The CSI 300 dropped 0.7% for the week on lower volume. The market was downgraded to an Uptrend Under Pressure with four distribution days. It rallied for the first two sessions of the week, boosted by China’s cut of its reverse repo rate, and then reversed course for a three-day losing streak, erasing previous gains. About 65% of stocks were below their 200- DMA and previously leading sectors now lag the market. The market is still very weak and faces pressure from factors like the U.S.-China trade deal uncertainty and a possible economic downturn. Furthermore, fund managers tend to cash in profits as the end of the year approaches, which we believe caused leading sectors such as Consumer Staple and Health Care to plunge. In our view, Friday’s correction was more technical. Investors are advised to take a wait-and-see approach, staying cautious and patient. Don’t be too pessimistic and avoid chasing highs. Trim positions on extended ideas. We see the CSI 300’s next support at the 200-DMA (~3,780) following its break of 100-DMA support. Consistent resistance lies at the gap above (~3,950).
Author: Saminathan Jaganathan
Global Focus Frontier
National Bank of Kuwait is the leading banking group in Kuwait in terms of assets, customer deposits, and customer loans and advances. Its strong leadership position across its product offerings will pave the way for its future growth.
China A Shares
China markets were closed for the National Day holiday for most of the week and will reopen on Tuesday, October 8. We reiterate a cautious approach going into trade talks next week. The CSI 300 has recorded five distribution days in recent weeks and is testing the 50-DMA (~3,800). Further weakening of the index could raise concern and we anticipate volatility to remain at an elevated level near term.
US Focus
The U.S. market is in a Downtrend. The S&P 500 and Nasdaq gapped down below their respective 50-DMA this week resulting in a market downgrade. This is the third severe break below that key moving average over the last several months. The first occurred on May 13 and the second occurred on August 5. What followed was a series of short three-day rallies towards 50- DMA resistance before another decline. Therefore, its best to wait for another follow-through day coupled with a multitude of quality ideas emerging from consolidation before increasing risk.
European Focus
On Thursday, most European markets closed negative owing to weak economic data from both sides of the Atlantic. Moreover, the U.S.’s plans to impose tariffs on European goods also weighed on market sentiment.
Global Focus Developed
Australia’s ASX All Ordinaries Index was down 2.74% this week. On Thursday, the index declined 2.10% and breached its 50- and 100-DMA. We moved it to an Uptrend Under Pressure from a Confirmed Uptrend. The index added two distribution days, taking its total to five.
Global Focus Emerging
China markets were closed for the National Day holiday for most of the week and will reopen on Tuesday, October 8. We reiterate a cautious approach going into trade talks next week. The CSI 300 has recorded five distribution days in recent weeks and is testing the 50-DMA (~3,800). Further weakening of the index could raise concern and we anticipate volatility to remain at an elevated level near term.
Global Focus Frontier
National Bank of Kuwait is the leading banking group in Kuwait in terms of assets, customer deposits, and customer loans and advances. Its strong leadership position across its product offerings will pave the way for its future growth.
China A Shares
The CSI 300 dropped 2.1% for the week on lower volume and remains in a Confirmed Uptrend. The number of distribution days is now at five over the past three weeks. We are watching to see if clustering becomes an early sign of market pressure. The market continued moving sideways as trading volume further declined. With the National Day holiday approaching, wait-and-see sentiment is strong; conservative investors tend to reduce positions or hold cash in case of uncertain events in overseas markets during the holiday. China’s industrial profits fell 2% in August, reversing the previous month’s gain (2.6%) and a sign that the economic growth is still bottoming. The possible impeachment of U.S. President Trump cast another shadow over trade tensions. Although the market is in an Uptrend, we remain cautious due to recent heavy selling pressure. The CSI 300 is testing 50-DMA support and we expect consolidation to continue in the near term. Investors are advised to stay cautious, focusing on quality growth stocks with good prospects.
US Focus
The U.S. market remains in a Confirmed Uptrend. The S&P 500 pulled back to its 50-DMA this week, closing just above that key level of support. Despite the pullback, the index is still trading just 2% off all-time highs. Should the index close below its 50-DMA next week, we will shift the market status to Under Pressure. The Nasdaq suffered a bigger decline, closing below both its 50- and 100-DMA due to weakness across large cap Technology bellwethers. Further weakness and its likely to trade down towards its rising 200-DMA (7,695).
