Uptrend Under Pressure: /span>
The U.S. market is in a Confirmed Uptrend. The S&P 500 moved back into all-time highs this week, while the
Nasdaq held support at its 50-DMA. The majority of leading ideas also continue to hold individual levels of sup-
port or make new highs, though we have begun to see sector rotation over the past week. Energy, Basic Materi-
al, Consumer Cyclical, and Capital Equipment have come under accumulation, while previously leading sectors,
Technology and Retail, have paused, consolidating sharp gains over the last month. Our recommendation is to
continue holding core positions in high relative strength ideas, while also proactively locking in gains in ideas
that have rallied 20-25% or more above later stage pivot points. We maintain our positive view on the general
market, which will change should we begin to see technical deterioration in leading ideas coupled with addi-
tional distribution in the major averages.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 74 ideas lost 1.4% on average this week, underperforming the S&P 500 (+0.8%) and the Nasdaq
Actionable Focus List ideas: Activision Blizzard ( ATVI ), Adobe Systems ( ADBE ), Align Technology ( ALGN ), Auto-
desk ( ADSK ), Calavo Growers ( CVGW ), Centennial Resource Dvlp ( CDEV ), Edwards Lifesciences ( EW ), Envestnet
( ENV ), Fidelity Natl Info Svcs ( FIS ), Home Depot ( HD ), Intuit ( INTU ), Nextera Energy ( NEP ), Nomad Foods
( NOMD ), Nvidia ( NVDA ), Old Dominion Freight Line ( ODFL ), Palo Alto Networks ( PANW ), Paypal ( PYP L), PRA
Health Sciences ( PRAH ), Q2 Holding ( QTWO ), Realpage ( RP ), Splunk ( SPLK ), Vertex Pharmaceuticals ( VRTX ),
Zoetis ( ZTS )
USFL ideas weekly earnings line-up:
Thursday: Open: MKC
Energy ideas within the U.S. Focus List led this week. FANG regained its 50-DMA, while CLR found support at its
200-DMA. NEP continues to trend along its 50-DMA, while CDEV remains technically intact despite pulling back
from its pivot point on Thursday. Payment processors also continue to act well. MA and V continue to make new
highs, while FLT, PYPL, WP, and GPN remain at or near new highs. Conversely, Technology ideas have pulled
back off extended levels. WDAY, GRUB, SPLK, NOW, RNG, QTWO, ADBE, NVDA, and TYL have pulled back to
their respective 50-DMA, while MPWR and GOOGL have broken below that same level of sup-
port. ADSK and ATVI still look strong technically and remain actionable. Retail ideas are also consolidating sharp gains over the past month. WING, LULU, OLLI, and FIVE remain extended, while HD is still trading within
a pivot. AMZN is trading ~7% off highs and testing support at its 50-DMA.
The U.S. market is in a Confirmed Uptrend. The S&P 500 held support at its 21-DMA this week while distribution
fell to just two days due to expiration. The Nasdaq held its 50-DMA and currently has five distribution days. Both
indices will lose an additional distribution day next week. Leadership continues to act well, with new ideas also
breaking out from consolidation over the past week. Despite positive price volume action in both the major av-
erages and individual ideas, we recommend reducing risk in stocks that have rallied 20-25% above later stage
pivot points. We will change our current positive view on the market should we begin to see technical deteriora-
tion in leading ideas coupled with additional distribution in the major averages
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 77 ideas gained 2.1% on average this week, outperforming the S&P 500 (1.2%) and the Nasdaq
Actionable Focus List ideas: Activision Blizzard ( ATVI ), Align Technology ( ALGN ), Autodesk ( ADSK ), Calavo
Growers ( CVGW ), Centennial Resource Dvlp ( CDEV ), Chefs’ Warehouse ( CHEF ), Envestnet ( ENV ), Fidelity Natl
Info Svcs ( FIS ), Home Depot ( HD ), Intuit ( INTU ), Nextera Energy ( NEP ), Nvidia ( NVDA ), Old Dominion Freight
Line ( ODFL ), Palo Alto Networks ( PANW ), Paypal ( PYPL ), PRA Health Sciences ( PRAH ), Q2 Holding ( QTWO ),
Realpage ( RP ), Servicenow ( NOW ), Splunk ( SPLK ), SVB Financial ( SIVB ), Vertex Pharmaceuticals ( VRTX ), Zoetis
( ZTS )
Technology ideas within the U.S. Focus List led this week. Nineteen of 30 ideas hit a new high, including ATVI,
ADBE, AMD, BL, CRM, GRUB, MTCH, PAYC, RP, and TEAM. Though AMD, PAYC, and TEAM are now well ex-
tended from moving average support, ATVI and RP just turned actionable after breaking out this week. Energy
ideas also rallied, led by new addition CDEV which is breaking out from a 17-week cup. CLR and FANG are still
looking to regain their respective 50-DMA as they build new bases. Though Banks remain under pressure, Pay-
ment Processors within Financial continue to show positive technical action. GPN, MA, PYPL, SQ, V, and WP are
all trading at or near new highs. Conversely, though Retail remains a long-term leading sector, multiple ideas
on the U.S. Focus List have begun to consolidate after big gains over the last several weeks. FIVE, LULU, OLLI,
and WING are consolidating at highs, while HOME continues to decline and is now trading below its 200-DMA.
The U.S. market is in a Confirmed Uptrend. The S&P 500 and Nasdaq pulled back off highs during the first
week of September and continue to digest strong gains from August. Increasing distribution has caused the
Nasdaq to break slightly below its 21-DMA, while the S&P 500 is testing this moving average. The rising 50-
DMA is the next level of support for both indices. The majority of growth ideas have pull back off highs and/or are consolidating above key support levels. Despite the rise in distribution, leadership remains intact. We maintain a bullish outlook as long as indices and leading stocks exhibit constructive price action and hold above key support levels.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 77 ideas lost 1.4% on average this week, underperforming the S&P 500 (-1.1%) and outperforming
the Nasdaq (-2.6%).
Retail ideas were up 3% on average this week, led by FIVE, which gapped up +13% on earnings. OLLI also re-
ported better-than-expected earnings and continues to trend higher. WING remains a leader in the restaurant group, while HD is actionable from a flat base consolidation. Within Staples, MKC is quietly trending higher as CVGW is emerging from cup-with-high handle after positive earnings results. A majority of Technology ideas pulled back or are consolidating, however PSTG and BL broke out into new highs and are extended. QTWO isbreaking out from flat base consolidation and remains actionable. Health Care lagged significantly, down 1.5% on average, however most ideas, including IDXX and ALGN, have either pulled back into support or continue to consolidate.
Following a big breakout in Japan over the past two weeks, there has been short-term improvement across other large APAC markets in China/Hong Kong.
While still early on, and with indices still well below their 40-WMA with significant overhead resistance, it is still a good time to search for new ideas to buy should the improvement persist.
In addition to recent Focus List additions from overall stronger markets, such as Biocon ( BBB.IN; BIOS IN ), ICICI Lombard General Insurance ( ILG.IN; ICICIGI IN ), Taiwan Semiconductor Manufacturing ( TSM.TW; 2330 TT ), and PTT Exploration and Production ( PTTE.TH; PTTEP TB ), a couple of new ideas from China/Hong Kong include China Resources Cement Holding ( CRCH.HK ), Techtronic Industries ( TRON.HK ), Foshan Hai Tian Flavoring ( FHT.CN ), and Winning Health Technology ( KWS.CN ).
Highlights from the report:
The North American Software Index ( IGV ) is up 31% year-to-date and remains among the leading groups in 2018. Constituents of the IGV are trading at a median 6.4x EV/S ( FY 2019 ) and have reported another better-than-expected quarter, highlighted by Q2 FY 2018 revenue and EPS growth of 15% and 27%, respectively, better than the entire S&P 500 (8%/21%) and the S&P 500 Technology sector (9%/23%). The attached report accompanies Cornelio’s webinar on Thursday, September 20 in which he gauges the health of the software uptrend and highlights his top software picks.
As most global markets rebounded this week, Japan was a clear standout, with the Nikkei 225 rising 3.5% and breaking above what had been clear resistance at ¥23,000.
Yen weakness is giving stocks a boost, in particular export-heavy sectors like Capital Equipment, Cyclical, and Technology. Other long-term leading sectors, including Health Care, Retail, and Staples, still have favorable areas.
Below is a list of Focus List ideas (in green) and other names with strong setups and moderate to good growth from one of the sectors mentioned above.
Q2 GDP estimate revised up:
The Bureau of Economic Analysis released its Q2 second estimate for real GDP at 4.2% y/y, 10bps above the advance
Q1 real GDP.
Q2 GDP advance estimate released:
The Bureau of Economic Analysis has released its Q2 advance estimate for real GDP at 4.1% y/y, 190bps above the revised Q1 real GDP.
Q1 GDP third estimate revised downward.
As per the third estimate released by the Bureau of Economic Analysis, Q1 GDP increased 2.0% y/y, 200bps lower than
the second estimate.
We are upgrading Hong Kong to a Confirmed Uptrend as the Hang Seng staged
a day seven follow-through day. The index gained 1.7% on volume greater than
the previous day and above average daily volume. This is the second follow-through day, after one failed on August 27.
Furthermore, the Hang Seng is now trading slightly above its 50-DMA (~28,830), which we see acting as support going
forward. We recommend gradually buying actionable growth ideas as they break out from sound bases or
looking for aggressive entries on high conviction names as they break through their 50- or 200-DMA.
Both Mainland China and Hong Kong indices are now in a Confirmed Uptrend but still trading near bear market
territory, thus, markets may continue to be volatile as a bottoming-out occurs. Looking ahead, we would like indices
to hold above their respective 50-DMA or continue momentum higher in the coming weeks to maintain our conviction.
However, a quick downside reversal similar to August’s failed follow-through day would be viewed as bearish.
U.S.: Olin Corporation ( OLN ), Commercial Metals Co ( CMC ), Omnicom Group ( OMC ), Thor Industries ( THO ), Plantronics ( PLT ), Nabors Industries Ltd ( NBR ), Ameris Bancorp ( ABCB ), AbbVie ( ABBV ), Cracker Barrel Old Country Store ( CBRL ), Chico’s Fas ( CHS ), MercadoLibre ( MELI ), Silicon Laboratories ( SLAB ), Proofpoint ( PFPT )
Developed: Lafargeholcim ( LHN.CH; LHN SW ), Fanuc ( [email protected]; 6954 JP ), Hitachi Construction Machinery ( HTMC.JP; 6305 JP ), Sumitomo Rubber Industries ( SURI.JP; 5110 JP ), Heineken ( HB.NL; HEIA NA ), Omv ( OMV.AT; OMV AV ), Dbs Group Holdings ( DBSS.SG; DBS SP ), Inditex ( IND.ES; ITX SM ), Kesko ( KESK.FI, KESKOB FH ), Brother Industries ( [email protected]; 6448 JP ), Digital Garage ( DIGR.JP; 4819 JP ), Singapore Airlines ( SAIR.SG; SIA SP )
Emerging: Tim Participacoes ( TCS.BR; TIMP3 BZ ), Tiger Brands ( TBSJ.ZA; TBS SJ ), Standard Bank Group ( SBKJ.ZA; SBK SJ ), Saci Falbella ( FAL.CL; FALAB CI ), LG Display ( LGL.KR; 034220 KS ), Hyundai Glovis ( GLV.KR; 086280 KS )
Following mostly improving market action over the recent week, we wanted to review our thoughts on several market conditions. Mainland China had another follow-through day, Hong Kong remains in a Rally Attempt, distribution days are rising in India, and Japan is breaking out above key resistance. Due to the Nikkei’s recent action, we are getting more bullish on Japan, but are still cautious on nearly all other APAC markets, as the majority (especially emerging APAC markets) are still below their respective 40-WMA.
Japan’s leading sectors remain largely defensive with Energy still leading, but we are paying attention to rotation into other sectors, including Financials, Capital Equipment, and Cyclicals. In this note, we have provided several Japanese ideas from outside our Focus List that are screening well and highlighted four Focus List stocks, Asahi Intecc ( [email protected]; 7747:JP ), GMO Payments ( GMOP.JP; 3769:JP ), Pigeon ( PIGC.JP; 7956:JP ), and TDK ( [email protected]; 6762:JP ).
TREND WATCH & ASIA WATCH
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.