A review of the Autonomies
Eoin Treacy's view The perception of imminent financial ruin appears to be dissipating following
last week's Eurozone summit and as the potential for an interest rate cut by
the ECB increases, the outlook for a number of globally oriented companies is
improving. Sectors that benefit from the growth of the global consumer continue
to outperform. (Also see my last comprehensive review of Autonomies on May
22nd when the potential for mean reversion had increased substantially).
We define Autonomies as truly global companies that have outgrown their respective home markets, have brand recognition, dominate their respective niches, possess solid cash flows and exhibit a strong record of dividend increases.
In the technology and consumer electronics sector Apple (1.79%) continues to consolidate above its May low, allowing a steady reversion towards the still ascending 200-day MA. The May low near $528 can now be considered a psychological Rubicon for the medium-term uptrend. Microsoft (2.62%), IBM (1.74%), Samsung (0.43%) and Intel (3.38%) have all firmed in the region of their respective 200-day MAs and sustained moves below them would be required to question potential for additional medium-term upside. Google remains largely rangebound but has found at least short-term support in the last few weeks. Qualcomm (1.8%), Microchip Technology (4.27%) and Cisco (1.87%) all experienced deeper corrections in May but have all found at least short-term support and sustained moves below their respective June lows will be required to reassert supply dominance and offset potential for additional higher to lateral ranging. High Tech Computer (10.13%) hit a new reaction low in mid-June and while it has steadied, it will need to break the short-term progression of lower rally highs to question the downtrend. Lam Research Corp acquired Novellus Systems last month and found at least short-term support near the lower side of its 9-month range over the last few weeks.
In the healthcare sector, Eli Lilly (4.56%), Bristol Myer Squibb (3.77%), Sanofi (4.37%) and Merck (4.01%) have completed relatively lengthy consolidations and are extending their respective breakouts. Biogen continues to extend its already impressive advance where its progression of higher reaction lows has been a hallmark of consistency. Novo Nordisk (1.81%), Johnson & Johnson (3.59%), Pfizer (3.83%) and GlaxoSmithKline (5.14%) are pressuring the upper sides of their respective ranges and clear downward dynamics would be required to check potential for successful upward breaks. I've added both Fresenius Medical Care (1.23%) and Fresenius SE (1.15%) to the list of Autonomies. The former is pressuring the upper side of its range while the latter has already broken upwards.
In the restaurants sector McDonalds (3.18%) has posted its largest reaction in four years and will need to break the progression of lower rally highs and sustain a move back above the 200-day MA to suggest a return to demand dominance. Yum Brands (1.78%) has returned to test the region of the 200-day MA.
In the beverages sector, Anheuser Busch InBev (1.9%), Diageo (2.8%), Remy Cointreau (1.46%), Pernod Ricard (1.76%) and Coca Cola (2.58%) have all posted new highs in the last week and clear downward dynamic will be required to check potential for additional upside. Asia Pacific Breweries (2.74%), SAB Miller (2.48%) and Pepsi (3.04%) are pressuring the upper side of their respective ranges. Starbucks (1.29%) continues to pause above its 200-day MA.
In the foods sector Nestle (3.4%), Unilever (4.05%), Kraft (2.98%) and Heinz (3.77%) continue to find support in the region of their respective 200-day MAs and are pressuring their highs. Sustained moves below their MAs would be required to question medium-term uptrend consistency.
In the supplements sector Mead Johnson Nutrition (1.48%) has held a progression of higher reaction lows since its initial listing. It pulled back sharply last week to test this sequence but a sustained move below $77 would be required to question the consistency of the medium-term uptrend. Following a deep pullback, Herbalife (2.43%) has at least steadied in the region of $42. (Also see yesterday's Comment of the Day.
In the consumer staples sector, Colgate Palmolive (2.39%) and Kimberly Clark (3.53%) continue to extend their respective breakouts but are becoming increasingly overextended relative to the 200-day MA. Reckitt Benckiser (4.01%), Hengan International (1.76%) and Uni-Charm Corp (0.75%) have all recently found support in the region of their respective 200-day MAs. Procter & Gamble (3.68%) has found at least short-term support in the region of the lower side of the more than two–year range and a sustained move below $60 would be required to check potential for an additional bounce.
In the cosmetics sector, Estee Lauder (0.96%) has at least paused in the region of the 200-day MA but will need to sustain a move above it to suggest a return to demand dominance beyond the short term. NuSkin Enterprises (1.67%) will need to hold above its May low if the benefit of the doubt is to be given to the upside.
In the aspirational goods sector, LVMH (2.15%), Compagnie Financiere Richemont (1.04%), Christian Dior (2.36%) have all at least paused in the region of their respective 200-day MAs and sustained moves below their June lows would be required to question potential for additional upside. BMW (3.94%) found at least short-term support last week and will need to hold above €53 if potential for an additional bounce is to remain credible. Nike (1.62%) missed a profit estimate last week and fell sharply. It stabilised somewhat yesterday but the recent lows will need to hold and a process of support building will need to take place if investor confidence is to be restored.
In the supermarkets sector Wal-Mart Stores (2.29%) broke successfully above $60 in mid-May and has rallied to test the all-time high near $70. This represents a natural area for consolidation but a sustained move below $65 would be required to begin to question medium-term scope for additional upside. Tesco (5.18%) has returned to test the 2008 lows near 300p where it has at least steadied. However a sustained move above the 200-day MA, currently near 340p but falling quickly, will be required to signal a return to medium-term demand dominance.
In the mining sector, BHP Billiton (4.09%) and Rio Tinto (3.15%) have found at least short-term support in the region of the lower sides of their respective more than two-year ranges. Sustained moves below their June lows will be required to check potential for at least a further bounce.
In the compressed air sector Linde (2.07%) and Praxair (2.03%) found support in the region of their MAs in June while Air Liquide (2.49%) has found at least short-term support in the region of the lower side of its more than yearlong range.
In the energy sector Exxon Mobil (2.67%) and Royal Dutch Shell (4.98%) found support in June and have rallied to break short-term progressions of lower rally highs. A sustained move below their respective June lows would be required to question potential for continued higher to lateral ranging.
In the industrials sector Siemens (4.5%) has found at least short-term support last week in the region of the October low near €60. A sustained move below that level would be required to check potential for a further unwind of the short-term oversold condition. Emerson Electric (3.53%) has lost momentum near $44.50 but will need to sustain a move above the 200-day MA to confirm a return to demand dominance beyond the short term. Intertek Group (1.39%) remains in a relatively consistent medium-term uptrend and a sustained move below the 200-day MA, currently near 2300p would be required to question medium-term uptrend consistency.
I have added both Visa and Mastercard to the list of Autonomies because they fulfil the requirement of truly global businesses that dominate their niche. Visa (0.69%) hit a new high this week while Mastercard (0.27%) is rallying towards its peak.