Tag: Confirmed Uptrend

Market View

Posted on by Raj Gupta

Strategy View
U.S. indices found resistance this week at their respective 200-DMA. Given the rapidity of the market’s recent
ascent and the amount of overhead supply, it is not surprising the S&P 500 and Nasdaq paused when hitting
this moving average.
While a sideways move or small pullback from here would be normal action, we do not want to see a sharp
move downward accompanied by an increase in distribution days from the indices’ failure to move through the

200-DMA on this attempt. Importantly, we do not want to see a move below the low of the January 4 follow-
through day, as this would be a very bearish signal.

Overall, the market has been mixed the last two weeks. While technically stocks have acted better, both in terms
of price and breadth, and growth sectors have been leading, the fundamental earnings picture for U.S.
companies has continued to weaken. Forward earnings estimates have fallen to such a degree that the Street
now forecasts a roughly -1% earnings comparison y/y for Q1 2019. This is in marked contrast to consensus
expectations this past fall for +8% earnings growth in Q1 2019.
Presently, U.S. markets are in a Confirmed Uptrend according to our disciplined O’Neil Methodology, which
combines technical, quantitative, and fundamental aspects of analysis. However, whether this current move is
merely a tradeable rally within an overall negative market cycle or the beginning of a new bull run remains
unknown. We urge clients to remain alert to possible changes in the environment as we feel volatility will remain
high for the time being.
The U.S. market is in a Confirmed Uptrend. Indices pulled back this week after hitting resistance at the 200-
DMA. The distribution day count increased by one and stands at two days on the S&P 500 and one on the
Nasdaq. Despite the small rise in distribution, price action across leading stocks remains constructive. While
consolidating below the 200-DMA, we would need to see indices avoid a clustering of distribution days for us to
remain bullish on leading stocks.
Sectors: Leading sectors over the trailing four weeks include Capital Equipment (+6%), Technology (+6%),
and Transportation (5.7%), while Retail (0.2%), Energy (+0.3%), and Material (+1.4%) are lagging.
Industry Groups: Since the January 4 follow day, multiple groups have participated in the rally. Software
continues to lead with five groups ranked in the top 15, including the top three groups. Other leaders includes
Aerospace/Defense, Insurance Brokers, Computer-Tech Services, Telecom, Electronic Measuring, and Payment
Processors.
Ideas: Although indices are pulling back, leadership continues to exhibit constructive price action. Positive traits
of leading stocks include pulling back to price or moving average support on quiet volume or bucking the trend
and rallying higher on above average volume. Examples includes Coupa ( COUP ), Trandigm ( TDG ), Xilinx
( XLNX ) and Autodesk ( ADSK ).

China A Shares

Posted on by Midhun Parameswaran

China’s markets were closed this week for the Lunar New Year holiday. Te market remains in a Confrmed Uptrend with no distribution days. Next week we will be looking to see if markets play “catchup” and volatility returns. Should this happen, it will be important to keep an eye on distribution, especially as the February deadline for China-U.S. trade talks nears. Te CSI is trading above its 50-DMA (~3,100), where we see support.

European Focus

Posted on by Midhun Parameswaran

On Tursday, the Stoxx 600 closed 0.10% above last Friday’s close. Te index is in a Confrmed Uptrend after a follow-through day on January 4. It recently broke above 100-DMA resistance, which could act as support now. During the week, we changed Finland, Portugal, and Spain to an Uptrend Under Pressure. Finland and Portugal saw four distribution days, while Spain breached support at its 100-DMA. Of the 17 indices we cover, nine are in a Confrmed Uptrend and eight are in an Uptrend Under Pressure.

Market View

Posted on by Raj Gupta

O’Neil Market Strategy: S&P 500 earnings are decelerating, but the S&P’s P/E ratio has also fallen significantly
given rising 10-year yields. Considering the Fed’s pause, if yields continue to come off highs, P/E ratios could
see moderate expansion once again.

A 6% gain since the January 4 follow-through day on the S&P 500 lines up with the average of second follow-
through days that have led to extended bull markets in the past. The S&P 500’s 7% gain in January was only the

fifth time since 1970 when a 7% monthly loss was followed by a 7% monthly gain.
The four (1974, 1987, 2002, 2009) other instances ended prior bear markets, and one (2011) ended a large
market correction. Historically, once this precedent is established, forward gains are well above average for the
next six months. An S&P 500 gain of >5% in January (nine prior instances since 1970) similarly leads to a well
above average for the next six months.
Technical setups are much improved, with all indices and sectors above their respective 50-DMA. Tests of the
200-DMA are looming for sectors, and a majority remain more than 10% off highs.

The U.S. market is in a Confirmed Uptrend. The S&P 500 and Nasdaq rallied strongly this week and are now
sitting just below their respective 100-DMAs. We expect consolidation around current levels due to the sharp
rally into this next level of moving-average resistance. Look for major averages to avoid any clustering of
distribution and for leading ideas to remain technically intact.
Sectors: Since the follow-through day, six sectors have rallied more than 10%, with Transportation, Consumer
Cyclical, and Technology each rallying more than 13%. Though defensive sectors have lagged, Utility and
Consumer Staple have still rallied over 5% since the follow-through day.

China A Shares

Posted on by Midhun Parameswaran

The CSI 300 rose 1.98% this week on higher volume that was still below the 50-day average. The index is still in a Confirmed Uptrend and broke above its 100-DMA. For the last trading week before the Chinese New Year, a slew of global geopolitical news spurred market volatility in the first four days of the week. On Friday, the market was boosted by progress in China-U.S. trade talks as well as the issuance of several favorable policies by China’s Securities Regulatory Commission.

European Focus

Posted on by Midhun Parameswaran

On Thursday, the Stoxx 600 recorded a third consecutive weekly gain, closing 0.17% higher. European markets are trading constructively, with the U.K. and France closing positive every day this week except Monday. Germany’s DAX suffered as heavyweights like SAP and Siemens fell after disappointing earnings. Other macro factors such as declining retail sales added to Germany’s woes.

Market View

Posted on by Raj Gupta

The U.S. market is in a Confirmed Uptrend. The S&P 500 and Nasdaq held support along their respective 50-DMA early
this week, before pushing higher on Friday. Both indices are now testing resistance at January 18 intraday highs (S&P 500:
2,675; Nasdaq: 7,185) before a potential move to the 200-DMA. Overall action remains constructive with just one
distribution day on the S&P 500 and zero on the Nasdaq.

Since the follow-through day, five sectors have rallied more than 10%, including Transportation, Consumer Cyclical, and
Technology, which each have rallied more than 11%. Nine of 11 sectors remain above their respective 50-DMA, with only
Utility and Consumer Staple still trading below that level. The rally is broadening, led by industry groups across multiple
sectors including Apparel, Banks, Brokers, Computer Tech Services, Internet, Medical Products, Mortgage Services, Payment
Processors, Rails, Restaurants, Semiconductors, and Software, among others.

US Focus

Posted on by Midhun Parameswaran

Te U.S. market is in a Confrmed Uptrend. Te S&P 500 and Nasdaq both regained their respective 50-DMAs. We will be looking for this level to act as support should the market pullback. Te next level of major resistance is the 200-DMA (S&P 500: 2,741 (+2.7%); Nasdaq: 7,451 (+4.1%)). Action remains constructive with just one distribution on the S&P 500 and zero on the Nasdaq.

European Focus

Posted on by Midhun Parameswaran

On Thursday, the Stoxx 600 closed 0.35% below last Friday’s close. The index is in a Confirmed Uptrendafter a follow-through day on January 4. Sincethen, it is trading above its 50-DMA. During the week, we downgraded France, Austria, Luxembourg, and Denmark to an Uptrend Under Pressure after these markets fell below Key support levels. Of the 17 indices we cover, 12 are in a Confirmed Uptrend, four are in an Uptrend Under Pressure, and one is in a Rally Attempt.

China A Shares

Posted on by Midhun Parameswaran

Te CSI 300 rose 2.37% for the week on decreased volume. On January 15, we upgraded the market to a Confrmed Uptrend as it recorded a follow-through day, its seventh attempt (six have failed since 2018). Te CSI 300 broke above its 50-DMA on above average volume on Friday. Our conviction will increase if the index can hold above this level, which has been a consistent source of resistance. We reiterate the need to be cautious because we are still in bear market territory and concerns still exist about China’s slowing economy and China-U.S. trade talks. China’s Central Bank has been trying to stimulate the market through reverse repos and by cutting reserve ratios, producing some signs that the market is bottoming. It is still too early to be aggressive, as we have not seen any signals of strong and clear upward momentum. We recommend staying patient and taking a selective approach