XLV rallied 1.4%, building on last week’s reversal before finding resistance at its 50-DMA ($134.28) to close the week. We
will be looking for the index to regain and settle above that level in the coming weeks. To remain constructive, the 200-
DMA ($130.39) should hold as support.
Author: Raj Gupta
Market View
The U.S. market is in a Confirmed Uptrend. The S&P 500 and Nasdaq staged a day six follow-through on Monday, jumping 1.9% and 3.4%,
respectively, in higher day/day volume. Despite a volatile week, each index closed above Monday’s lows (S&P 500: 4,414; Nasdaq: 13,767) with
no distribution, keeping the follow-through day intact. The S&P 500 now faces resistance at its declining 50-DMA (4,619), while the Nasdaq is
still trading 13% off highs and below 200-DMA resistance (14,735).
O’Neil Health Care Weekly
XLV staged an upside weekly reversal similar to the major averages. The index found support at October lows, before
closing narrowly back above its 200-DMA Friday. We will be looking for the index to regain resistance at its 21-DMA
($132.42) this week, but also remain above its 200-DMA.
Market View
The U.S. market remains in a Rally Attempt. Despite Friday’s strong rally, day-over-day volume was lower, negating a potential follow-through. Monday will mark day six of the attempted rally. We will upgrade the market status to Confirmed Uptrend should a follow-through day occur or shift back to Downtrend should Monday’s lows undercut. The S&P 500 is now sitting just under 200-DMA (4,435) resistance as the 10-, 21-, and 50-DMA are all now turning lower. Near-term support remains Monday’s low of 4,222. The Nasdaq is still trading 15% off highs with near-term resistance at the rolling 10-DMA (13,949) and support at 13,094.
O’Neil Health Care Weekly
XLV fell 3.4% last week, closing below its 200-DMA Friday for the first time since April 2020. With that said, its RS line has
begun to turn back up on the back of relative performance in big cap defensive ideas across Pharma and Managed Care.
High growth high valuation ideas continue to rapidly sell-off with few showing any signs of bottoming.
Market View
The U.S. market was downgraded to Downtrend. The S&P 500 closed below its 200-DMA with the next level of support at 4,278. The Nasdaq is now trading ~15% off highs and ~6% below its 200-DMA with the next level of support at 13,000. With the market in a Downtrend, we are now looking for indices to establish and hold a new low for a minimum of three sessions, at which point we will shift the market status to a Rally Attempt. From that point forward (day four and beyond), we will be looking for a follow-through day before advising a gradual increase in risk.
High Relative Strength in Health Care
Key points from this report:
· XLV is trading 7% off highs and below its 50- and 100-DMA. The 200-DMA ($129.69; -1.9%) is a strong level of support that needs to hold for the sector to remain in an uptrend for a longer term. This level has been successfully tested seven times since June 2020.
· Hospitals and Wholesale Drug Supply are the only two industry groups trading above their respective 50-DMA.
· High-growth, high-multiple stocks are out of favor at the start of 2022.
O’Neil Health Care Weekly
XLV pulled back slightly last week, unable to recover from its largest one week decline since October 2020. The index
faces resistance at its 50-DMA ($135.04) as support at the 200-DMA (-3.4%) rises towards current prices. Overall, the
index is consolidating and has yet to begin forming its right side.
Market View
The U.S. market is in an Uptrend Under Pressure. The S&P 500 is testing support along its 100-DMA (4,575) for the third time since early December. The index is trading 3% off highs and below price resistance at 4,748 before all-time highs. The Nasdaq tested 200-DMA (14,726) support twice this week, narrowly closing above that level Friday. This index is trading 8% off highs and below multiple layers of resistance including the 100-DMA at 15,277. The 50-DMA has also begun to turn lower. The distribution day count stands at seven and three, respectively, with multiple days set to expire on both indices next week.
O’Neil Health Care Weekly
XLV suffered its largest one week decline since October 2020. The index retraced the prior three weeks of gains, breaking
its 50-DMA ($134.89) on Friday. If the index does not quickly retake this level (shakeout) early this week, it is at risk of
declining towards the rising 200-DMA ($129.14). We recommend a near-term cautious approach given very narrow
leadership.