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GLOBAL OUTLOOK

Downtrend:

Rally Attempt:

Confirmed Uptrend:

Uptrend Under Pressure: /span>

Europe Detail
Asia Detail

FEATURED

Market View

Market Overview The U.S. market remains in a Confirmed Uptrend. The S&P 500 is holding support at 2743, while the Nasdaq remains just 1% off all-time highs. Distribution is elevated, however one day did expire at the close Friday to take the count back down to six on the S&P 500. Another distribution day is also set to expire at the close Tuesday. Leadership is mixed with the majority still holding up well. Software ideas, however, did take a hit this week, pulling back off extended levels and likely set to consolidate gains over the next several weeks. Going forward, we will be looking for the market to avoid further distribution and for the majority of leading ideas to continue holding above short-term levels of support. By Sector We did see early signs of rotation to close the week. Energy, which has been lagging over the past month, ral- lied on Friday. FANG and CLR both regained their respective 50-DMA, while WRD is attempting to regain that same level. NEP also broke out into a new YTD high on Friday, before pulling back at the close. Financial also fared well this week, with Payment Processors still leading. FLT broke out after being added to the S&P 500, while MA, V, PYPL, SQ, and WP remain at or near new highs. Banks still remain mostly sideways. Health Care ideas also continue to stand out, as the majority of USFL ideas held their ground despite the general market pullback. EW, PRAH, ILMN, ABMD, IDXX, and ALGN all remain at or near new highs. VRTX is also now rounding out the ride side of a new base after trading below both its 50- and 200-DMA over the last few weeks. Con- versely, USFL software ideas pulled back after big runs over the past month. RHT gapped down ~14% post earnings, while SPLK and RP both broke their respective 50-DMA on very heavy volume. Most other ideas includ- ing RNG, NOW, ADBE, TYL, and TEAM are pulling back off all-time highs and now testing support at the 50- DMA.

MARKET VIEW

Market Overview

The U.S. market remains in a Confirmed Uptrend. The S&P 500 is holding support at 2743, while the Nasdaq
remains just 1% off all-time highs. Distribution is elevated, however one day did expire at the close Friday to take
the count back down to six on the S&P 500. Another distribution day is also set to expire at the close Tuesday.
Leadership is mixed with the majority still holding up well. Software ideas, however, did take a hit this week,
pulling back off extended levels and likely set to consolidate gains over the next several weeks. Going forward,
we will be looking for the market to avoid further distribution and for the majority of leading ideas to continue
holding above short-term levels of support.

By Sector

We did see early signs of rotation to close the week. Energy, which has been lagging over the past month, ral-
lied on Friday. FANG and CLR both regained their respective 50-DMA, while WRD is attempting to regain that

same level. NEP also broke out into a new YTD high on Friday, before pulling back at the close. Financial also
fared well this week, with Payment Processors still leading. FLT broke out after being added to the S&P 500,
while MA, V, PYPL, SQ, and WP remain at or near new highs. Banks still remain mostly sideways. Health Care
ideas also continue to stand out, as the majority of USFL ideas held their ground despite the general market
pullback. EW, PRAH, ILMN, ABMD, IDXX, and ALGN all remain at or near new highs. VRTX is also now rounding

out the ride side of a new base after trading below both its 50- and 200-DMA over the last few weeks. Con-
versely, USFL software ideas pulled back after big runs over the past month. RHT gapped down ~14% post

earnings, while SPLK and RP both broke their respective 50-DMA on very heavy volume. Most other ideas includ-
ing RNG, NOW, ADBE, TYL, and TEAM are pulling back off all-time highs and now testing support at the 50-

DMA.

The U.S. market is in a Confirmed Uptrend. The S&P 500 is hitting resistance just below 2800, while the Nasdaq continues to trade near all-time highs. Distribution remains elevated, however multiple days expire on both indi-ces next week. Despite the lag in the S&P 500, leading ideas continue to show constructive action. Multiple names across several sectors and market caps are making higher highs after breaking out over the last month. Therefore, we continue to recommend buying ideas at risk optimal levels until we see more concerning technical action. We will remain positive on the general market until we see a further pick up in distribution that results in the major averages breaking below shorter-term moving average support.

Stocks on our U.S. Focus List: Current Sentiment

Our USFL of 72 ideas gained 1.6% on average this week, outperforming the S&P 500 (flat) and the Nasdaq (+1.3%).

USFL ideas weekly earnings line-up:
Tuesday: Close: FDX
Thursday: Close: RHT

By Sector

Technology and Health Care ideas on the U.S. Focus List led this week. Despite choppy daily action, software ideas continue to trend higher. PAYC regained its 50-DMA and ATVI rallied all the way back to all-time highs where it is now hitting some resistance, while VEEV, NOW, QTWO, RHT, and TYL all made new highs. The ma-jority of Health Care ideas on the USFL are now extended, including ABMD, ALGN, EW, IDXX, and ILMN which are all trading at all-time highs. PRAH and UNH remain actionable. Oil & Gas and Bank ideas on the USFL lagged again this week. WRD and CLR both broke their 50-DMA on Friday, while FANG continues to lag, trad-ing around its 200-DMA. Among Banks, ZION traded back below its 50-DMA on Friday, while TCBI and WAL pulled back to that same level. SIVB remains the leader, still trading near all-time highs.

The U.S. market is in a Confirmed Uptrend. The S&P 500 broke out of a four-week trading range this week and is now set to test resistance at ~2,800, while the Nasdaq broke into a new all-time high. Distribution stands at five days on each index with no expiration next week. Leadership, despite a big pullback on Thursday, remains healthy as the majority continues to hold above prior pivots or key moving-average support. We maintain our positive view on the general market and continue to recommend buying high quality ideas at exact pivot points or areas of support, and avoid chasing ideas that become too far extended from risk-optimal entry points.

Stocks on our U.S. Focus List: Current Sentiment

By Sector

Retail ideas on the U.S. Focus List led this week. FIVE gapped up more than 20% on earnings following a similar move from LULU last week. OLLI and HOME also reported good quarters and both moved back into new highs. HD continues to con-structively form the right side of a new base and remains actionable. WING, AMZN, and BABA are also trading at or near new highs. Financial ideas also rallied this week, with Regional Banks TCBI, ZION, and WAL at new pivot points and Pay-ment Processors MA, V, and SQ all hitting new highs. PYPL and GPN both remain actionable as they approach prior highs. Conversely, Technology ideas, after leading over the last two weeks, pulled back on Thursday. MKSI gapped down below its 200-DMA, while software ideas RP, NOW, RNG, TYL, VEEV, and TEAM pulled back off recent new highs but remain intact as they hold above 50-DMA support.

New Ideas or Deletions

No changes were made to the U.S. Focus List this week.

SECTOR SUMMARY

Key points from this week’s commentary:

A clear majority of 47 global markets are back in Downtrend. Shifts of key markets, including France, Germany, China, South Korea, and Hong Kong, this week.

The U.S. is among a few remaining positively trending markets (including Australia, Canada, India), but defensive rotation seems to be underway.

Some highlights from the report:

U.S.

U.S. auto manufacturers and components supplier groups continue to be in the bottom half of our Industry Group Rank percentiles.

Notable is Auto Manufacturers, which has improved mostly due to TSLA.

Auto Suppliers Long and Laggard Stocks of Interest

Long: LEA, GNTX, ALSN, CPS, MGA

Laggard: BWA, DAN, GT, CTB

U.S. RVs weak but trading at resistance: WGO, THO, LCII, REVG (removed from list)

EMEA

Focus List Names: CIE ( AFR.ES ) is clear leader, Plastic Omnium ( POM.FR ) consolidating, Stabilius ( STMX.DE ) consolidating.

Stocks of Interest: PGT.FRRACE.IT

APAC

Majority of China ideas removed on technical weakness earlier in the year, still weak: GAG.HKMINT.HKNAGL.HK.

Only Chinese auto name on Focus List is Geely (MANR.HK), but it is under pressure.

 

In India, Maruti Suzuki (MUD.IN) is consolidating.

Stock of Interest – Mahindra & Mahindra (MAM.IN)

Key points from this week’s commentary:

 

A quick look at industry groups that are leading/lagging on a year-to-date basis, and the top performing stocks within each group.
Americas
Symbol
Name
# of Stocks
Price, % Chg YTD
Best/Worst YTD Stocks (>$500M mkt cap)
G5971
Retail/Whlsle-Jewelry
9
46.7%
Fosil (FOSL, +280%), Movado (MOV, +53%)
Computer Sftwr-Desktop CA
24
46.2%
Amaya (TSGI.CA, +35%)
G7810
Leisure-Movies & Related
20
41.3%
Netflix (NFLX, +105%), Eros Internationl (EROS, +40%)
G3559
Retail-Internet
31
39.3%
Carvana (CVNA, +117%), Etsy (ETSY, +109%), Shutterfly (SFLY, +89%)
G3220
Computer Sftwr-Security
30
39.0%
Okta (OKTA, +107%), Sailpoint Tech (SAIL, +90%), Rapid7 (RPD, +81%)
G3583
Computer Sftwr-Enterprse
62
36.0%
Twilio (TWLO, +150%), Liveperson (LPSN, +101%), Coupa Software (COUP, +99%)
G3270
Computer Sftwr-Desktop
7
35.1%
Redhat (RHT, +45%), Adobe Systems (ADBE, +44%)
G8077
Retail-Department Stores
5
32.8%
Dillards (DDS, +50%), Macy’s (M, +50%), Kohls (KSS, +35%)
Bldg-Resident/Comml BR
8
-28.2%
Ez Tec Empe.E Partp. (EZT.BR, -27%), Cyrela Brazil Realty (3CY.BR, -22%)
Apparel-Shoes & Rel Mfg BR
5
-30.5%
Alpargatas (Al3.BR, -35%), Arezzo (ARZ.BR, -26%)
Banks-Money Center AR
8
-33.3%
Grupo Supervielle (GSV.AR, -28%), Banco Patagonia (BPT.AR, -20%)
Retail-Drug Stores BR
5
-35.6%
Raia Drogasil (RAIA.BR, -30%)
Real Estate Dvlpmt/Ops BR
26
-37.1%
Ecod.Infu.E Log (EON.BR), -38%), CMPH.Cocs. Rodoviarias (CCR.BR, -35%), BR Malls (BRM.BR, -28%)

ECON SUMMARY

Q1 GDP rate comes in above consensus.
As per the second estimate by the Bureau of Economic Analysis, Q1 GDP increased 2.2% y/y, 100bps higher than the
advance estimate. Median GDP growth rate forecast for 2018 was increased to 2.5% from 2.1%.

Q1 GDP rate comes in above consensus.
As per the advance estimate by the Bureau of Economic Analysis, Q1 GDP increased 2.3% y/y, 300bps higher than
consensus. Median GDP growth rate forecast for 2018 was increased to 2.5% from 2.1%.

Q4 GDP rate at 2.9% after two consecutive quarters of more than 3%.
As per the third estimate by the Bureau of Economic Analysis, Q4 GDP increased 2.9% y/y, 400bps higher than the second estimate. Economists had forecasted a 3% y/y increase for the third consecutive quarter. Median GDP growth rate forecast for 2018 was increased to 2.5% from 2.1%.

EQUITY RESEARCH

Key Points:

Despite global market weakness, particularly in APAC, with most APAC markets shifted bearish (eight of 13), we continue to believe that India is constructive. India’s Sensex is trading 3% from 52-week highs and holding above its 50-DMA.

Britannia has excellent Composite and SMR Ratings of 99 and A, respectively, indicating the stock’s technical and fundamental superiority.

The stock is extended from a proper entry point but continues to hold well, trading along its 10-WMA. Its RS line is near all-time highs. We recommend holding it at this level and building positions on any pullbacks to the 10-WMA (INR 5,640).

Britannia’s focus on the premium segment bodes well with the trend of premiumization in the F&B industry in the region. Product launches, new segments, and expanding capacities will drive a 15% revenue CAGR in the next two years. Coupled with margin expansion, mainly from premiumization and lower costs, consensus expects an EPS CAGR of 20% by 2020, making Britannia one of the best growth stories among Indian Staples.

We downgraded Mainland China, Hong Kong, and South Korea to a Downtrend this week ( see our note ). This shifts the majority of APAC market conditions bearish. It was an equally brutal week for the MSCI Asia, down 4% through Thursday and the farthest below its 200-DMA since 2016. The index’s momentum has clearly shifted to the downside as its A/D Rating has dropped to the worst possible (E). Furthermore, nearly all sectors are down over the last five trading days, with the worst performance coming from China and South Korea. Japan and India continue to hold up the best and top sectors in these markets were relatively the strongest this week.

In this week’s note, we reiterate our downgrade of China, Hong Kong, and South Korea and our increasing cautious outlook on APAC markets in general. We also highlight APAC’s strongest and weakest sectors this week. Last, we reiterate our bullish views on Page Industries ( PI1.IN ) and Kose ( OSEC.JP ). 

Global Laggards

Heetae Kim, Jun 21, 2018

Highlighted Charts

U.S.: POSCO ( PKX ), Enpro Industries ( NPO ), Borg Warner ( BWA ), Clorox ( CLX ), Arch Coal ( ARCH ), Affiliated Managers ( AMG ), Tivity Health ( TVTY ), Chicos ( CHS ), Lam Research ( LRCX ), Oracle ( ORCL ), International Business Machine ( IBM )

Developed: Akzo Nobel ( AKZA.NL; AKZA NA ), Komatsu ( [email protected]; 6301 JP ), Michelin ( MCL.FR; ML FP ), Renault ( RENU.FR; RNO FP ), Anheuser-Busch Inbev ( ABI.BE; ABI BB ), Japan Retail Fund ( JRFI.JP; 8953 JP ), Japan Lifeline ( PANL.JP; 7575 JP ), J Front Retailing ( MZYA.JP; 3086 JP ), Be Semiconductor ( BESI.NL; BESI NA ), Netent ( NET.SE; NETB SS ), Kuehne + Nagel ( KNIN.CH; KNIN SW )

 

Emerging: China Petrochemical Dev. ( CPD.TW; 1314 TT ), IRB Infrastructure Developers ( IDV.IN; IRB IN ), Ultratech Cement ( URC.IN; UTCEM IN ), Amorepacific ( AMN.KR; 090430 KS ), Oil & Natural Gas ( ONG.INONGC.IN ), Moscow Exchange ( MOC.RU; MOEX RM ), Woolworths ( WHLJ.ZA; WHL SJ ), Winbond ( WIN.TW; 2344 TT ), Samsung ( SZS.KR; 018260 KS )

Stocks worth focusing on in this week’s Global Laggards:

 

U.S.

 

Arch Coal (

‘>

 

) – Energy ($1.6B market cap) – Coal producer with operations in West Virginia, Virginia, Kentucky, and Wyoming.

‘>

 

 generates two-thirds of its revenues from the U.S. and one-third from overseas, mostly in Europe/Asia.

Reiteration of short idea from 5/24/18.Shares fell 15% on 700% above average volume after the Q1 earnings miss, breaking through the 200-DMA.

Shares recently failed in an attempt to retake both their 50- and 200-DMA. In addition, the 50-DMA ($84.41) is now below the 200-DMA, creating a declining level of resistance.

Immediate support is at May lows of $76, with the next level of support just below $70. This would be a 13% gain on a short position from current levels. A break above $88 would signal a stop-loss on the short position.

After emerging from bankruptcy in Q3 2016, with a large reduction in debt and operations that were once again profitable, the Company reported five quarters of solid growth.

From Q4 2016 to Q4 2017, it averaged 16% sales growth and 40% EPS growth. It also beat consensus EPS estimates by double digits in four of the five quarters.

However, Q1 2018 EPS missed consensus by 33% as sales declined by 4% and missed consensus by high single-digits. It was hit by a trifecta of lower volume, lower realized prices, and higher cash costs in the quarter.

The Company also lowered guidance for full-year 2018 volume for coking and thermal coal, and raised cash cost guidance by high single-digits.

Consensus now expects sales and EPS to decline an average of 4% and 11%, respectively, for the next eight quarters. Full-year 2018 consensus EPS estimates have come down 26% since the Q1 miss. 2019 consensus estimates have come down by 11%.

Despite pledges by the Trump administration to keep the coal industry alive, competition from natural gas in the U.S., and natural gas and other renewables overseas, will likely continue to erode the industry’s revenues.

U.S. natural gas production is at an all-time high and supply is expected to continue growing along with domestic demand for the next two decades.

Coal production increased in 2017 for first time in three years, but remains 35% below its 2008 peak. However, demand did not increase and is expected to fall by single digits annually going forward. Supply is expected to fall this year, but flatline thereafter, which could put more pressure on prices.

Despite the cheap valuation (7x trailing 4Q EPS), declining earnings for the next few years could create a value trap.

FOCUS LISTS

Jun 22, 2018
The U.S. market remains in a Confirmed Uptrend. The S&P 500 is holding support at 2743, while the Nasdaq remains just 1% off all-time highs. Distribution is elevated, however one day did expire at the close Friday to take the count back down to six on the S&P 500. Another distribution day is also set to expire at the close Tuesday. Leadership is mixed with the majority still holding up well. Software ideas, however, did take a hit this week, pulling back off extended levels and likely set to consolidate gains over the next several weeks. Going forward, we will be looking for the market to avoid further distribution and for the of majority leading ideas to continue holding above short-term levels of support.
Jun 22, 2018
The Stoxx 600 was downgraded to a Confirmed Downtrend this week. As of Thursday’s close, the index was down 2.13% on a weekly basis, compared with a gain of 1.04% the prior week. The index is 0.80% below its 200-DMA and 1.92% below its 50- DMA. There were several status downgrades across Europe. We moved France, Germany, Switzerland, Austria, and Belgium to a Confirmed Downtrend. We also moved the U.K., the Netherlands, Finland, and Luxembourg to Under Pressure. Out of the 16 European indices, six are in a Confirmed Downtrend and four are in an Uptrend Under Pressure.
Jun 22, 2018
Australia’s ASX All Ordinaries Index increased 1.88% this week. It is trading 4.44% above its 40-WMA and is currently in a Confirmed Uptrend.
Jun 22, 2018
China's CSI 300 Index (
) slumped 3.85% over last week. On June 19, the market was degraded to a Downtrend following its move toward year-to-date lows. The index is trading 14% off its 52-week high. The next level of support is near 3,500 with stiff resistance at the 200-DMA (~3,970). We recommend a conservative approach for any fresh additions.
Jun 22, 2018
"Grupo Financiero Galicia (
) is a leading private sector Argentine bank, in terms of its deposits and loan portfolio. Leveraging its leadership and branch expansion, it continues to benefit from a growing loan book."
Jun 22, 2018

WHITE PAPERS

EPS Rank Study

Oct 12, 2016

In this paper, we examine the effectiveness of using William O’Neil +Co.’s proprietary Earnings Per Share (EPS) Rank as a primary factor in managing a portfolio of U.S. equities. Our study included nearly 12,000 U.S. equities from January 1995 to December 2015.

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