.4% this week, falling
for the sixth time in seven weeks. The index closed below its 10-week
moving average for a second week, and is now 7% below its 40-week
moving average and 14% off 52-week highs. It is now close
Global Focus Emerging Long
Mainland Chinese markets continued to consolidate at resistance levels,
with the Shenzhen down 1.7% and the Shanghai down 2.6% for the
week. Volume for the week was significantly below average likely due to
investors taking a pause before the upcoming U.S. Fed announcement
next week. Many Chinese investors attribute previous talks of a rate
hike as being the catalyst for the earlier selloff in June this year. The
Chinese market condition remains Under Pressure with an elevated
distribution count (five for the Shenzhen and four for the Shanghai).
Going forward, we view its 10- and 40-week moving averages (currently
trading 4% and 1% above, respectively) as key support levels for the
Shenzhen index and look for these support levels to hold for the rally to
continue.
Global Focus Frontier Long
US Focus Long
U.S. indices closed relatively flat, despite a spike in volatility during the week. Unable to rally
through the resistance, the market declined over 2% mid-week on a slew of global economic
data, only to rally back after a strong U.S. jobs report. The volatility put pressure on a
handful of USFL ideas and increased the number of distribution days (signs of institutional
selling) over the short term.
Despite the volatility and increased pressure on the market, ideas across the USFL either remain
strong or were able to find support constructively along areas of consolidation. Ultimately, we
recommend remaining focused on the USFL ideas (14% YTD) for now. Our research team is
constantly scanning the market for new ideas, and we will be looking to see if the S&P 500 can
break through upside resistance (2100 and 2116). Currently the market condition is Confirmed
Uptrend with seven distribution days.
Global Focus Developed Long
The Australia ASX All Ordinaries Index lost 1% this week, falling for
the fifth time in six weeks. The index closed below its 10-week moving
average after falling on above average volume in four of five days of
trading. It is Under Pressure and has five distribution days over the past
five weeks.
Global Focus Emerging Long
Mainland Chinese markets found support this week after dropping
significantly on Friday, the Shenzhen finished up 2.3% while the
Shanghai was up 2.6%. Despite the move, volume was light compared
to the prior week. It is too early to determine if heavy distribution has
ceased. We continue to view the market condition as a Confirmed
Uptrend but advise watching market action closely over the next
several weeks. We view moving averages (i.e., 40-week moving average
for the Shenzhen and 10-week moving average for the Shanghai) as
key support levels and increasing distribution going forward with a
strong break of support could turn the tide very quickly.
Global Focus Frontier Long
Economic Summary
GDP growth and job data clears the way for Fed liftoff in December.
Economic growth revised upwards.
The Q3 GDP rate revised northwards from the earlier reported 1.5%, meeting the economists’
consensus estimate of 2.1%. The upward revision of the private inventory investment boosted
the growth.
