craig johnson: cfa, cmt, mba · 02-10-2018 · craig johnson: cfa, cmt, mba joined piper jaffray...

CRAIG JOHNSON: CFA, CMT, MBA

Joined Piper Jaffray in 1995

Managing Director and Senior Technical Research Analyst

At Piper Jaffray he directs the technical research group

Offers technical commentary on both the market and individual stocks

Appears regularly on various national financial news networks

BREAKOUT OR FAKE OUT

Craig Johnson, CFA, CMTMANAGING DIRECTOR, CHIEF MARKET TECHNICIAN Tel: +1 612 303-6428Email: [email protected]

Adam Turnquist, CMTTECHNICAL RESEARCH ANALYSTTel: +1 312 267-5028Email: [email protected]

October 5, 2018

Piper Jaffray does and seeks to do business with companiescovered in its research reports. As a result, investors should beaware that the firm may have a conflict of interest that could affectthe objectivity of this report. Investors should consider this report asonly a single factor in making their investment decisions. This reportshould be read in conjunction with important disclosure information,including an attestation under Regulation Analyst Certification, foundat the end of this report or at the following site:http://www.piperjaffray.com/researchdisclosures.

Piper Jaffray Technical Research

Gradient Investments | Elite Advisor Forum

PIPER JAFFRAY | 2

Disclosures for the universe* of Craig Johnson:1. I or a household member has a financial interest in the securities of the following companies: none

2. I or a household member is an officer, director, or advisory board member of the following companies: none

3. I have received compensation within the past 12 months from the following companies: none

4. Piper Jaffray or its affiliates beneficially own 1% or more of any class of common equities of the following companies: WPX

5. Piper Jaffray has received compensation for investment banking services from or has had a client relationship with the following companies within the past 12 months: BSX, DBX, PLNT, SLB, ZTS

6. Piper Jaffray expects to receive or intends to seek compensation for investment banking services from the following companies in the next 3 months: SLB, ZTS

7. Within the past 12 months Piper Jaffray was a managing underwriter of a public offering of, or dealer manager of a tender offer for,the securities of the following companies: DBX

8. Piper Jaffray has received compensation for non-investment banking services from or has had a client relationship with the following companies within the past 12 months: HTLF, TXN, UNH

9. Piper Jaffray makes a market in the securities of the following companies, and will buy and sell the securities of these companies on a principal basis: AFL, ATVI, AXP, BSX, C, CLB, COP, CRM, CTXS, ECA, FN, FWRD, GOOGL, HBAN, LOW, LULU, MPC, NBIX, NKE, NOMD, NUS, PCRX, PLAY, PXD, QCOM, SIVB, SLB, SPOT, TEVA, TS, TWTR, TXN, ULTA, UNH, WDAY, WPX, ZTS

10.Piper Jaffray usually provides bids and offers for the securities of the following companies and will, from time to time, buy and sellthe securities of these companies on a principal basis: BX, CAMP, CRS, CUB, DBX, EPAM, FE, GNRC, HTLF, ICUI, LGF/A, MA, NGVT, PLNT, SHOP, USCR, YEXT

*Represents companies in the Technical Research Model Portfolio

PIPER JAFFRAY | 3

Discussion Topics

Section I

Section II

Section III

Section IV

Section V

Section VI

Section VII

Macro Perspective

Proprietary Research

Intermarket Analysis

Foreign Markets

Actionable Ideas

Final Thoughts

Appendix


Macro Perspective

Source: CartoonStock.com. Reprinted by permission.

PIPER JAFFRAY | 5Source: Piper Jaffray Technical Research

Macro Perspective | LT SPX Trend

Today

SPX—The SPX index is trading near record high territory after successfully retesting the rising 40-week MA. Price momentum has climbed back into positive territory. We recommend selectively adding to positions into those stocks/sectors with improving/strong RS and technical trends.

2014

2012

2016

2008 2010 2009 2017 2018 2011

2013 2015

PIPER JAFFRAY | 6Source: Piper Jaffray Technical Research/Bloomberg

Macro Perspective | ST SPX Trend


Macro Perspective | Leadership Lacks Breadth


Macro Perspective | Fewer Uptrends

PIPER JAFFRAY | 9

NYSE Composite

AMEX

S&P 400 MidCap

Dow Jones Industrial Average

Valueline

S&P 500

S&P 100

Russell 2000

NASDAQ Composite

NASDAQ Industrials

NASDAQ 100

2.1%

2.2%

6.3%

7.0%

7.2%

9.0%

9.4%

10.5%

16.6%

17.7%

19.2%

Market Performance (YTD) - Popular Averages

Source: Piper Jaffray Technical Research/Bloomberg

Macro Perspective | Index Performance

The tech-heavy NASDAQ indices (and Industrials index) are outperforming YTD.


Macro Perspective | Secular Downtrend Reversed

Source: Piper Jaffray Technical Research

A double-bottom has been set.

The secular downtrend off the ’81 highs has been reversed. 10-year yields have now cleared the 3% hurdle which should provide a new base level of support for Treasuries.

PIPER JAFFRAY | 11

Macro Perspective | Over the 3% Hurdle

Source: Piper Jaffray Technical Research/FactSet

PIPER JAFFRAY | 12

Macro Perspective | Yield Curve Remains Flat


Rates have moved higher over the last month. However, the shift was mostly parallel and the yield curve only steepened modestly.


Macro Perspective | Flattening Theme Continues


Macro Perspective | Managing Fedspectations

PIPER JAFFRAY | 15

Macro Perspective | FAANG YTD Performance



Macro Perspective | Contributions to Index Returns

= 75% of the Nasdaq 100 YTD Return.

AMZN 5.26%AAPL 4.21%MSFT 3.23%NFLX 1.12%

GOOG/L 1.37%Total Contribution 15.19%

AMZN 1.42%AAPL 1.39%MSFT 1.06%NFLX 0.36%

GOOG/L 0.42%Total Contribution 4.65%

= 43% of the S&P 500 YTD Return.

PIPER JAFFRAY | 17

8200

8300

8400

8500

8600

8700

8800

8900

9000

12/0

5/20

03

12/0

5/20

04

12/0

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05

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17

Number of Shares Outstanding (S&P 500 Index)


Macro Perspective | Changing Market Structure



Proprietary Research

PIPER JAFFRAY | 19

Communications/Media

Consumer Staples

Basic Materials

Financial

Utilities

Industrial Manufacturing

MicroGroup Index

Transportation

Energy

Consumer Cyclical

Services

Healthcare

Technology

-8.8%

-7.8%

-6.5%

-3.3%

-2.6%

0.6%

3.5%

5.5%

7.5%

12.4%

12.5%

14.6%

17.4%

Market Performance (YTD) - Wtd Sectors

Basic Materials

Consumer Staples

Communications/Media

Transportation

Utilities

Financial

Industrial Manufacturing

Energy

MicroGroup Index

Consumer Cyclical

Services

Technology

Healthcare

-10.6%

-6.4%

-3.7%

-2.5%

-2.2%

-0.3%

0.3%

1.3%

2.4%

3.5%

5.7%

6.9%

14.3%

Market Performance (YTD) - Unwtd Sectors


Proprietary Research | Sector Performance

Healthcare, Technology, and Services sectors remain at the top of the YTD leaders list (Unwtd/Wtd).

Communications/Media, Basic Materials, andConsumer Staples round out the bottom of the YTD laggards list (Unwtd/Wtd).

PIPER JAFFRAY | 20*See Appendix for more details on the TechniGrade concept. Source: Piper Jaffray Technical Research

Proprietary Research | Sector TechniGrade* Rankings

*TechniGrade rankings range from 1 (best) to 20 (worst) based on relative performance.

Sector Name Current 1 wk 2 wk 3 wk 4 wk 1 wk 13 wk 26 wk 52 wk800 Healthcare (Unw td) 6 7 9 8 7 1.15% 5.87% 12.79% 13.88%300 Industrial Manufacturing (Unw td) 11 8 9 11 11 -2.37% 3.34% 3.90% 3.74%500 Services (Unw td) 11 11 10 10 10 -0.76% 2.40% 7.21% 6.64%1200 Technology (Unw td) 11 12 11 12 9 -0.83% 1.77% 5.41% 8.78%1400 Communications/Media (Unw td) 11 12 13 15 15 -0.01% 0.62% 1.53% -1.42%1000 Consumer Cyclical (Unw td) 12 12 12 12 11 -0.68% -0.06% 6.80% 9.79%400 Utilities (Unw td) 12 13 13 13 15 -0.92% 0.87% 0.33% -2.80%700 Transportation (Unw td) 12 13 14 15 15 -0.56% -0.19% 2.93% 4.21%100 Energy (Unw td) 12 14 15 16 14 0.60% -2.09% 10.13% 4.00%900 Consumer Staples (Unw td) 13 12 13 13 14 -1.78% -1.10% -0.34% -4.31%600 Financial (Unw td) 14 13 13 12 13 -1.98% -0.83% 1.75% 1.83%200 Basic Materials (Unw td) 17 17 18 18 18 -2.42% -5.42% -4.81% -5.29%

Sector Name Current 1 wk 2 wk 3 wk 4 wk 1 wk 13 wk 26 wk 52 wk800 Healthcare (Wtd) 4 4 5 5 6 1.00% 12.17% 16.11% 15.04%1200 Technology (Wtd) 5 6 6 7 6 0.84% 9.77% 13.37% 27.18%1000 Consumer Cyclical (Wtd) 5 10 10 12 11 3.11% 7.17% 11.24% 24.66%700 Transportation (Wtd) 6 5 6 8 8 -1.31% 9.56% 9.33% 14.47%500 Services (Wtd) 8 8 7 9 9 -0.92% 4.90% 8.60% 16.98%100 Energy (Wtd) 8 11 13 14 13 1.23% 1.79% 13.15% 12.73%300 Industrial Manufacturing (Wtd) 9 7 9 12 13 -1.87% 6.32% 2.63% 4.27%900 Consumer Staples (Wtd) 12 11 13 14 15 -1.67% 1.23% -2.42% -5.29%600 Financial (Wtd) 13 11 13 14 14 -2.90% 1.79% -1.23% 1.19%400 Utilities (Wtd) 13 13 12 12 14 -1.17% -0.06% 0.33% -3.15%1400 Communications/Media (Wtd) 14 16 17 18 18 0.63% -2.82% -2.88% -0.14%200 Basic Materials (Wtd) 15 15 18 18 18 -2.38% -3.67% -3.00% 0.66%

-0.50% -2.63%1.07% -8.75%-0.10% -6.49%

1.42% 0.57%-0.08% -7.82%-1.73% -3.28%

0.82% 5.55%-0.55% 12.45%2.65% 7.51%

2.08% 14.61%-0.58% 17.41%2.97% 12.40%

-1.96% -10.56%

Sectors (Weighted) TechniGrade Absolute Performance4 wk YTD

0.31% 1.31%-1.32% -6.41%-2.66% -0.34%

-2.37% 3.52%0.18% -2.18%0.21% -2.54%

-2.07% 5.72%-3.06% 6.87%0.65% -3.73%

Sectors (Unweighted) TechniGrade Absolute Performance4 wk YTD

-0.06% 14.27%-1.20% 0.25%

Note large-cap (Weighted) outperformance.


Proprietary Research | 40-Week Technique Indicator

The 40-week Technique indicator issued a sell signal on the week ended 9/14/2018. A current reading shows 59.3% of our MGs are trading above their 40-week MAs vs. a 10-week MA of 64.2%.

4 Years 4 Years 4 Years 4 Years 6 Years 3 Years 4 Years


Proprietary Research | 26-Week New Highs Indicator

7

The 26-week New Highs indicator issued a sell signal on the week ended 8/10/2018 (buy position since 5/4/2018). Last week, only 41 MGs posted 26-week new highs, opposed to 50 MGs that registered new lows.

PIPER JAFFRAY | 23

1.17%

-0.05%

0.62%

1.22%

-0.05%

0.69%

1.52%

0.63%

-1.05%

0.54%0.70%

1.39%

62%

53%

61%64%

58%56%

58% 58%

45%

60% 60%

74%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-1.50%

-0.50%

0.50%

1.50%

2.50%

3.50%

4.50%

Jan Feb March April May June July Aug Sep Oct Nov Dec

S&P 500 Monthly Seasonality Analysis (1928-Present)

Avg. Returns % Positive


Proprietary Research | SPX Seasonality


PIPER JAFFRAY | 24

Proprietary Research | Back to Politics


Gearing up for the Midterm Elections

With summer fading in the rear-view mirror, it means back to politics in the United States. The 2018 midterm elections are fast approaching and almost impossible to ignore amid the growing number of political ads littered throughout all forms of media. There is a lot at stake for both sides of the aisle and also a lot of uncertainty over how the electoral landscape will look come November.

Sticking to what we know, political uncertainty is building into the midterm…and with uncertainty, market volatility usually follows.

The following research highlights what some of this volatility could potentially look like for the market, seasonality trends into year-end, and a closer look at market performance under various leadership compositions in Washington.

WHAT IS UP FOR GRABS?Senate:

35 seats

The caveat: In order for Democrats to take control of the Senate, they will have to retain all 26 of their current seats and also add 2 additional Republican held seats from the 9 that are on the ballot.

The bigger caveat: 10 of the Democratic seats they need to retain are states President Trump won in 2016 (5 of which he won by double digits).

House:

Magic number: 23

Democrats will need to win at least 23 seats from Republicans in order to flip the majority in the House (and not lose any of their current seats).

PIPER JAFFRAY | 25

94

96

98

100

102

104

106

108

110

112

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Midterm Election Years | Historical Progression (1928-YTD)

Average Second Year Progression (All) Average Second Year Progression (Republican) 2018


Proprietary Research | Back to Politics


With summer fading in the rear-view mirror, it means back to politics in the United States. The 2018 midterm elections are fast approaching and almost impossible to ignore amid the growing number of political ads littered throughout all forms of media. There is a lot at stake for both sides of the aisle and also a lot of uncertainty over how the electoral landscape will look come November.

The chart to the left depicts the progression of the S&P 500 for all midterm election years dating back to 1928. We also included the market’s performance for midterm years when a Republican was in the White House. Historically, the lows of midterm election years have usually been made in October.

PIPER JAFFRAY | 26

Proprietary Research | Back to Politics | Monthly Seasonality


Continuing with our seasonality analysis, price action on the S&P 500 around the November midterms has historically been positive from October to February (1-month to +3-months).

September once again appears as the weak spot within the data as monthly returns during all midterm years have averaged -1.2%.

PIPER JAFFRAY | 27

Proprietary Research | Back to Politics | Approval Ratings


September October November DecemberSeptember, 1990 George H. W. Bush Republican 72% -5.12% -0.67% 5.99% 2.48%September, 2002 George W. Bush Republican 67% -11.00% 8.64% 5.71% -6.03%September, 1954 Dwight D. Eisenhower Republican 66% 8.31% -1.95% 8.08% 5.08%September, 1962 John F. Kennedy Democratic 63% -4.82% 0.44% 10.16% 1.35%September, 1970 Richard Nixon Republican 54% 3.30% -1.14% 4.74% 5.68%September, 2010 Barack Obama Democratic 45% 8.76% 3.69% -0.23% 6.53%September, 1978 Jimmy Carter Democratic 45% -0.73% -9.16% 1.66% 1.49%September, 1994 Bill Clinton Democratic 42% -2.69% 2.09% -3.95% 1.23%September, 1982 Ronald Reagan Republican 42% 0.76% 11.04% 3.61% 1.52%Source: Piper Jaffray Technical Research/Bloomberg, Approval ratings based on Gallup polls

Presidential Approval Ratings | S&P 500 Performance

Date President President's PartyPresidential Approval

RatingsS&P 500 Performance

We analyzed prior midterm election years for first-term Presidents to identify if approval ratings had any historical impact on stock market returns. Although the data is limited, the clearest takeaway from our analysis is that the market has historically outperformed in November when approval ratings were high going into the midterms.

PIPER JAFFRAY | 28

Proprietary Research | Back to Politics | Approval Ratings


The scatter plot below compares first-term President approval ratings into the midterms along with how many seats in the House of Representatives were either obtained or lost in the elections. Considering the data is limited, the regression model still produced an r-squared value of 0.58, implying approval ratings have some predictive power when forecasting how many seats will be lost or gained in the midterm elections.

With President Trump’s most recent approval rating coming in at 42%, we could simply speculate Republicans could potentially lose around 50-60 seats in the House this November.

As a reminder, Democrats would need to recapture 23 seats from Republicans in order to reclaim majority of the House while also not losing any of their current seats.

Trump’s most recent approval rating: 42%

PIPER JAFFRAY | 29

Proprietary Research | Back to Politics | What if?


The table below shows the average and median annual returns of the Dow Jones Industrial Average dating back to 1897 based on various leadership compositions in Washington. The best/worst case scenarios are outlined below.

Best Case Scenario*: President: Democrat

Including Congress: Democratic President and

Republican controlled Congress

* With a Republican President, the best case scenario for the market includes a Republican controlled Congress.

Worst Case Scenario President: Republican

Including Congress: Republican President and

divided Congress.


Intermarket Analysis

PIPER JAFFRAY | 31

-6.5%

-4.5%

-2.5%

-0.5%

1.5%

3.5%

5.5%

7.5%

9.5%

01/0

1/20

18

01/1

1/20

18

01/2

1/20

18

01/3

1/20

18

02/1

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08/2

9/20

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09/0

8/20

18

09/1

8/20

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09/2

8/20

18

Intermarket Analysis / Relationships

10-Year Bond US Dollar SPX CRB

Please note: For the 10-Year bond returns, we have utilized the S&P 10 Year Treasury Note Futures Total Return Index (SPUSTTTR).

1-January-2018 through 2-October-2018

10-Yr Bond

CRB

SPX

USD

Source: Piper Jaffray Technical Research; Bloomberg


Intermarket Analysis | YTD Performance

The SPX continues to outperform


Intermarket Analysis | U.S. Dollar Index

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '1860.0060.00

70.0070.00

80.0080.00

90.0090.00

100.00100.00

110.00110.00

120.00120.00

130.00130.00

95.13

©FactSet Research Systems

ICE US DollarOct 03, 2018 95.13

LT perspective—The greenback has found its footing at 90; at this juncture, recent price action appears to only be a relief rally.

PIPER JAFFRAY | 33Source: Piper Jaffray Technical ResearchBloomberg

Intermarket Analysis | CRB Commodity IndexThe CRB Commodity Index has recently reversed a ST downtrend and recaptured the 40-week MA; a retest of the ’18 highs appears to be underway.


Intermarket Analysis | WTI Crude Oil


Intermarket Analysis | Gold

09 10 11 12 13 14 15 16 17 18600600

800800

1,0001,000

1,2001,200

1,4001,400

1,6001,600

1,8001,800

2,0002,000

1202.40

Courtesy of FactSet Research Systems

NY Gold (NYM $/ozt)Oct 02, 2018 1202.40

LT perspective—Gold is trending lower after violating the lower end of a multi-year ascending triangle; further downside from here leaves the December ’16 lows (~$1,125) as the next area of support.


Intermarket Analysis | Copper

14 15 16 17 181.81.8

2.02.0

2.22.2

2.42.4

2.62.6

2.82.8

3.03.0

3.23.2

3.43.4

3.63.6

2.80


Copper (NYM $/lbs)Oct 02, 2018 2.80

Copper has reversed a ST downtrend after bouncing off recent lows; we suspect a retest of key overhead resistance is now underway.


Foreign Markets

PIPER JAFFRAY | 38

Index Price Day Week 1-month QTD YTD% from 52-week High 50-day MA 200-day MA 14-day RSI

DOW JONES INDUS. AVG 26773.94 0.46% 1.06% 3.12% 1.19% 8.31% 0.19% 25873.84 25088.76 69.77

S&P 500 INDEX 2923.43 -0.04% 0.27% 0.76% 0.32% 9.34% 0.60% 2872.96 2759.67 61.90

NASDAQ COMPOSITE INDEX 7999.547 -0.47% -0.10% -1.36% -0.58% 15.88% 1.67% 7918.11 7474.55 52.70

RUSSELL 2000 INDEX 1656.042 -1.01% -3.09% -4.87% -2.39% 7.85% 5.20% 1700.44 1617.32 31.47

S&P/TSX COMPOSITE INDEX 16017.23 -0.54% -0.88% -1.51% -0.35% -1.18% 3.55% 16253.65 15981.85 39.02

S&P/BMV IPC 49376.5 -0.93% -0.55% -0.23% -0.26% 0.04% 3.53% 49363.50 48274.14 49.40

BRAZIL IBOVESPA INDEX 81612.28 3.80% 3.79% 7.11% 2.86% 6.82% 8.22% 77839.52 79851.15 64.23

ARGENTINA MERVAL INDEX 32730.38 0.45% -3.88% 13.62% -2.19% 8.86% 8.34% 29216.78 30251.17 59.42


Euro Stoxx 50 Pr 3388.99 -0.74% -0.90% -0.18% -0.30% -3.28% 9.44% 3413.95 3461.07 48.84

FTSE 100 INDEX 7474.55 -0.28% -0.44% -0.40% -0.47% -2.77% 5.74% 7523.86 7489.64 51.93

CAC 40 INDEX 5467.89 -0.71% -0.20% 1.00% -0.47% 2.92% 3.47% 5422.21 5387.53 55.27

DAX INDEX 12287.58 -0.42% -0.70% -0.48% 0.33% -4.88% 10.66% 12374.79 12592.22 49.78

IBEX 35 INDEX 9305.5 -1.08% -1.98% -0.75% -0.89% -7.35% 14.38% 9526.02 9819.06 38.79

FTSE MIB INDEX 20562.31 -0.23% -5.11% 0.82% -0.72% -5.91% 19.37% 21096.64 22304.40 39.63

OMX STOCKHOLM 30 INDEX 1656.902 -0.63% 0.01% -0.20% -0.33% 5.07% 1.50% 1634.08 1586.64 55.17

SWISS MARKET INDEX 9087.32 -0.44% 0.73% 0.93% -0.01% -3.14% 5.82% 9033.69 8953.28 57.74


TOPIX INDEX (TOKYO) 1816.76 -0.40% -0.27% 5.61% -0.03% -0.04% 5.20% 1739.26 1764.22 70.02

NIKKEI 225 24148.2 -0.50% 0.48% 6.35% 0.12% 6.08% 1.24% 22813.38 22485.18 75.11

HANG SENG INDEX 27126.38 -2.38% -1.36% -2.12% -2.38% -9.33% 23.44% 27767.93 29765.39 44.79

SHANGHAI SE COMPOSITE 2821.35 1.06% 3.37% 3.53% 0.00% -14.69% 27.14% 2758.91 3074.68 61.80

KOSPI INDEX 2309.57 -1.25% -0.60% 0.11% -1.43% -6.40% 12.88% 2293.67 2404.81 50.02

Nifty 50 11008.3 0.71% 0.37% -5.75% 0.71% 4.54% 6.83% 11344.86 10774.48 37.68

S&P/ASX 200 INDEX 6146.6 0.33% -0.74% -2.60% -0.98% 1.34% 3.69% 6241.78 6079.31 38.29

S&P/NZX 50 Index Gross 9305.32 -0.23% -0.48% 0.52% -0.49% 10.80% 0.82% 9138.37 8686.14 57.36

Percentage Change

Euro

pe/A

fric

a/M

iddl

e Ea

stA

sia/

Paci

fic

Am

eric

as

Percentage Change

Percentage Change

Source: Piper Jaffray Technical Research/Bloomberg, Prices as of 10/2/2018

Foreign Markets | Global Equity Performance

Based on the ‘cleanest dirty shirt’ paradigm, U.S. equities appear to be washed and pressed relative to the rest of global equity markets.

Bear Market Territory!


Foreign Markets | China Bear Market


Foreign Markets | DAX Index

14 15 16 17 18 8,0008,000

9,0009,000

10,00010,000

11,00011,000

12,00012,000

13,00013,000

14,00014,000

12287.58


Germany DAX (TR)Oct 02, 2018 12287.58

LT perspective—The DAX index is trading near the neckline of a H&S top formation; reduce positions on a break below the neckline.


Foreign Markets | FTSE 100 Index

14 15 16 17 18 5,5005,500

6,0006,000

6,5006,500

7,0007,000

7,5007,500

8,0008,000

7474.55


FTSE 100Oct 02, 2018 7474.55

LT perspective—The FTSE 100 has formed a bearish double-top after violating a multi-year uptrend; recent relief rally has failed at overhead resistance; reduce positions.


Foreign Markets | Nikkei 225 Index

14 15 16 17 18 12,00012,000

14,00014,000

16,00016,000

18,00018,000

20,00020,000

22,00022,000

24,00024,000

26,00026,000

24110.96


Nikkei 225Oct 03, 2018 24110.96

LT perspective—The index is trading at multi-year highs after reversing a ST downtrend; add to positions, as we suspect further upside lies ahead.


Foreign Markets | MSCI Emerging Markets

14 15 16 17 18 35,00035,000

40,00040,000

45,00045,000

50,00050,000

55,00055,000

60,00060,000

65,00065,000

70,00070,000

57320.01


MSCI EM (Emerging Markets)Sep 28, 2018 57320.01

LT perspective—The index has violated a LT uptrend/key support level; recent relief rally has concluded at overhead resistance; reduce positions.


Actionable Ideas

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Group is approaching the 40-week MA after reversing a multi-year downtrend; RS has bottomed and is now climbing higher; price momentum has eased but still remains in positive territory; add to positions, as we suspect more upside lies ahead.

3



APA—Shares are approaching the neckline of a multi-month inverted H&S bottom; back above the 10-/30-week WMAs; RS has formed a bullish divergence from price action and is back in positive territory; a close above $49 should open the door to a new leg higher; add to positions on a topside breakout.

PIPER JAFFRAY | 47

Group has pulled back to support near the rising 40-week MA; RS is near the midpoint of a rising channel and price momentum has faded into negative territory; wait for a breakout above the ’18 highs before adding to positions.



JPM—Shares have pulled back off overhead resistance and are currently retesting a LT uptrend support line/10-/30-week WMAs; RS has transitioned into negative territory; add to positions on a confirmed topside breakout (close above $120).

PIPER JAFFRAY | 49

Group has successfully retested the lower end of a LT rising price channel; RS has bounced higher off support and price momentum recently turned positive; add to positions, as we suspect a retest of the ‘00/’07 highs is now underway.



AXP—Major trend remains higher; shares have successfully retested support/10-week WMA after surpassing overhead resistance; RS has eased to neutral; add to positions, as we suspect a new leg higher is now unfolding.

PIPER JAFFRAY | 51

Group has successfully retested an emerging uptrend/rising 40-week MA; RS has turned higher off support while price momentum has inflected back into positive territory; add to positions, a retest of the ’15 highs appears to be underway.



MRK—Shares are trading at all-time highs after breaking out from a LT rounding bottom; above the 10-/30-week WMAs; constructive RS trend and impressive TechniGrade ranking; attractive dividend yield; maintain long positions/buy on pullbacks, as we suspect the stock has more room to run.

PIPER JAFFRAY | 53

Group has reversed a declining price channel and recaptured the 40-week MA; RS is confirming the reversal while price momentum has eased off multi-year highs; use the current pullback to add to positions.



UHS—Shares broken out from a LT descending triangle; current pullback is retesting the prior downtrend/ rising 10-week WMA; RS has eased but still remains in positive territory; use the recent weakness as a buying opportunity.

PIPER JAFFRAY | 55

Group has successfully recaptured the 40-week MA and is now approaching the upper end of a symmetrical triangle; RS and price momentum have recently inflected higher; add to positions on a confirmed topside breakout.



REGN—Shares have broken out from a ST bullish flag formation after successfully recapturing the rising 10-week WMA; RS has transitioned into positive territory and impressive TechniGrade ranking; add to positions, a retest of the upper end of the declining price channel appears to be underway.

PIPER JAFFRAY | 57

Group is ST consolidating after breaking above the ’12 highs; extended above the rising 40-week MA; RS remains directionally higher; price momentum has eased but remains in positive territory; maintain long exposure/buy on pullbacks, as we believe the Group has more room to run.



RL—Shares have broken out from a multi-year bottom; recent price action resembles a ST bullish pennant formation; RS has eased but still remains in positive territory; a close above $140 should open the door to a new leg higher; add to positions on a topside breakout.

PIPER JAFFRAY | 59

Group is trading in record high territory after surpassing key overhead resistance (’16 highs); RS remains constructive and price momentum is consolidating within positive territory; add to positions, as we suspect more upside lies ahead.



NKE—Shares are trading near all-time highs; currently retesting the rising 10-week WMA; RS remains in positive territory; use the current pullback as a buying opportunity.

Model Portfolio Holding

PIPER JAFFRAY | 61

Group has pulled back off recent highs and is currently retesting the rising 40-week MA; RS is consolidating in positive territory while price momentum has slipped into negative territory; wait for support to be confirmed before buying the pullback.

3



XLNX—Shares have broken above the upper end of a multi-month consolidation range after retesting the rising 10-week WMA; RS is confirming the breakout; impressive TechniGrade ranking; add to positions, as we suspect more upside lies ahead.

PIPER JAFFRAY | 63

Group is approaching the upper end of a secular consolidation range after breaking out from a multi-year descending triangle; above the rising 40-week MA; both RS and price momentum trends are confirming the bullish price action; add to positions.



CSCO—Shares are trading at multi-year highs after breaking out from a consolidation range; above the 10-/30-week WMAs (recent bullish crossover); RS has turned higher off recent lows; impressive TechniGraderanking and attractive dividend yield; add to positions, as we suspect further upside lies ahead.

PIPER JAFFRAY | 65

Group has surpassed overhead resistance after successfully retesting the rising 40-week MA; RS has broken out from a symmetrical triangle while price momentum has climbed back into positive territory; add to positions, as we suspect a new leg higher is now underway.



QCOM—Shares appear poised to retest support/10-week WMA after breaking out from a LT consolidation range; RS remains in positive territory; impressive TechniGrade ranking and attractive dividend yield; we see an upside measured price objective near $90; add to positions.

PIPER JAFFRAY | 67

Group is trading near record high territory; ST extended above the rising 40-week MA; RS is trending higher; price momentum has eased off recent highs but still remains in positive territory; use pullbacks toward support as buying opportunities.



GOOGL—Shares have pulled back off recent highs and are now retesting key support/10-/30-week WMAs; RS has transitioned back into positive territory; use the current pullback as a buying opportunity.


Final Thoughts

Source: Shutterstock. Reprinted by permission.


Final Thoughts | Breakout or Fake Out Shots continue to fire in the ongoing trade war with China and based on the forward progress of the broader market’s

front line, U.S. equities are managing the battle relatively well. Strong fundamentals have been the cornerstone of equity market resilience along with optimistic expectations over how tariffs will eventually culminate. While trade wars dominate front page news, another round of interest rate tightening is also looming along with a midterm election. We believe this backdrop of building unknowns will lead to higher volatility over the coming months.

The secular uptrend for the broader market remains intact. After a 7-month wait, the SPX has broken out above its January highs and is currently trading near record high territory. However, momentum and market breadth have not confirmed the recent breakout. For example, our 40-week Technique indicator has deteriorated over the last several weeks and recently joined our 26-week New Highs indicator in a sell position. Based on the lack of validation supporting the rally to new highs, we continue to question whether recent price action is either a breakout or fake out.

Alpha generation continues to be a growth story and despite stretched outperformance to value, we see few signs of a mean reversion at this juncture. Technology is also outperforming although volatility within the space has picked up as several sector-heavyweights recently pulled back off overbought levels. We continue to favor pullbacks in Technology over new money buys and reiterate our Overweight rating on the sector. Based on deteriorating relative strength and underlying commodity-related weakness, we have downgraded the Basic Materials sector from a Neutral to Underweight rating. In addition, we believe the risk/reward profile for the Utilities sector is mostly balanced at this time and we have upgraded the sector to Neutral from Underweight.

To conclude, we subscribe to the well-known fundamental theme and see limited risk to the broader market’s secular uptrend. However, the recent breakout lacks confirmation and we do not believe the reward of chasing stocks into a building trade war warrants the risk. Other potential hurdles are also coming down the track and we believe a better entry point into this bull market lies ahead. We reiterate our year-end 2,850 price target on the S&P 500.

Sectors Overweight—Consumer Cyclicals, Energy, and Technology

Sectors Underweight—Basic Materials, Consumer Staples, and Industrials


Appendix

PIPER JAFFRAY | 72

Stock Charts Guide:


PIPER JAFFRAY | 73

MicroGroup (MG) Guide:

MG components along with their most recent TechniGrade rating.

MG name: ‘Primary’ equates to large-caps, ‘Secondary’ equates to mid-caps, and ‘Micro’ equates to small-caps

MG #

MG price with 40-week MA (dashed).

MG Relative and Absolute Ratings.

MG relative strength (RS) using total return comparisons between the MG and broader market.

MG price momentum based on a 26-week period.


PIPER JAFFRAY | 74

TechniGrade Overview:

TechniGrade Concept:

Quantitative process used to identify the relative performance of each Sector, MicroGroup, and stock over time.

Ratings use a 1-20 scale (lower is better).


Stock performance is compared to the performance of the entire MG Index, comprised of all participating stocks within the War Plan universe.

The process is then repeated until a ratio has been calculated over the last six-month period. A heavier weighting is also applied to the most recent data.

Based on these calculations, a TechniGrade rating from 1 to 20 is automatically assigned to each stock on an ongoing basis*.

*The same process is repeated for MicroGroups (MGs) and sectors. They are also assigned TechniGrade ratings using the same 1-20 scale.

PIPER JAFFRAY | 75

MACE: Moving Average Cycle Evaluation Used to identify the precise position of each MG/stock based on a

short-term, intermediate-term, and longer-term moving average (MA).

Short-Term (S)= 4-week MA Intermediate-Term (M)= 13-week MA Longer-term (L)= 26-week MA


U1 Possible uptrend (L > S > M)U2* Confirmed uptrend (S > L > M)U3* Well-defined uptrend (S > M > L)D1 Possible downtrend (M > S > L)D2 Confirmed downtrend (M > L > S)D3 Well-defined downtrend (L > M > S)* Historically outperform

MACE Overview:

PIPER JAFFRAY | 76

1 2 3 4 5 6 7 8 9

Quick GuideSector/MicroGroup name and number/underlying stock information. Note: the Unweighted (“Unwtd’) and Weighted (“Wtd”) versions of the sector are also included.

MACE Information. Includes the current MACE evaluation for each sector, MicroGroup, and underlying stock along with the number of weeks it has been in the listed cycle. For example, EGN transitioned to a U3 this week (“U3 1”) while its MicroGroup has been in a D2 for 5 straight weeks.

Indicates the position of each sector/MicroGroup/underlying stock relative to its respective 40-week MA. For example, MicroGroup 103 is trading below its rising 40-week indicated by the “- +”. Note : “+ +” =above a rising 40-week MA, “+ -” =above a falling 40-week MA , “- +”=below a rising 40-week MA, “- -” =below a falling 40-week MA

Notable improvement (+) or deterioration in the sector, MicroGroup, or underlying stock. For example, RSPP has a “+” due to its improving TechniGrade rating over the last several weeks.

Technigrade information listed with the most recent data on the left (read from right to left). You can compare the trend of a stock to its MicroGroupand/or sector over the last several months. For example, RSPP has been outperforming the Energy sector and its MicroGroup amid a strengthening TechniGrade trend.

Sector/MicroGroup index levels and price along with the weekly close of each underlying stock.

Market-capitalization of each underlying stock.

Performance information for the sector, MicroGroup, and underlying stock.

Relative and Absolute ratings for the sector and MicroGroup.

1

2

3

4

5

6

7

8

9


War Plan Application | Quick Guide

PIPER JAFFRAY | 77

Piper Jaffray Technical ResearchContact us for more information about our products:

Craig Johnson, CFA, CMTManaging DirectorChief Market Technician 612 [email protected]

Adam Turnquist, CMTAssistant Vice PresidentTechnical Research Analyst312 [email protected]

Office locations:Minneapolis, MN HeadquartersAtlanta, GABoston, MAChicago, ILLondon, U.K.Los Angeles, CANew York, NYSan Francisco, CAZurich, Switzerland

Visit piperjaffray.com for more information.

Defining the Trend in Technical Analysis

Piper Jaffray Technical Research studies the market through the use of its proprietary MicroGroup charts and intermarket analysis for the purpose of forecasting future price trends in the broader market and individual equities. Through a disciplined study of price action via charts, the Piper Jaffray Technical Research team identifies emerging trends and themes as well as key support and resistance levels in the market.

We believe the Piper Jaffray MicroGroup Project is the most definitive group work on Wall Street, comprised of 12 economic sectors, over 500 MicroGroups and more than 6,000 stocks.

Our proprietary analysis tools:The Piper Jaffray Technical Research team identifies emerging trends and themes in the market through a disciplined study of price action and three proprietary tools.• M.A.C.E.• 40-week Technique• Total Return Relative Strength

Technical analysts specifically study the following:• Volume • Advance• Decline• Momentum (Rate of Change)• New Highs/Lows• Chart Patterns• Divergences

The premise of technical research is:• Market action discounts everything.• Prices move in trends.• History repeats itself.• Price action should reflect shifts in supply and

demand; if prices are rising, demand must exceed supply and the fundamentals must be improving. If prices fall, the fundamentals must be weakening.

Our proprietary products include:• Monthly Informed Investor • Weekly Updates• Model Portfolio Changes• War Plan (available online) • Color TechniGrade • MicroLites/Timely Charts• Technical Morning Comments • Weekly War Plan/Pano/Ratings• Custom Portfolio Analysis• Annual Seasonality Report• Piper Jaffray Chart Services Chart books

(AMEX, NYSE, OTC I, II & III)• Weekly Homework Grids


PIPER JAFFRAY | 78

Craig W. Johnson, CFA, CMT is a managing director and Chief Market Technician of Piper Jaffray's technical research group. Johnson joined Piper Jaffray in 1995 as an analyst in the firm's private client research department. He offers frequent technical commentary on the broader market and individual stocks.

Johnson earned his B.S. degree with an emphasis in finance and marketing and his M.B.A. from Drake University. Johnson holds the Chartered Financial Analyst and Chartered Market Technician designations and is an active member of the Twin Cities Society of Securities Analysts and co-chapter chair of the Minnesota Chapter Market Technician Association. He is also the President of the Market Technicians Association and leads its Board of Directors.

Tel: +1 612 303-6428Email: [email protected]

Craig Johnson, CFA, CMTManaging Director, Chief Market Technician

Adam Turnquist, CMTAssistant Vice President, Technical Research Analyst

Adam Turnquist, CMT is a research analyst at Piper Jaffray focusing on technical analysis. Prior to joining Piper Jaffray in 2016, he worked in the fixed income market trading various types of debt instruments. Turnquist holds the Chartered Market Technician designation along with a bachelor’s degree in finance from the University of Minnesota-Duluth and an MBA from the University of St. Thomas.

Tel: +1 312 267-5028Email: [email protected]


PIPER JAFFRAY | 79

Guiding Clients Since 1895

1895George B. Lane Commercial paper is established, later merging with Piper, Jaffray Co.

1931Lane, Piper & Jaffray merges with Hopwood Investment Co. and gains a seat on the NYSE

1987Piper Jaffray establishes a presence in London, expanding business into Europe

1998U.S. Bancorp acquires Piper Jaffray in a cash transaction valued at $730 million

2003Piper Jaffray becomes independent, publicly held company following spin-off from U.S. Bancorp

2015Piper Jaffray acquires Simmons & Company and River Branch Holdings, bolstering its sector coverage in energy and financial institutions respectively, and grows its fixed income services group with the acquisition of BMO Capital Markets GKST

2006Private client services division is sold to UBS Financial Services, allowing Piper Jaffray to redirect business strategy toward building a leading investment bank

2010Piper Jaffray acquires Advisory Research, Inc. to grow asset management capabilities

2013Seattle-Northwest Securities Corporation acquisition significantly expands the firm’s municipal business


PIPER JAFFRAY | 80

Piper Jaffray Technical Research | Historical Price Objectives


Important Research Disclosures

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Piper Jaffray 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 decisions. This report should be read in conjunction with important disclosure information, including an attestation under Regulation Analyst Certification, found at the following site: http://www.piperjaffray.com/researchdisclosures. Analyst Certification – Craig W. Johnson, Technical Analyst: The views expressed in this report accurately reflect my personal views about the subject company and the subject security. In addition, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report.Piper Jaffray research analysts receive compensation that is based, in part, on the firm's overall revenues, which include investment banking revenues.Affiliate disclosures: Piper Jaffray is the trade name and registered trademark under which the corporate and investment banking products and services of Piper Jaffray Companies and its subsidiaries Piper Jaffray & Co. and Piper Jaffray Ltd. are marketed. Simmons & Company International is a division of Piper Jaffray & Co. This report has been prepared by Piper Jaffray & Co. and/or its affiliate Piper Jaffray Ltd. Piper Jaffray & Co. is regulated by FINRA, NYSE and the United States Securities and Exchange Commission, and its headquarters are located at 800 Nicollet Mall, Minneapolis, MN 55402. 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craig johnson: cfa, cmt, mba · 02-10-2018 · craig johnson: cfa, cmt, mba joined piper jaffray...

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