Hello friends,
The last couple of weeks I’ve been travelling, hence the lack of updates. I’ve decided to expand this weekly market profile with some other equity markets than the US only, so let’s look at the most recent developments around the globe:
US markets pull back and rally weak
The S&P500 (SPX), confirmed by the Nasdaq Composite, mid- & small-cap indices, has pulled back since late March on sometimes strong selling volume, only to rally back close to all-time Highs over the last month.
Note the dropping and feeble volume within the rally, usually a sign of more impending weakness:
So far, this 5.9% decline barely represents more than a short-term pullback. Markets may well recover and continue to rally to the upside, as they have been doing with only temporary interruption since November 2023.
A rallying market however is useless to the speculator if it does not contain strong stocks leading the upside move. There’s been some good action, however the best of the few stocks that are on my radar are currently heavily extended (e.g. VRT, VST, CAVA) and in need of consolidation:
There are at least 5x cyclical industrial stocks that are behaving similarly and trading very erratically, which however do not match my criteria for elite stocks. Should these here stocks put in flawless digestions, a probe buy could be justified. So much for the good part, because every market has some stocks rallying. Let’s look at the things that were not so rosy.
Overall, many of the stronger recent leaders have fallen apart (notably SMCI, ARM, ELF, DUOL, some more), a red flag in itself – unless a wave of new ones starts to replace them.
Of the stronger names that are left, a lot of at least relatively weak if not outright desctructive behavior could be witnessed. JANX rolled over and failed after a fizzling move out of a relatively strong digestion, right begind its sister VKTX falling apart earlier. Though WING and RXST could still work, their weak price/volume action at new Highs is another yellow flag for the health of this market. Apart from those, there are not many impressive movers, and the thinness that has been characteristic of this market since early 2023 has not subsided. Tread with care, because chop can eat you alive – right now is not a great time to speculate heavily.
A glimpse of strength in Denmark
Equally in many European markets, indices had pulled back. Here however, with the exception of the TA125 and the OMXC20, as good as all indices are back at new Highs, confirming a continued uptrend.
Typical of European markets though, there are fewer opportunities and names on my radar. The best stock right now appears to be the Danish GUBRA, which I posted a few days back. It had formed a flawless digestion and moved out last week on strong volume. Due to the recent choppiness of related marketplaces, it remains to be seen whether this will succeed. Another stronger proposition is the Dutch ENVI, which unfortunately has become glued to its pivot point and volume is dwindling. Earnings are announced next week, so make sure not to hold a heavy position into the report – if it moves up, you can always add size back on.
As for the US, UK markets remain rather thin despite a strong rally in large- and mid/-small caps. Volatility is high, and though some candidates are present (e.g. GMET, YU GROUP), strong opportunities are anything but abundant so far.
Strong rally in China/Hong Kong, weakness in Japan
The most interesting change in markets so far has been the strong rally visible in the Chinese indices and specifically on the Hang Seng index (HSI):
There are tons of strong stocks trending, however most of us are not permitted to trade them as they are listed on the ChiNext, the “Chinese Nasdaq”, which excludes foreign non-institutional investors. In any case, have a look at SZSE:001309, SZSE:603556, or HK:2145, HK:3139 or HK:3939. None of these are buyable right now, but there is some good strength on display. Perhaps some exposure will be justifiable a few weeks down the line – n.b. Chinese and HK-stocks are notoriously volatile and erratic in trading character.
Japan on the other hand, which has been exceptionally strong since early 2023, is undergoing another 2ndary reaction in the indices (e.g. Nikkei 225).
Which way this pullback will turn is not clear yet, but individual stocks have not been behaving very well. Despite the market advance itself being relatively broad, the strongest leading stocks have recently collapsed or become heavily choppy in trading, pulling back far from the Highs. A prime example is JP:9211, seen below:
Thinning leadership and collapsing digestions in the strongest leaders are clear red flags to stay off Japanese equities for now. This might change quickly again if new opportunities show up, and the trend overall remains intact for now. Keep monitoring for strenght and weakness, and follow the leaders.
That’s it for today – some exposure is warranted in Europe, and perhaps soon in China/HK. Apart from that, choppy and thin markets make speculation in stocks precarious. Anything I wrote can change rapidly, and new may open while others are blown shut. Stay vigilant, follow strength and avoid weakness.
So long,
TGS