O’Neil Health Care Weekly

XLV declined 57 bps last week and is now testing support at its 200-DMA ($147.21), which coincides with the top of its prior base.
Near-term resistance is at its 21- and 100-DMA, which are both trading just above $150. The sector is now oversold (RSI at 19)
after falling more than 7% off highs in seven weeks and is now due for either sideways action or a bounce from current levels.
Though we still recommend an underweight sector positioning until we see an improving RS line, we would cover extended shorts
and look to increase risk in high relative strength ideas that responded well to earnings.

Market View

The U.S. market remains in a Confirmed Uptrend. Indices pulled back ~1%, breached their 21-DMA (5,782,18,326) and are testing support at their 50-DMA (5,702, 17,953). The distribution day count increased to five on the S&P 500 and remains at three on the Nasdaq.

O’Neil Health Care Weekly

XLV fell nearly 3% last week, breaking below its 100-DMA ($147) and now trading more than 7% off highs. The next support level is
the 200-DMA ($147.01). Its RS line made a year-to-date low, warranting an underweight sector positioning. The RS line is at its
lowest level since 2011.

Market View

U.S. Market

 

The U.S. market remains in a Confirmed Uptrend. The S&P 500 fell 1.0% while the Nasdaq rose 0.2%, respectively for the week. Both are trading 1% off highs. Indices are holding their 21-DMA support (5,784; 18,266), with three distribution days each.

O’Neil Health Care Weekly

XLV declined 49bps last week and is now building a base on top of 100-DMA ($150.42) support. Near-term resistance is at its 50-DMA
($154), followed by the prior high of $159.64. Its RS line remains near lows, warranting an underweight sector positioning.

Market View

The U.S. market is in a Confirmed Uptrend. Indices are in an uptrend as the S&P 500 remains at all-time highs, with the Nasdaq approaching resistance near the July peak of 18,671. Support for both indices is at the rising 10 and 21- DMAs (5,761, 18,146). The distribution day count stands at two and four, respectively.

O’Neil Health Care Weekly

XLV gained 148bps last week, regaining its 50-DMA ($153.49). Near-term resistance is $157.09 followed by a new intraday high of $159.64. Its RS line remains near lows, warranting an underweight sector positioning.

 

Last week, the Medical Diversified group led as LLY regained its 50-DMA and is now on the right side of a base. Other gains largely came from lagging areas as a 4% rally in MCK led to decent gains from Medical Distribution and a 7% rally in HUM helped Managed Care rally off recent lows. Overall, the top ranked industry groups in Health Care (Hospitals, Long-term Care, Biotech, Products) remain unchanged for the last few months.

Market View

The U.S. market remains in a Confirmed Uptrend. The S&P 500 and the Nasdaq rose 1.1% apiece on the week. The S&P 500 is
trading at all-time highs, while the Nasdaq is 2% off highs. Look for support at their rising 21-DMA (5,711/17,985) to maintain the
immediate positive trend. The distribution day count remains at one and three, respectively

IPO Rewind

Attached is our monthly IPO Rewind report. This report identifies a select group of IPOs or spin-offs that have priced in the last two years, giving them time to digest any initial volatility. Our selected ideas display positive fundamental trends with strong top- and bottom-line consensus estimates, and IPO Rewind provides an efficient way to review these ideas that we believe warrant attention.

O’Neil Health Care Weekly

XLV declined 90 bps last week, falling for a third straight week and breaking below its 50-DMA ($153.25). The next level of support is
the 100-DMA ($149.66) followed by a prior pivot of $148.27. Its RS line continues to rapidly decline, warranting an equal – to –
underweight sector positioning. Despite being short-term oversold, Health Care is lagging with few ideas setup technically to buy.