Technical Analysis: Inflection Points

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1 Technical Analysis: Inflection Points Sector Rotation Contributing to a Healthy Bull Video Briefing with Ari Wald (Click here) Please allow a short amount of time for the video to load 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) ari.wald@opco.com For analyst certification and important disclosures, see the Disclosure Appendix. Oppenheimer & Co. Inc. 85 Broad Street New York, NY Tel: Fax:

2 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 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 % 30% 20% 10% 0% S&P 500 (rs) No sector is getting over heated or acting as a major drag

3 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 S&P 500 Monitoring for buying demand to tick higher NYSE Volume 21-day avg. Advancing Declining 3

4 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 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 Two-year pause ahead of what we expect to be a major breakout Relative to the S&P 500 4

5 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 5

6 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 APO first in the index to break above Q1 resistance Apollo Global Management (APO): Buy 6

7 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 $ 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 BX and KKR are in position to break higher, in our view KKR & Co (KKR): Buy 7

8 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 $ Broker Dealer Index Morgan Stanley (MS): Buy MS one of the first brokerage stocks to break above Q1 resistance 8

9 Time to Buy Europe Technical Analysis We recommend buying the Europe Stoxx 50 in anticipation of a rally to 3500 resistance over the coming months; a protective stop can be placed on a close below the August low at 2890 support. Key positives include 1) a successful test of February support, 2) less-bad internal breadth, and 3) our macro view that global breadth should broaden with the resumption of the S&P s long-term advance. In other words, we re becoming bullish on Europe because we re even more bullish on the US. Speaking in terms of participation, we re encouraged that the % of stocks above their 200-day m.a. made a higher low in July vs. February. Europe Stoxx 50 Internal breadth was less bad at the July low vs. February % of Stocks Above 200-day Mov Avg. 9

10 Buy Europe Growth: ASML, SAP We re encouraged that Europe Value is showing signs of bottoming though we prefer Europe Growth s long-term structure (QIBs: please inquire to receive our Europe monthly report which includes these charts as well ratings for all of the stocks in the Europe Stoxx 50). Overall, we expect both growth and value to participate in a rising tape over the coming months, and recommend buying growth because we see a higher likelihood that the gains will be sustained over the long-run. US-listed Buy ideas include ASML and SAP because both are in position to break above multi-year resistance, in our view. ASML Holding (ASML): Buy ASML and SAP are attractive pre-breakout ideas SAP SE (SAP): Buy 10

11 Sector & Industry Snapshot: week of August 12 Our Sector & Industry Snapshot is a current and concise overview of the leaders and laggards throughout the equity market. As a proxy for trend and momentum, this tool screens a comprehensive list of broad market indexes, S&P sectors (relative to SPX), and all GICS level 3 industries relative to their respective sector. It is designed to be a differentiated performance table and an unbiased starting point to help generate trend-following or mean-reverting ideas. RSI calculates the avg. gain / avg. loss in a security over a specified period; in this case 14 weeks. High readings (colored red; above 60) mark overbought and low readings (colored green; below 40) mark oversold. Neutral readings are colored yellow (between 40 and 60). As a proxy for Trend we use the crossover between the 50-day and 200-day moving average. A positive percentage (colored green) indicates how far the 50D is above the 200D and a negative percentage (colored red) indicates how far the 50D is below the 200D. Key Market Indexes S&P 1500 Materials S&P 1500 Health Care Absolute Price Momentum RSI Trend Industry (GICL3) vs. Sector (GICL1) RSI Trend Industry (GICL3) vs. Sector (GICL1) RSI Trend S&P 500 Index 66 4% Metals & Mining 62 14% Health Care Technology 70 2% Gold spot 63 10% Containers & Packaging 59-1% Health Care Equipment & Supplies 68 5% U.S. Dollar Index (DXY) 49-1% Construction Materials 56 7% Life Sciences Tools & Services 58 1% WTI Crude Oil future 47 13% Paper & Forest Products 52-3% Biotechnology 49-6% 10-Year U.S. Treasury Yield 42-18% Chemicals 30-3% Pharmaceuticals 43 1% Broad Market Equity Averages S&P 1500 Industrials Health Care Providers & Services 41 0% Relative to S&P 500 RSI Trend Industry (GICL3) vs. Sector (GICL1) RSI Trend S&P 1500 Financials NASDAQ % Building Products 71 4% Industry (GICL3) vs. Sector (GICL1) RSI Trend S&P 400 Mid Cap 61 2% Machinery 63 3% Diversified Financial Services 61 3% MSCI Emerging Markets 60 1% Construction & Engineering 60 4% Real Estate Investment Trusts 54 6% Russell % Electrical Equipment 54 0% Capital Markets 49-4% S&P 600 Small Cap 59 2% Commercial Services & Supplies 53 4% Real Estate Management & Dev 48-8% S&P 500 Equal Weight 54 1% Aerospace & Defense 52 1% Insurance 47 1% S&P 100 Index 48 0% Road & Rail 51 2% Commercial Banks 45-4% Dow Jones Industrial Average 47 0% Air Freight & Logistics 47 0% Consumer Finance 42-3% MSCI EAFE Developed Markets 46-5% Trading Companies & Distributors 46-1% Thrifts & Mortgage Finance 37-3% S&P 500 Sectors Industrial Conglomerates 45-1% S&P 1500 Technology Relative to S&P 500 RSI Trend Professional Services 44 0% Industry (GICL3) vs. Sector (GICL1) RSI Trend Technology 64-1% Airlines 34-16% Semis & Semi Equipment 64 4% Telecom 52 5% Marine 29-6% Internet Software & Services 56-1% Materials 52 2% S&P 1500 Consumer Discretionary Communications Equipment 51 3% Industrials 51 1% Industry (GICL3) vs. Sector (GICL1) RSI Trend Software 51 0% Health Care 50 0% Household Durables 70 4% Computers & Peripherals 49-4% Consumer Staples 45 1% Internet & Catalog Retail 66 6% Electronic Equipment 44 1% Utilities 45 5% Distributors 60 6% IT Services 33 0% Consumer Discretionary 44-1% Multiline Retail 53-1% S&P 1500 Telecom Financials 44-3% Speciality Retail 51-1% Industry (GICL3) vs. Sector (GICL1) RSI Trend Energy 43 3% Leisure Equipment & Products 49 1% Diversified Telecom 52 0% Styles Auto Components 47-3% Wireless Telecom 47-2% Relative to S&P 500 RSI Trend Diversified Consumer Services 46-5% S&P 1500 Utilities Russell 2000 Value 62 2% Automobiles 42-4% Industry (GICL3) vs. Sector (GICL1) RSI Trend S&P High Yield Dividend 61 4% Media 42 0% Gas Utilities 57 0% Russell 2000 Growth 57 1% Hotels, Restaurants & Leisure 40-2% Electric Utilities 53 0% Russell 1000 Growth 54-1% Textiles, Apparel & Luxury 35-5% Water Utilities 52 2% S&P 500 High Beta 52 0% S&P 1500 Consumer Staples Independent Power Producers 47 5% S&P 500 Low Volatility 48 2% Industry (GICL3) vs. Sector (GICL1) RSI Trend Multi-Utilities 44 0% Russell 1000 Value 48 1% Food Products 66 4% S&P 1500 Energy Household Products 56 0% Industry (GICL3) vs. Sector (GICL1) RSI Trend Personal Products 46-2% Energy Equipment & Services 54 0% Food & Staples Retailing 45-2% As of 12-Aug-16 Oil, Gas, & Consumable Fuels 46 0% Tobacco 43 2% Beverages 41-2% Source: Oppenheimer & Co. & Bloomberg. 11

12 Stock prices of companies/etfs mentioned in this report (as of August 12, 2016) Company Ticker Primary Exchange Last Price POWERSHARES QQQ TRUST SERIES QQQ NASDAQ GM ASML HOLDING NV-NY REG SHS ASML NASDAQ GS OAKTREE CAPITAL GROUP LLC OAK New York

13 Disclosure Appendix Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered by Oppenheimer & Co. Inc: Stock Prices as of Apollo Global Management (APO - NYSE, $18.69, OUTPERFORM) The Blackstone Group (BX - NYSE, $27.90, OUTPERFORM) Carlyle Group L.P. (CG - NYSE, $16.06, OUTPERFORM) Cisco Systems (CSCO - NASDAQ, $30.95, OUTPERFORM) Intel Corp. (INTC - NASDAQ, $34.68, PERFORM) KKR & Co. (KKR - NYSE, $14.81, OUTPERFORM) Morgan Stanley (MS - NYSE, $29.38, PERFORM) Microsoft Corporation (MSFT - NASDAQ, $58.30, OUTPERFORM) SAP SE (SAP - NYSE, $87.72, OUTPERFORM) Oppenheimer & Co. Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. The published date of the recommendations contained in this report can be found by accessing disclosures ( This report was produced at August 12, :05 EDT and disseminated at 08:00 EDT. Analyst Certification - The author certifies that this investment strategy report accurately states his/her personal views about the subject securities, which are reflected in the substance of this investment report. The author certifies that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this investment strategy report. This technical research report is provided by Oppenheimer & Co. Inc. ("OPCO"). Technical analysis is the study of price and volume and the interpretation of trading patterns associated with such studies in an attempt to project future price movements. Technical analysis does not consider the fundamentals of the underlying corporate issuer and may offer an investment view that may appear inconsistent with other research generated by OPCO. This report does not constitute research regarding fundamental financial information. The investments discussed in this report may not be suitable for all investors. The overview in this report is provided for informational purposes and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security or investment advisory services. The report is not intended to provide personal investment advice. Investors should use the analysis provided by this report as one input into formulating an investment opinion and should consult with their Financial Advisor. Additional inputs should include, but are not limited to, the review of other research reports generated by OPCO, and looking at alternate analyses of the underlying corporate issuer. With respect to any specific company discussed herein, allow this report to serve as both an initiation and termination of coverage. Given the nature of technical research, such company may or may not appear in future reports for a variety of technical reasons. Securities and other financial instruments discussed in this report or recommended or sold by OPCO are not insured by the Federal Deposit Insurance Corporation and are not deposits or obligations of any insured depository institution. Investments involve numerous risks including market risk, counterparty default risk and liquidity risk. Securities and other financial investments at times may be difficult to value or sell. The value of financial instruments may fluctuate, and investors may lose their entire principal investment. Potential Conflicts of Interest: Technical or strategic analysts employed by OPCO are compensated from revenues generated by the firm. OPCO generally prohibits any analyst and any member of his or her household from executing trades in the securities of a company that such 13

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