The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq rallied sharply for a second
straight week, pushing further into all-time highs. Both indices have begun a new trend higher after breaking out
last week. The S&P 500 is trading ~1.5% below its upper channel line, which is now rising above 4,400. We
continue to view near-term support along the rising 10- and 21-DMA for both indices. The distribution day count
remains low at two and four, respectively, with one day expiring on the Nasdaq next week.
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 gained 1.6% last week moving back to all-time highs. Though the sector is flat versus the S&P 500 over the last month, action has been constructive. Leading groups (Hospitals, Managed Care, Tools, CRO’s) held near-term levels of support, while growth-oriented groups (Med Devices, Genomics) continue to improve. Drugs (Pharma, Biotech) are being led by a select few stocks, while the vast majority are still lagging within the sector.
Market View
The U.S. market remains in a Confirmed Uptrend. The S&P 500 shook out briefly below its 50-DMA last week
only to push right back into new all-time highs this week. The Nasdaq, which has been leading over the last few
weeks, broke out from a 19-week consolidation into new all-time highs. We continue to view the rising 21-DMA
as a key level of near-term support. The distribution day count has declined to a reasonable three and four days,
respectively, with one additional day set to expire on the S&P 500 next week.
O’Neil Health Care Weekly
XLV lost 65 bps last week but held up much better than the broader market. Its RS line is now rising over the
last two weeks, with alpha of over 3% vs the S&P 500.
Medical Tools, Devices and Services have come back under accumulation, while Managed Care, Hospitals,
and Outpatient Care have come under distribution. We recommend buying high quality growth ideas from
improving industry groups that are breaking out from constructive consolidation into new highs
Market View
The U.S. market remains in a Confirmed Uptrend. The S&P 500 pulled back to close slightly below its 50-DMA
as market breadth narrowed, while the Nasdaq traded relatively flat for the week, holding just below all-time
high resistance of 14,211. Price support below the 50-DMA on the S&P 500 is 4,056, which may coincide with
the rising 100-DMA. The distribution day count stands at six and five, respectively, with three expiring on the S&P
500 and one on the Nasdaq next week.
O’Neil Health Care Weekly
XLV rebounded sharply last week following BIIB’s FDA approval. The sector jumped back into new highs led by Biotech,
however, is still flat versus the S&P 500 over the last two weeks.
The sector has recently compressed similar to the broader market, with value-oriented groups pulling back, while growth oriented groups rally. Last week, there was notable strength in longer-term lagging groups (Biotech, Pharma, Equipment)and weakness in leading groups (Managed Care, Hospitals).
Despite last week’s action, value-oriented ideas are not broken, they are basing. They may simply need time before they
come back under accumulation again. Growth-oriented ideas are setting up, but the majority have yet to breakout and
begin a new trend. Continue to focus on the technical setups we highlight as we believe these ideas have the ability to
trend into higher highs should the market and sector remain intact
Market View
The U.S. market has shifted back to a Confirmed Uptrend. The S&P 500 is again trading at all-time highs, while
the Nasdaq is trading within 1% of all-time resistance at 14,211. Near-term support remains the rising 21- and
50-DMA, respectively. The distribution day count stands at six and three, respectively, with two expiring on the
S&P 500 and one on the Nasdaq next week. Each index has only added one distribution day in the last three
weeks.
Lonza Group
Key points from this report:
- Buy Lonza. The stock broke out of a 15-week cup-with-handle base in heavy volume.
- Leading position in biologics outsourcing. Lonza is the global leader in biologics outsourcing with 7% share. It has announced a $940M expansion plan for its next-generation mammalian manufacturing facilities for biologics.
- Capacity expansion for COVID-19 vaccine. The company has expanded its partnership with Moderna (MRNA) to increase COVID-19 vaccine production. Consensus expects $275M+ (5% of the total expected revenue) from vaccine production in 2022.
- Biogen. Aduhelm, Biogen’s Alzheimer’s drug, was approved by the FDA this week. This drug requires a high dosage which has led to speculation that Lonza may be involved with production given few companies can handle the capacity required. There is nothing confirmed yet, though a partnership makes sense.
- Lonza to become a pure-play CDMO. The company has divested its specialty ingredients (27% of total revenue) business to private equity players for $4.7B. The divestment will enable Lonza to be a leading pure-play pharma and biotech-focused CDMO partner.
- Double-digit growth through 2023. The company is set to outpace market growth with the company expecting low double-digit revenue growth through 2023, at a core EBITDA margin of 33-35%.
- Next catalyst: The company will announce H1 results on July 23.
O’Neil Health Care Weekly
XLV has lost more than 3% in alpha versus the S&P 500 over the last two weeks. Weakness last week can be largely attributed to Abbott’s gap lower on Monday and how newly anticipated COVID-19 testing weakness will negatively impact peers over the remaining year.
Though Hospitals continue to be the leading group within Health Care, we did see notable strength in select Biotech and Medical Technology ideas to close last week. The majority of ideas remain stuck within consolidation, so the overall recommendation is to be patient. With that said, keep a close eye on our highlighted early technical setups as they could lead to breakouts should the broader market push out of current rangebound trade.
Market View
The U.S. market remains in an Uptrend Under Pressure. The S&P 500 and Nasdaq traded at the low end of a relatively tight range this week before pushing back to the upper end of that range Friday. We will shift the market back to Confirmed Uptrend should the S&P 500 clear back above all-time high resistance at 4,238 next week. Near-term support remains the 21- and 50-DMA, respectively. The distribution day count stands at seven and four, respectively, with one day expiring on each next week.
