BABA and NTES are timely again after their recent corrections

If you didn’t have a chance to join our FSInsight Virtual Conference on Thursday you can find the replay at this link (click here). My technical analysis presentation begins at 1:39:20 and at 1:48:10 I discuss the hotly debated topic of growth stocks versus value stocks.

While I expect cyclicals to outperform into Q1 and likely through 2021, I don’t believe growth stocks are establishing long-term tops as some market pundits have suggested. From my technical perspective, there simply is insufficient technical evidence to make that case. Sure, many growth are well advanced above their uptrends but many other growth stocks are working through orderly sideways trading ranges or consolidations. I view these types of pauses in uptrends as normal and healthy technical behavior. It is not unusual in bull markets for leading stocks to pause, consolidate and catch up to longer-term moving averages which is often near their 200-day averages. Bull markets are a type of relay race where leadership is often passed between a number of market leading groups.

Why is this relevant now? Well, after pulling back from their late summer and fall highs, a growing list of growth stocks are moving back to levels where I expect to see them begin to bottom and start rebounds. Incrementally, one by one, I am seeing a growing list of growth stocks starting to show evidence of bottoming intermediate-term. The bottom line is that while I expect cyclicals to outperform through 2021, it does not mean growth stocks aren’t also going to participate on the upside. In fact, I’m expecting leadership to ebb and flow between growth and cyclical stocks over the coming quarters and technical analysis will be one of the better financial tools to spot timely entry points in each theme.

The Ebb and Flow Between Growth and Cyclical stocks
Expect market leadership to ebb and flow between growth and cyclical stocks.
This is stock pickers market and technical analysis will be helpful spotting timely buy points in both growth and cyclicals
After correcting almost -20% Chinese technology stocks, such as NTES and BABA are at timely buy points

NTES and BABA are two large-cap Chinese technology stocks that illustrate my points above. NTES peaked at the end of August and BABA at the end of October. Both stocks have corrected -20% BUT are now near timely buy points as they test support bands just above their rising 200-day sma. I view both stock to be at timely entry points for those investors looking to add growth exposure.

Figure: Weekly Sector Review
Source: Fundstrat, FactSet

  • Cyclical sectors hung on to most of their gains from the prior week following more positive vaccine news. Energy and financials were again noteworthy this past week holding their gains from the prior week and remaining above their eclining 50-day moving average of relative performance.
  • Industrials and materials continue to stand out as leading cyclical sectors while Financials
  • After many weeks of underperforming, the discretionary and technology sectors began to show evidence of stabilizing. We continue to view the pullback in these two leading growth sectors as healthy pauses in longer-term price uptrends.
The Ebb and Flow Between Growth and Cyclical stocks

Figure: Best and worst performance sectors over past 3 months

The Ebb and Flow Between Growth and Cyclical stocks
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