The U.S. market remains in an Uptrend Under Pressure. The S&P 500 reversed sharply from 200-DMA resistance
this week, closing down 2.7% and back below all key moving averages. It is now trading slightly below support at 4,278
before February lows of 4,114. The Nasdaq failed at its 50-DMA (13,654), declining 3.8% for the week and now just 3%
above support at March lows (12,555). The distribution day count remains elevated at seven and six, respectively.
Author: Raj Gupta
Raj Gupta is Director, Research Analyst.
After joining the firm in 2002 as a research analyst, Raj was appointed senior equity analyst in 2006, and lead senior equity analyst in 2014—largely because of his ability to select outperforming stocks. He acts as an expert in the O’Neil Methodology and contributes to the direction of product and service line development. He recommends securities for addition to or removal from the U.S. Focus List, or USFL, and the associated alerts to clients. During his tenure, he was part of the leadership that developed the Global Focus List, which marked the firm’s successful expansion into international equity recommendations. He is also a lead on the IPO Rewind report and contributes to weekly summaries on the performance of the U.S. market. Much of his expertise is delivered as highly customized service to clients.
RAj earned his Bachelor’s degree in Economics from the University of California, Santa Barbara. He began working at the firm directly out of college, driven by his passion for investing and stocks. An avid soccer player, he built and managed an adult league in the Los Angeles area, in which he still plays. He also enjoys international travel; he and his wife commit to at least one major adventure a year.
O’Neil Health Care Weekly
XLV pulled back 2.9% last week, retracing the majority of the breakout to new highs. Overall action, however, remains
constructive, as the index is still trading above its 21-DMA ($137.56) with an RS line hovering near highs.
Leading industry groups (Distribution, Pharma, Managed Care) continue to act well, however, all have become near-term
extended and are due to consolidate. We recommend offensively locking in partial gains, while looking to add risk back on
constructive pullbacks towards 50-DMA support.
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.
Market View
The U.S. market is in an Uptrend Under Pressure. The S&P 500 and Nasdaq declined for a second straight week,
closing below all major moving averages while adding distribution. The next level of support on the S&P 500 is ~4,278
while support for the Nasdaq is ~13,094 before year-to-date lows. The distribution day count has increased to five and
four, respectively.
O’Neil Health Care Weekly
XLV jumped 3.4% last week, breaking out to a new all-time high led by strength across Pharmaceuticals, Managed Care
and Medical Distribution. These three groups have led the sector for the entirety of the year, extended gains into all-time
highs.
Market View
The U.S. market remains in a Confirmed Uptrend. The S&P 500 pulled back towards its 50-DMA (4,427) before finding support to close off weekly lows. The index is now trading 7% off highs with three distribution days in the last seven sessions. The Nasdaq reversed from 200-DMA resistance, closing down over 3% and narrowly below its 50-DMA. This index is trading 15% off highs with two distribution days in the last four sessions. We will shift the market status to Uptrend Under Pressure should the S&P 500 also close below its 50-DMA.
O’Neil Health Care Weekly
XLV gained 1.3% last week, holding support along its 10-DMA. Overall action remains constructive with the ETF above all
key moving averages. Resistance remains at all-time highs of $141.98. The 50-DMA is rising into $132.
Market View
The U.S. market remains in a Confirmed Uptrend. Indices pulled back over the last few sessions after accelerating higher earlier in the week. The S&P 500 is testing its 10-DMA (4,519) followed by the next level of support at its 200-DMA (4,485). The Nasdaq is also slightly above 10-DMA (14,137) support but remains below 200-DMA resistance despite the advance over the last few weeks. The distribution day count stands at one on the S&P 500 and none on the Nasdaq.
Defensive sectors – Utility, Consumer Staples and Health Care – along with Consumer Cyclical, led by Autos Manufacturers, outperformed this week after rising 1-3% respectively. Conversely, three sectors declined more than 1% led lower by Transportation (-4%), and Energy (-2%). Multiple sectors continue to trade below 200-DMA resistance including Financial, Technology, Retail , Consumer Cyclical and Health Care. The best performing industry groups over the past week include Consumer Electronics, Autos, Airlines, Travel Booking, Utilities, Outpatient Care, Medical Products, Medical Software, Desktop Software, Pollution Control, and REITs. The worst performing groups include Wholesale Autos, Drug Stores, Trucks, Mobile Homes, Home Builders, Building Products, Household Appliances, Toys, Commercial Loans, and Banks. 62% of S&P 500 stocks are trading above their 50-DMA and 51% are trading above their 200-DMA, compared with 60% and 51%, respectively, a week ago. 55% of Nasdaq 100 stocks are trading above their respective 50- DMA, compared with 59% one week ago.
O’Neil Health Care Weekly
XLV pulled back 53 bps last week, tagging its 10-DMA before turning back towards recent highs.
Market View
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq continued to push higher post last week’s follow-through, remaining above 50-DMA support with no distribution. Both indices now face resistance at February highs (S&P 500: 4,595; Nasdaq: 14,509) with the Nasdaq also still below its 200-DMA (14,723).
Leading sectors led this week with Energy and Basic Material jumping another 4-7%, while Financial, Health Care, and Retail lagged, trading flat to down 1%. Technology gained another 2% and now faces resistance at its 200-DMA. All in all, breadth continues to improve with all sectors outside Consumer trading above the 50-DMA. The best performing industry groups this week included Steel, Agriculture, Oil & Gas, Metal Ores, Miners, Aerospace/Defense, Autos, Ships, Insurance, and Semiconductors. The worst performing groups included Mobile Homes, Leisure, Building Products, Home Builders, Furniture, Auto Parts, Apparel, and Medical Equipment. 60% of S&P 500 stocks are trading above their 50-DMA and 51% are trading above their 200-DMA, compared with 54% and 49%, respectively, a week ago. 59% of Nasdaq 100 stocks are trading above their respective 50-DMA, compared with 50% one week ago.
We recommend increasing risk in high quality high relative strength ideas as they build the right side of bases or emerge
from consolidation. Indices have held moving average support during intraday pullbacks, avoiding instant distribution, and
eventually progressing above multiple moving averages. Breadth has improved sharply over two weeks with the number
of actionable ideas steadily increasing. This action warrants a further increase in risk. We will now be looking for indices
to break and hold above February highs and for key moving averages to continue to hold during pullbacks to remain
constructive.
