U.S. indices ran into heavy resistance, giving back three weeks of gains due to poor earnings
results from multiple major retailers. The S&P 500 and Nasdaq both broke below their
respective 200-day moving averages, with each now looking to find support above their 50-
day moving averages. The Russell gave back last week’s strong move and remains the lagging
index.
• Overall, breadth still remains poor. The number of leadership ideas (31 U.S. Focus
List names) is limited. We continue to recommend holding ideas that have pulled back
constructively in anticipation of the market finding support in the next few days or weeks. We
are closely monitoring the price/volume action of leadership in conjunction with the major
indices, as this will give us the best indication of market direction.
• The severe sell-off combined with a rise in distribution this week, resulted in the markets
status being moved to Under Pressure. Ideally, we would like to see the indices consolidate,
with new leadership ideas emerging over the next few weeks.
Author: Neeraj Khanna
European Focus Long
European indices ended the week with notable gains after ECB
President Mario Draghi reiterated that the bank is ready to provide
more stimulus in December if needed to boost inflation. Markets in
Denmark (+4.5%), Finland (+3.2%), France (+2%), Germany (+1.5%),
and Spain (+1%) were up 1% or more. The U.K. market was flat for the
week.
Global Focus Developed Long
The Australia ASX All Ordinaries Index lost 3% this week, falling for
a consecutive third week. The index is back in a Downtrend, losing over
5% after a follow-through day on October 23. It broke back below its 10-
week moving average and is now 15% off 52-week highs.
Global Focus Emerging Long
Chinese markets ended the week mixed with the Shenzhen up 2.5% and
the Shanghai down 0.3%. Both indices are trading near resistance. We
view a consolidation around these resistance points to be constructive
if shares remain above averages, i.e. the 40-week for the Shenzhen
and the 10-week for the Shanghai. The market remains in a Confirmed
Uptrend with only one distribution day for both indices.
Global Focus Frontier Long
US Focus Long
U.S. indices put in their sixth straight week of gains, supported by strong moves in Energy,
Financials, and encouragingly, small-cap ideas. Both the S&P 500 and Nasdaq are now sitting
just 1-2% off all time highs, while the Russell is still about 8% off previous highs. Continued
positive action in small- and mid-cap names would widen the breadth of the rally and give us
even more confidence in further gains ahead.
• Though the actions of the leading averages are not showing any signs of weakness, the July highs
would be a logical area of resistance. We are looking for the indices to consolidate around these
levels, allowing leadership ideas to take a breather and potentially work themselves higher into
year-end. We continue to recommend sticking to what has been working, specifically large-cap
growth from the U.S. Focus List, as these ideas continue to act well and have the potential to turn
into very large gains. We remain watchful of new small- and mid-cap growth ideas, and will add
to our list accordingly.
• The S&P 500 and Nasdaq remain in a Confirmed Uptrend, up 5-7% from the October 5th
follow-through day, still with a very small amount of distribution.
Global Focus Developed Long
The Australia ASX All Ordinaries Index lost 0.4% this week,
consolidating on lower than average volume for a second week after
gaining about 6% in the previous three. The index is in a Confirmed
Uptrend, but does have two distribution days in the past three weeks.
Global Focus Emerging Long
Chinese markets had an exceptional week with both indices up over 6%.
The Shenzhen is now trading approximately 3% over its 40-week moving
average while the Shanghai is still 4.7% below. Volume over the past four
consecutive weeks has been above average, impressive for both indices.
As mentioned in previous weeks, we believe the Shenzhen’s break
of resistance is a bullish sign and we would expect momentum to
continue, likely to at least 2,300 to 2,400 levels. The market remains
in a Confirmed Uptrend.
Global Focus Frontier Long
Economic Summary
GDP growth slows down, but robust jobs data may prompt Fed liftoff in December.
Economic growth slows down.
Q3 GDP growth rate slowed down to 1.5%, 10 basis points lower than the consensus estimate
of 1.6%. The slowdown was largely as a result of the slowing demand for oil and investment cuts
in the energy sector.
