O’Neil Health Care Weekly

XLV’s RS line ( vs S&P 500 ) pulled back last week after multiple near-term extended Health Care ideas
consolidated gains over the last several weeks. Ideas that ran into extended levels pre-print pulled back postprint despite many reporting better-than-expected results. Despite losing some momentum, overall action
remains constructive with few ideas breaking important levels of support.

Market View

The U.S. market remains in a Confirmed Uptrend. The S&P 500 made another new all-time high Thursday, moving back above its upper channel line and more than 5% above its 50-DMA before pulling back from extended levels Friday. The Nasdaq briefly touched a new all-time intraday high Thursday, before also pulling back on Friday. We continue to view short-term support at the rising 21-DMA for both indices. The distribution day count stands at four and three, respectively, with no expiration for two full weeks.

O’Neil Health Care Weekly

Over the last five sessions, Commercial Services ( HCSG ), Systems/Equipment ( SWAV ), and Drug Suppliers
( PETQ ) led, while Generic Drugs ( TEVA ), Services ( IRTC ), and Long-term Care ( ENSG ) lagged.

Market View

The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq closed relatively flat for the week
after each held support along short-term moving averages. The S&P 500 rallied off its 10-DMA Friday to close

back at its upper channel line, while the Nasdaq held its 21-DMA before moving back toward all-time high re-
sistance at 14,175. The distribution day count stands at four each with one expiring on the S&P 500 and two on

the Nasdaq next week.

Danaher

Key points from this report:

  • Buy Danaher. The stock broke out from a six-month consolidation in heavy volume into new-all-time highs following beat-and-raise Q1 results.
  • Beat-and-raise Q1Revenue grew 58% y/y, 1% better than last week’s preannouncement and 9% above consensus. EPS increased 140% y/y to $2.52, 43% better than consensus of $1.76. The company is now looking for 2021 core revenue growth in the “high teens,” up from previously expecting “low double-digit” growth. 
  • Bioprocessing business – Cytiva: Through the acquisition of Cytiva, Danaher has become the global market leader for bioprocessing, with 30%+ share. In 2020, Cytiva generated 25%+ core revenue growth and $4B+ in revenue. In Q1, Cytiva accounted for 10% core revenue growth. Before COVID-19, the biotherapeutics industry was expected to grow by double digits through 2025.
  • Base business recovering: Danaher’s base business is now recovering following a 10% y/y decline in Q2 2020. In Q1, core revenue growth accelerated 10% y/y from 3–4% y/y in Q3 2020 and Q4 2020. This business is expected to grow by a high-single-digit percentage in 2021. We believe revenue from diagnostic testing will begin to decline due to global vaccination initiatives, however, tools related to COVID vaccine production will likely remain strong given recurring vaccinations may be necessary for years to come.

 

Market View

The U.S. market remains in a Confirmed Uptrend. The S&P 500 continues to make new all-time highs, now
gaining 1% or more for four straight weeks. The index is trading above its upper channel line and ~6% above its
50-DMA, the biggest extension since August 2020. Though extended, there are no signs of technical weakness
as the index remains above all major moving averages with low distribution. The Nasdaq is testing all-time high
resistance between current prices and 14,175. Look for the 10- and 21-DMA to act as near-term support should
indices pullback next week. The distribution day count stands at three and four, respectively, with no expiration
next week.

O’Neil Health Care Weekly

  • XLV’s RS line (vs S&P 500) remains at seven-year lows. XLV is the worst performing sector ETF over the last
    8- and 13-weeks, and the third worst performer over the last six months.
  • Over the last five sessions, Outpatient Care (AMED), Systems/Equipment (WAT), Research
    Equipment/Services (AVTR), and Products (STAA) led, while Commercial Services (VCRA), Generic Drugs
    (AMRX), and Biotech (BGNE) lagged.

Market View

The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq rallied strongly this week, building
on last week’s gains and now approaching levels of potential resistance. The S&P 500 is now sitting just below

its upper channel line, a level the index has respected since breaking out last November. The Nasdaq, after re-
gaining its 50-DMA late last week, is now on the right side of an eight-week consolidation and approaching re-