The U.S. market is in an Uptrend Under Pressure. The S&P 500 and Nasdaq are consolidating below their respective 50-DMA after advancing ~2.8% this week. Despite the move higher, we maintain a cautious outlook as
the 50-DMA has consistently been a level of resistance over the last four weeks. The distribution day count
stands at four days on the Nasdaq and three days on the S&P 500
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.
Market View
The U.S. market is in an Uptrend Under Pressure. The S&P 500 and Nasdaq sold off more than 2.6% after trad-
ing slightly below resistance at the 50-DMA for several sessions. Each index picked up a distribution day, as the
count increased to three days on the Nasdaq and two on the S&P 500. Indices are poised to re-test August 5
lows, which is followed by support at the rising 200-DMA.
The selloff was broad-based as all 11 sectors declined, led lower by Energy (-3.3%), Transportation (-3.2%), Cy-
clical (-3.1%), and Technology (-3.1%). Nine of 11 sectors are trading below their 50-DMA including four—En-
ergy, Cyclical, Transportation, and Heath Care—below their 200-DMA. Of S&P 500 constituents, 67% are below
their 50-DMA and 48% are below their 200-DMA.
We maintain a cautious outlook as indices face upside resistance at their respective 50-DMA. Leadership re-
mains narrow and we advise reducing exposure as ideas break below long-term support levels. We believe a
defensive posture should be taken until the technical profile across indices, sectors, and groups improves.
Edwards Lifesciences
Key points:
The stock broke out of a cup-with-handle base on July 24 post print. It is constructively trading higher with support at its 21-DMA.
Fundamental ratings: EPS Rank 93, top Composite Rating 99, top SMR Rating A.
Technical ratings: RS line near all-time high, RS Rating 96, A/D Rating A
Market View
U.S. Market
The U.S. market is in an Uptrend Under Pressure. The S&P 500 and Nasdaq continue to whipsaw below 50-
DMA resistance. Though the Nasdaq did stage a day-six follow-through on Tuesday, gains were immediately
wiped out Wednesday with instant distribution. Further, few quality ideas have been set up technically to buy with
the majority chopping around within consolidation. Our primary expectation is that the August 5 lows (S&P 500:
2,822; Nasdaq: 7,662) are undercut and we eventually test the 200-DMA. This would result in the market status
being moved back to a Downtrend. We would change our current cautious outlook should indices rally strongly,
close, and importantly hold above their respective 50-DMA. Should that occur, we would move the market status
back to a Confirmed Uptrend.
Aug 15, 2019 – Key insight on recent IPOs
In this week’s webinar, Executive Director, Research Analyst Raj Gupta reveals the fundamental and technical characteristics our analysts believe are necessary for successful new issues. He will be joined by other O’Neil analysts, who will provide exclusive insight on recent IPOs and other ideas they are watching.
IPO Rewind
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 and release a few quarters of earnings. 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 a Rally Attempt. The S&P 500 and Nasdaq have now held above Monday’s low for four
sessions. We are now looking for a follow-through day before shifting the market back into a Confirmed Up-
trend or, conversely, an undercut of Monday’s lows (S&P 500: 2,822; Nasdaq: 7,662) before shifting the market
back into a Downtrend. A follow-through day should feel like an explosive rally, with indices preferably up 1.7%
or more, on heavier volume than the day before. We would recommend a gradual increase in risk should a fol-
low-through day occur next week. Positively, both indices closed off their lows Friday after finding support at their
respective 100-DMA.
Following Monday’s selloff, multiple sectors, including Technology, rallied back strongly to narrowly recapture
their respective 50-DMA. Most, however, continue to chop around that level similar to the major averages. The
majority of leading ideas are doing the same—consolidating around their respective 50-DMA—though a select
few remain very strong, bucking general market weakness and continuing into new highs following better-than-
expected results. ~45% of S&P 500 and Nasdaq 100 stocks are trading above their respective 50-DMA.
Haemonetics Update
Key points:
- The stock broke above a tight area of consolidation post print after finding strong support at its 50-DMA. We recommend holding core positions despite poor general market conditions given the Company’s very strong Q1 FY20 results and a long runway for future growth. Look to add to positions as the 21-DMA catches up to current prices.
- Fundamental ratings: EPS Rank 83, Composite Rating 96, SMR Rating B.
- Technical ratings: RS line at all-time highs, RS Rating 96, A/D Rating B+.
Market View
The U.S. market is in an Uptrend Under Pressure. The S&P 500 and the Nasdaq pulled back sharply this week
after hitting resistance at all-time highs. The distribution day count is elevated with seven and five on the S&P
500 and Nasdaq, respectively. Indices are testing support at the 50-DMA as the Nasdaq and S&P 500 are sit-
ting on this key moving average.
Ten of 11 O’Neil sectors declined this week with four sectors falling more than 4%. Consumer Cyclical (-4.2%)
pierced through its 50-DMA and led the move lower as multiple apparel/leisure groups were under heavy distri-
bution. Six other sectors are testing support at their 50-DMA. Overall, 32% of S&P 500 stocks are trading below
their 50-DMA.
We maintain a cautious view of the general market until we see the S&P 500 and Nasdaq consolidate at support
and resume strength. The break below the 21-DMA and testing of support at the 50-DMA warrants a cautious
approach. Avoid new buys and reduce risk in ideas that have gapped down below 50-DMA support as these
ideas will likely lag until a new catalyst presents itself. Until then, stay patient and wait for market conditions to
improve.
Market View
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq are trending into higher highs with
support off their respective 10- and 21-DMA. Distribution stands at six days on the S&P 500 and four on the
Nasdaq, with one day set to expire on both indices next Tuesday. To remain positive, we would like to see near-
term support levels continue to hold and distribution begin to subside.
Leadership is broadening. The majority of leading ideas and industry groups are holding logical levels of sup-
port or hitting higher highs, while previously lagging industry groups have rallied sharply off lows. Technology,
Transportation, and Consumer Cyclical rallied more than 2% each this week, while three other sectors including
Financial rallied more than 1%. Utility and Energy are the only two sectors lagging, both trading right around
their respective 50-DMA. 74 of 197 (37%) O’Neil Industry Groups are trading within 5% of a 52-week high with
160 groups (81%) trading above the 50-DMA. 46 industry groups rallied by more than 3% this week.
The overall backdrop remains positive, despite the elevated distribution day count on the S&P 500. Continue to
add to leading ideas as they rally off moving average support or emerge from secondary entry points. Lock in
partial gains in ideas that have become too far extended from later stage bases and logical levels of support.
Continue to avoid lagging ideas trading below their respective 50- and/or 200-DMA.
