Technical Analysis: Inflection Points
[Pages:15]August 13, 2016
Technical Analysis: Inflection Points
Technical Analysis
Video Briefing with Ari Wald
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Sector Rotation Contributing to a Healthy Bull
Rotating sector performance is a reason we expect the S&P to sustain gains through the remainder of the year. A sector performs well then rests while leadership shifts to another area of the market. This is a characteristic of a healthy advance because each rotation registers incremental market gains and no sector trend becomes extended in such a way to threaten the broader advance. Today's report shows that this is occurring by highlighting the narrowing spread between the best and worst performing S&P sector over the last 52 weeks.
Key Themes and Buy Ideas
NASDAQ-100 one of our favorite broad-market averages. We're encouraged that the index is nearing a breakout above its 2000 peak and expect it to be leadership over the coming years. ETF idea: QQQ.
Big Bases for old Tech: Keeping with the NAZ-100, we think CSCO and INTC are attractive candidates to break above decade-long resistance.
Signs of a Turn for Private Equity: APO is the standout Buy idea based on a breakout above Q1 resistance, and BX and KKR are in position to be next, in our view.
Best of the Brokers: While we're generally skeptical of rate-sensitive Financials, we see MS as relatively stronger than the Brokerage industry and believe it should be owned for exposure.
Time to Buy Europe: We anticipate the Europe Stoxx 50 to rally to 3500 over the coming months, and recommend buying US-listed growth stocks, like ASML and SAP. QIBs: Please inquire to receive our Europe monthly report which includes ratings for all of the stocks in the Europe Stoxx 50.
Ari H. Wald, CFA, CMT Technical Analysis
(212) 667-5279 ari.wald@
For analyst certification and important disclosures, see the Disclosure Appendix. Oppenheimer & Co. Inc. 85 Broad Street New York, NY 10004 Tel: 800-221-5588 Fax: 212-667-8229
Technical Analysis
Sector Rotation Contributing to a Healthy Bull
Rotating sector performance is a reason we expect the S&P to sustain gains through the remainder of the year. A sector performs well then rests while leadership shifts to another area of the market. This is a characteristic of a healthy advance because each rotation registers incremental market gains and no sector trend becomes extended in such a way to threaten the broader advance. The chart below shows that the rolling spread between the best and worst performing S&P sector over the last 52 weeks has fallen below 20% from a reading above 50% in August 2015; the current reading of 18% is picking up the spread between Utilities (14%) and Financials (-4%) and indicates that sector dispersion has declined (oscillating commodity prices and interest rates are the primary reason for these rotations, in our view). This is similar to the S&P's broad-based advance between 2013 and 2014, and the subsequent warning in this prior period occurred when the spread rose sharply in late 2014 due to bifurcated market performance and weakness in the Energy sector specifically.
60% 50%
S&P 500 Sectors: Rolling spread betw Best & Worst 52-wk Performer (ls)
Sector dispersion rises when performance is bifurcated Sector dispersion falls when markets rotate
2000
40%
30%
20%
10% 0%
S&P 500 (rs)
No sector is getting over heated or acting as a major drag
1000
Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17
Source: Oppenheimer & Co. and Bloomberg. 2
August 13, 2016
Buyers on Vacation
Technical Analysis
From a trading basis, the good news is that market conditions are the strongest they've been in over two years and the risk of a volatile selloff, like Q3'15 or Q1'16, is below-average, based on our calculations. The bad news is that the seasonals are typically a headwind for the S&P into October, and volume into advancing shares has moderated in recent weeks. Add it up, and we think the next opportunity is to buy the first pullback, not try to time it, and we view July's breakout at 2134 as support. More importantly, we want to own stocks now because we think it's reasonable for the first pullback to develop at a higher level.
2134
S&P 500
NYSE Volume
21-day avg.
Monitoring for buying demand to tick higher
Advancing
Declining
Source: Oppenheimer & Co. and Bloomberg.
August 13, 2016
3
Technical Analysis
NAZ-100 Leadership Resuming
The NASDAQ-100, and Technology stocks specifically, is one of our highest conviction calls because we're still making the case that if this is a secular bull market, which we believe the evidence supports, then we think this area is best positioned to be leadership over the coming years as it retraces the stark underperformance suffered between 2000 and 2002. We're encouraged that the NAZ-100 is nearing a breakout above its 2000 peak, and believe the index's relative trend points to a resumption of leadership as well. ETF idea: QQQ.
NASDAQ-100
Relative to the S&P 500
Two-year pause ahead of what we expect to be a major breakout
Source: Oppenheimer & Co. and Bloomberg. 4
August 13, 2016
Major Bases for Old Tech: CSCO, INTC
Technical Analysis
Within the NAZ-100, we'll be watching if CSCO and INTC can follow in the footsteps of MSFT and become the next old Tech stock to break through a decade-long base. For CSCO, we're watching $34 as the next important overheard test, and we're watching $38 for INTC.
Cisco Systems (CSCO): Buy
Breakout at $30 is now support
Intel (INTC): Buy
More work to do, meaning it could take time, but we like the top-down tailwinds from what we see as a relatively strong Semis & Semi Eqpt industry
Source: Oppenheimer & Co. and Bloomberg.
August 13, 2016
5
Technical Analysis
Signs of a Turn for Private Equity: APO
We see early signs of a turn for the private equity industry. Followers of our research know we view stocks with low-momentum scores, like these private-equity companies, with skepticism. However, we've found that out-of-favor stocks with low-momentum scores make for attractive, yet speculative, trading ideas when a market advance broadens: our base case. APO is the standout Buy idea because it's the only stock in this index that has rallied above Q1 resistance. Following a reversal of the stock's two-year downtrend and breakout above $18, now support, we see upside to $21.50 over the coming months.
Private Equity Managers Index
w/ 200-day m.a.
APO first in the index to break above Q1 resistance
Apollo Global Management (APO): Buy
w/ 200-day m.a.
Source: Oppenheimer & Co. and Bloomberg. 6
August 13, 2016
Focus Turns to BX and KKR
Technical Analysis
We expect the focus to turn to BX and KKR following APO's breakout above Q1 resistance. For BX, signs of a "double bottom" at $23 support indicate shares are in the process of basing, in our view, and we're watching for a breakout above $29.60 resistance to confirm a bullish reversal. Above here, we see intermediate-term upside to $35.50. For KKR, we're encouraged about similar signs of stabilization and we're watching for a breakout above $15.20 to confirm a reversal in trend. Such a breakout would project toward $18.50, by our analysis. Click here for technical color on CG and OAK as well.
Blackstone (BX): Buy
w/ 200-day m.a.
BX and KKR are in position to break higher, in our view
KKR & Co (KKR): Buy
w/ 200-day m.a.
Source: Oppenheimer & Co. and Bloomberg.
August 13, 2016
7
Technical Analysis
Best of the Brokers: MS
Although we're generally skeptical of rate-sensitive stocks in the Financials sector, we recommend buying MS for exposure to the Brokerage industry because we view the stock's rally through its spring-time peak as a sign of relative strength; this is a feat the industry hasn't yet been able to complete. The stock's breakout above $28 is now support, and we see intermediate-term upside to $33.50.
Broker Dealer Index
w/ 200-day m.a.
Morgan Stanley (MS): Buy
w/ 200-day m.a.
MS one of the first brokerage stocks to break above Q1 resistance
Source: Oppenheimer & Co. and Bloomberg. 8
August 13, 2016
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