The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq traded sharply higher this week and are now both set to test resistance at their respective declining 50-DMA (S&P 500: 2,910; Nasdaq: 8,453). To remain constructive, we will be looking for indices to consolidate sharp gains off the lows, allowing high relative strength quality ideas to firm above individual levels of resistance. Conversely, any pickup in distribution that results in a break below the slowly rising 21-DMA would be concerning and result in a shift to Uptrend Under Pressure.
Tag: Confirmed Uptrend
Market View
U.S. Market
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq traded sharply higher this week
and are now both set to test resistance at their respective declining 50-DMA (S&P 500: 2,910; Nasdaq: 8,453).
To remain constructive, we will be looking for indices to consolidate sharp gains off the lows, allowing high relative strength quality ideas to firm above individual levels of resistance. Conversely, any pickup in distribution that
results in a break below the slowly rising 21-DMA would be concerning and result in a shift to Uptrend Under
Pressure.
Lagging sectors and industry groups led this week, with numerous double-digit moves off the lows. Basic Material, Consumer Cyclical, Utility, Financial, and Energy all rallied 10%+. Technology and Health Care lagged,
despite rallying 8%+ each. The top 12 performing industry groups this week were ranked 139 or worse (1=best;
197=worst), and included Department Stores, Mortgage Reits, Drillers, Lodging, and Gaming. Higher quality
groups that outperformed included Semiconductors, Enterprise Software, Managed Care, Outpatient Care, and
Medical Products/Equipment. ~20% of S&P 500 stocks are now trading above their respective 50-DMA.
Market View
U.S. Market
The U.S. market is in a Confirmed Uptrend. The S&P 500 staged a day eight follow-through on Thursday, rising
2.3% in higher day-over-day volume. A follow-through day and subsequent upgrade to a Confirmed Uptrend
allows us to gradually increase risk in high quality ideas only if they are forming the right side of their respective
bases or breaking out from consolidation in convincing fashion. We do not recommend dramatically increasing
risk, but we do recommend keeping an open mind and potentially adding risk should conditions improve. To
gain conviction, we need to see indices progress higher over the first one to two weeks and we need to see quality names begin to break above individual levels of resistance. Conversely, if we begin to see instant distribution
in conjunction with ideas failing at resistance or pulling back into their respective bases post breakout, its highly
likely the follow-through day will fail.
China A Shares
The CSI 300 rose 0.09% this week on lower volume and remains in a Confirmed Uptrend with two distribution days. For the first quarter of 2020, China’s A share market outperformed the global market, with the tech-heavy ChiNext index gaining 4.1%. While most countries’ markets suffered heavy losses, China’s major indices were trading constructively with resilience. Among stocks with top liquidity (ADV >$30M), 63% were trading above their 200-DMA. Despite the uptrend, we remain cautious. Trading volume was low and the CSI 300 and Shanghai Composite Index are still below their 200-DMA. The market is expecting more policy stimulus, and U.S. recession fears could also impact domestic sentiment. Investors are advised to focus on sectors with low overseas exposure (such as Consumer Staple, Retail, Building Materials, and Agriculture). We advise remaining patient and maintaining a defensive approach. The CSI 300 is expected to consolidate as it approaches resistance at its 200-DMA at ~3,900 (+5.0%). The next support lies at the previous low of ~3,503 (-5.7%).
US Focus
The U.S. market is in a Confirmed Uptrend. The S&P 500 staged a day 8 follow-through on Thursday, rising 2.3% in higher day over day volume. A follow-through day and subsequent upgrade to Confirmed Uptrend allows us to gradually increase risk in high quality ideas only if they are forming the right side of their respective bases or breaking out from consolidation in convincing fashion. We do not recommend dramatically increasing risk, but we do recommend keeping an open mind and potentially adding risk should conditions improve. To gain conviction, we need to see indices progress higher over the first one to two weeks and we need to see quality names begin to break above individual levels of resistance. Conversely, if we begin to see instant distribution in conjunction with ideas failing at resistance or pulling back into their respective bases post breakout, its highly likely the follow-through day will fail.
European Focus
On Thursday, the Stoxx 600 ended 0.89% below last Friday’s close. All the 17 indices we cover are in a Confirmed Uptrend.
China A Shares
The CSI 300 rose 1.56% this week on lower volume. We upgraded the market to a Confirmed Uptrend after Tuesday’s follow-through day on the fourth day of a Rally Attempt. There are no distribution days.
European Focus
On Thursday, the Stoxx 600 ended 3.79% below last Friday’s close. During the week, we upgraded Finland, Norway, Italy, and the Netherlands to a Confirmed Uptrend and Denmark, Sweden, Switzerland, Portugal, and Spain to a Rally Attempt. Of the 17 indices we cover, six are in a Confirmed Uptrend, seven are in a Rally Attempt, and four are in a Downtrend.
China A Shares
The CSI 300 surged 5.04% on lower volume this week. We shifted the market back to a Confirmed Uptrend from under pressure after seeing a strong rise Thursday. The number of distribution days fell to two, with one expiring. China’s market remains constructive and continues to stand out among global markets. The coronavirus epidemic is on track to be under control and is believed to bottom out going forward. China’s government announced the speedy construction of new infrastructure, such as 5G networks, data centers, new energy vehicle charging stations, and AI, to combat economic pressure. Investors are advised to focus on beneficial sectors and select leaders with healthy fundamental and technical profile. Meanwhile, avoid extended names because profit-taking pressure would increase should the overseas correction continued. The CSI 300 has immediate support at the 50-DMA ~4,050 (-2%), followed by the 100-DMA ~4,000 (-3%). The next resistance is January highs of ~4,220 (+2%).
China A Shares
The CSI 300 fell 5.05% this week, registering its biggest weekly loss since last April. The number of distribution days increased to three and we shifted the market to an Uptrend Under Pressure from a Confirmed Uptrend as the CSI 300 broke below its 50- and 100-DMA Friday. Rising fears of the coronavirus spreading outside China triggered selloffs around the world. China, seemingly unaffected the first few days of the week, joined the U.S. market in a correction. Previously leading technology stocks suffered more losses: the ChiNext index plunged nearly 7% this week on higher volume. We advise a defensive approach amid rising coronavirus concerns worldwide and trimming positions in extended names. As companies release their preliminary earnings reports for FY19, investors should watch for disappointing results. The CSI 300 is now trading 0.7% below its 100-DMA. Next support lies at the 200-DMA or ~ 3,870 (-1.7%).
