Chinese indices rose sharply for a second week, building on prior week
follow-through days. The Shanghai Composite gained 6.5% and the
Shenzhen Composite rose by 8.6%, each rising in four of five days
of trading. Last week’s change in market status and continued gains this
week are certainly positive, however, both indices are still trading under
their 40-week moving averages and remain more than 30% off June
highs.
Author: Neeraj Khanna
Global Focus Frontier Long
US Focus Long
The S&P 500 had a Day-5 follow-through on Monday, jumping 1.8% on above-average
volume. The major averages are now re-testing resistance levels from mid-September. This
two-week rise in the market has been primarily supported by beaten down sectors thus far
– Energy, Basic Materials, and Transportation. It will be critical for fundamentally sound
companies to also join the rally and begin to emerge, as lagging sectors will run into major
overhead supply over the next few days or weeks. The good sign is that we have begun to see
small pockets of new leadership emerge, while the bellwethers are trading back above their
respective 50-day moving averages. With the market back in a Confirmed Uptrend and new
leadership surfacing, it makes sense to start reentering very select leadership ideas.
Global Focus Developed Long
The Australia ASX All Ordinaries Index was up 4.3% this week, but
has still not had a follow-through day. It moved up each day this week
and is now above its 50-day moving average.
Australia’s trade balance for August came in worse than expected with
a deficit of $3.1 billion vs. economists’ expectations for a deficit of
$2.4 billion. Exports were flat, while imports increased 1%. Coal and oil
and gas exports showed gains, while metal exports were lower.
Global Focus Emerging Long
The Chinese markets resumed trading following the week-long break
for the National Day holiday. Both markets had follow-through days
Thursday, with the Shanghai gaining 2.97% and the Shenzhen up
4%, prompting a change in market status to Uptrend. The mainland
indices were likely influenced by positive activity in Asian markets, as
we did see several follow-through days in the region to start the week.
Though the change in market status and improved sentiment is a positive
step, both Chinese markets are trading under their moving averages and
significantly below their June peaks, with both indices more than 30% off
highs.
Global Focus Frontier Long
US Focus Long
U.S. indices dropped sharply early in the week, before rebounding to close slightly negative.
The September 8th follow-through day, which provided no new ideas to the U.S. Focus List,
quickly failed as indices re-tested their August closing lows. The indices are now finding
short-term support at their prior lows, with heavy resistance along their respective 10-Week
moving averages. We are now in the second rally attempt of this current correction, awaiting a
new follow-through day as well as new ideas. We continue to advise caution until we see this
combination occur.
• S&P 500 and Nasdaq indices are 9-11% off 52-week highs, while the small-cap Russell 2000
index is weaker, at 15% off 52-week highs.
Global Focus Developed Long
The Australia ASX All Ordinaries Index was up just slightly this week,
despite trading in a fairly wide range. It moved by at least 1% every
day, including on Tuesday when it dropped by over 3% and finished at a
more than two year daily closing low. It rebounded solidly before selling
off again on Friday.
Global Focus Emerging Long
Chinese markets continued the over one month long trend with the
Shenzhen and Shanghai up 1.2% and down 1.3%, respectively, through
Wednesday. Markets remain in a Rally Attempt.
