U.S. indices traded relatively flat during the holiday shortened week, still trading about 1-2%
off highs. The market does remain constructive, with good support at the 50 day moving
average for both the S&P 500 and Nasdaq. Upside resistance stands at 2100 and 2116 for the
S&P 500, levels that are likely to be tested in the coming weeks.
• Leadership continues to act well, with many ideas from the U.S. Focus list extended from a
proper entry. Again, any breakout from year long range bound trade in the major averages will
lead to additional ideas. Until then, we continue to recommend focusing on the current list,
buying those ideas as they emerge from consolidation. The market remains in a Confirmed
Uptrend, up 5-7% from the October 5th follow-through day.
Author: Neeraj Khanna
Global Focus Developed Long
The Australia ASX All Ordinaries Index lost 1.1% this week, after
gaining nearly 4% last week. The index, which continues to search for
direction, closed at its 10-week moving average. Although it remains in
a Confirmed Uptrend, the index has not moved much since an October
follow-through day, and is down about 1% over the trailing seven weeks.
Global Focus Emerging Long
After gaining for most of the week, Chinese markets closed down sharply
Friday, erasing gains and finishing down significantly for the week. The
Shenzhen and Shanghai closed down 4.4% and 5.4%, respectively,
the largest weekly decline since September and August, respectively.
Markets tumbled on Friday after the Chinese Securities Regulatory
Commission (CSRC) launched probes for alleged violations of trading
rules and data showed a 4.6% year-over-year decline in China’s industrial
profits for October, sparking concerns about an economic hard landing.
Although the market condition remains in a Confirmed Uptrend,
turbulence and volatility could begin to pick up going forward (three
distribution days currently for both indices), and we advise caution as
both indices continue to trade near resistance.
Global Focus Frontier Long
US Focus Long
U.S. indices were able to shake off last week’s pressure, finding strong 50-day moving average
support and now looking to break through the highs from earlier this month. Resistance for
the S&P 500 lies at 2116, while the Nasdaq faces resistance at 5163. Leadership, though
narrow in numbers, is acting very strong, leading us to believe the major averages could test
these resistance levels next week.
• As stated previously, we continue to recommend holding or adding to our ideas as they find
support and move higher off areas of consolidation. We do expect new ideas to be added to
the U.S. Focus List if the indices are able to breakout from what has been range bound action
for much of the year. On Wednesday, the market was moved back into a Confirmed Uptrend,
as both the S&P 500 and Nasdaq retook their respective 200-day moving averages.
European Focus Long
European markets advanced as European Central Bank President
Mario Draghi hinted that the bank is ready to do another round of
QE and as the U.S. Federal Reserve looks set to hike interest rates
next month. Indices in Germany (+3.9%), Austria (+3.8%), the U.K.
(+3.7%), the Netherlands (+3.5%), Switzerland (+3%), Sweden (+2.8%),
Denmark (+2.5%), and Spain (+2.2%) had gains of more than 2%.
Global Focus Developed Long
The Hong Kong market closed up 1.60% this week. The index seesawed
back and forth, gapping down to start the week but ending on
a strong note, managing to retake its 10-week moving average. An
improvement in home prices in China, discussed in more detail below,
bolstered property developers that trade in HK. Comments from the U.S.
Federal Reserve suggesting gradual interest rate increases also boosted
sentiment. Overall, leading stocks traded constructively. Three new Hong
Kong GFL ideas were added this week, and HK GFL ideas were up 3.7%
on average this week, outperforming the broader market. The market has
a relatively high distribution count, with six distribution days over the
past five weeks. The market status remains Under Pressure.
Global Focus Emerging Long
Chinese markets were up this week continuing their consolidation near
resistance levels. The Shenzhen was up 3.6% and is approaching 2,400,
a level reached in July and August this year. The Shanghai was up 1.4%
and remains approximately 4% below its 40-week moving average. The
market remains in a Confirmed Uptrend, with two distribution days
for both indices.
Global Focus Frontier Long
Update: Cyber Security Theme
The increased sophistication of cyber threats continues to put pressure on enterprises and governments to step up their security against a significant data breach. We believe cyber security remains an investable theme long term, since companies are hesitant to reduce security spending, even during economic downturns. Significant opportunities exist for both pure-play companies focusing on niche security technologies and large vendors offering diverse security solutions. One newly-emerging niche is in the security surrounding the Internet of Things—which no key player has yet fully addressed. We continue to cover Palo Alto Networks and Qualys , both with outperform ratings, viewing them as the best-positioned companies in our Cyber Security investment theme.
