Brief Multi-Strategy: SPX Buy Summer Weakness – 3,220 and 3,080 Direction Break Points – 3,200 Short Target and more

In this briefing:

  1. SPX Buy Summer Weakness – 3,220 and 3,080 Direction Break Points – 3,200 Short Target
  2. Softbank Reverse from Long to Short Target
  3. Stocks/Hong Kong/Covid-19/US-China/Jobs
  4. 🇯🇵 JAPAN • Results & Revisions 10th July – Small Change
  5. Double Bubble, Double Trouble?

1. SPX Buy Summer Weakness – 3,220 and 3,080 Direction Break Points – 3,200 Short Target

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S&P 500 (SPX INDEX) is teetering on a more bullish break point that will define a wave 5 thrust higher or secondary pullback within the summer flat corrective range with support near 2,950.

3,220 and 3,080 will act as key break points for a continued rally or second part of a summer pullback cycle (the later is the favored sequence for a pullback from 3,200).

July cycle peak should align with increased virus cases/concerns and overshadow liquidity over the summer.

ISM, demand and growth data spikes have come off of low bases but due to deteriorate as US re opening faces significant speed bumps.

Macro remains bullish on weakness until liquidly support fades.

2. Softbank Reverse from Long to Short Target

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Softbank Group (9984 JP) has witnessed a sharp rise from our recent 4,400 long entry and nearing the ideal 6,600 target representing the top end of the intermediate expanding wedge range. We made a bull call near lower wedge support at 2,800.

Recent breakout point at 5,900 will act as pivot support that will induce a reaction back upward.

RSI shows synergy with dual tops in this zone to mark key cycle tops which fits with a top near 6,600. RSI is also forming a rising wedge that has a better than 70% probability of breaking down amid bear divergence.

Macro pivots are 6,800 and 4,900 as the expanding wedge defines a clear range (6,800 and 2,500).

3. Stocks/Hong Kong/Covid-19/US-China/Jobs

China News That Matters

  • Bull run in a China shop 
  • State security sets up shop in Hong Kong
  • WHO arrives for crucial, long-delayed investigation
  • Sanctioning the rival superpower
  • New jobs for a new era

In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.

4. 🇯🇵 JAPAN • Results & Revisions 10th July – Small Change

2020 07 11 10 47 23

 Source • Japan Analytics

SMALL CHANGE – With over half of the companies with February, May, August and November year-ends having reported, the gap between the performance of larger and smaller capitalisation companies is widening again – as was the case prior to the March COVID ‘crash’. The former are benefiting from a relatively more robust earnings momentum and the willingness of shareholders to look through to 2022. For the latter, their mostly-retail investor base is focused more on the prolongation of current operating losses despite, in many cases, ample Net Financial Assets.  42% of companies reporting on Friday had net losses for the last three months on an average decline in revenues of 14%. For the next reporting ‘cohort’ with one less ‘normal’ month, these statistics will be worse.

DAILY STATS


83 Quarterly Results

  • Results Score: 19 Positive / 3 Neutral / 61 Negative
  • Average Results Score Change: -4.4
  • Average % Change in Revenue: -14.2% Quarter YoY / -0.9% Rolling TTM YoY
  • Average Operating Profit Margin Change: -0.7ppt
  • Percentage Making Quarterly Losses: 42%

31 Annual • 13 Interim Forecasts/Revisions

  • Annual Forecast/Revision Score: 13 Positive / 4 Neutral / 14 Negative
  • Interim Forecast/Revision Score Change: 5 Positive / 1 Neutral / 7 Negative
  • Average Forecast/Revision Score Change: -3.9

5. Double Bubble, Double Trouble?

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A review of U.S. and global markets reveals that market leadership has narrowed to NASDAQ and Chinese stocks. If this is the start of a new bull, or a continuation of the old bull, can it rest on the narrow leadership of a handful of NASDAQ stocks and the Chinese market?

Is this just a double bubble, and does that imply double trouble ahead?

We are not sure. We are torn between Bob Farrell’s Rule No. 4:

Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.

And Rule No. 7.

Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.

Investors need to be aware of the tension between Rule No. 4, which raises the possibility of a stock bubble, and the risks posed by the narrow leadership warned by Rule No. 7. Tail-risk is high in both directions. In this environment, it is worthwhile to return to basics and re-visit investment objectives and risk tolerances in order to balance risk and reward. There are no perfect answers and each will be different.

Regardless of what direction the market takes, investors can count on a climate of high volatility in the near future.

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