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

Posted on by Raj Gupta

The U.S. market is in a Confirmed Uptrend. The S&P 500 and Nasdaq made progress since last Friday’s follow-
through day, and are both now testing resistance at their respective 50-DMA (S&P 500: 2,628 (+1.2%);

Nasdaq: 6,988 ( +0.3% )). Though this is an obvious resistance level, we would still like to see the indices close
above this and consolidate for several sessions, which should lead to broader leadership.
Since the follow-through day, Consumer Cyclical, Transportation, Energy, and Technology are leading, each up
more than 7%. Further, Consumer Cyclical and Retail both regained their respective 50-DMA. We are seeing
better technical action, however, just like the major averages, most sectors are also set to hit moving average
resistance over the next several sessions. At the industry group level, Biotech, Computer Tech Services, Electronic
Measuring, Homebuilders, Internet, Medical Equipment, Payment Processors, Rails, Semiconductors, and
Software made notable moves higher.
The number of breakouts is increasing, but most ideas are still rounding out the right side of their respective
bases and have not reached risk-optimal entry points. Since the follow-through day, there were ~20 ideas with
a greater-than-$1B market cap that broke out from consolidation. We will look for more ideas to break out if the
market regains its 50-DMA in the coming days. Ideas we are watching include ADSK, CHGG, CYBR, DXCM,
EPAM, ETSY, FIVE, FIVN, GLOB, HUBS, ISRG, LULU, MEDP, NOW, PANW, RPD, SAVE, SPLK, TSLA, TWLO, ZEN,
and ZS, among others.
We continue to recommend a selective approach, gradually increasing risk in only fundamentally sound ideas
breaking out from consolidation. If the major averages can rise above their respective 50-DMA, there could be
another move higher to the 200-DMA. Should this occur, additional buy opportunities will emerge.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 28 ideas gained 4.1% on average this week, outperforming the S&P 500 (+2.5%) and the Nasdaq
( +3.5%. )
Actionable Focus List ideas: Atlassian ( TEAM ), Dorman ( DORM ), Dr. Reddy’s Labs ( RDY ), Fabrinet ( FN ), Keysight
Technologies ( KEYS ), Paypal ( PYPL ), Planet Fitness ( PLNT ), Union Pacific ( UNP ), Veeva Systems ( VEEV ), Vertex
Pharma ( VRTX ), Wingstop ( WING ), Workday ( WDAY ), Wright Medical ( WMGI ), Xilinx ( XLNX ).

Market View

Posted on by Raj Gupta

The U.S. market has been upgraded to a Confirmed Uptrend. The S&P 500 staged a day seven follow-through
on Friday, rising 3.4%, on volume 15% greater than Thursday’s. The Nasdaq rose 4.3%, but volume was slightly

less than Thursday’s, despite coming in above the 50-day average. The next level of resistance is the downward-
trending 50-DMA, at 2,637 (+4%) on the S&P 500 and 7,012 (+3.9%) on the Nasdaq.

Growth ideas and industry groups rallied sharply higher, though most continue to repair technical damage from
the last few months. Eight of 11 O’Neil sectors rallied more than 3%, led by Technology and Consumer Cyclical,

both up more than 4%. At the industry group level, Software, Internet, Semiconductors, Payment Processors, Ma-
chinery, and Biotech led. Conversely, defensive sectors lagged, with Consumer Staple and Utility rising less than

2% each.
We believe in order for this follow-through day to develop into a new bull market, growth, not value, needs to

lead. Like the market, growth-oriented industry groups still have multiple resistance levels to regain. Our convic-
tion in this follow-through day will increase as the market rises through resistance, specifically at the 50-DMA.

Further, we need to see leadership broaden and growth ideas begin to break out from consolidation.

Our recommendation is to increase risk gradually, buying only high-quality growth ideas that have either recov-
ered quickly or held up well during this correction. Best-acting ideas on the U.S. Focus List include CIEN, PLNT,

PYPL, XLNX, VEEV, VRTX, and WMGI. Ideas we are watching include AYX, CHGG, DATA, ETSY, FIVN, SPLK,
TEAM, TWLO, WDAY, and ZS, among others. Future leading ideas tend to quickly move back into new highs
within the first three to four weeks of the market bottom.
We will begin adding ideas if the market progresses higher and leadership begins to broaden. As of today, the
majority of stocks are still forming new bases with very few at risk-optimal entry points. We will also monitor for
signs of a failed follow-through day, which include a clustering of distribution days shortly following the move,
coupled with failed breakouts in individual ideas.

Market View

Posted on by Raj Gupta

The U.S. market has been moved to a Rally Attempt. Indices are consolidating after Wednesday’s big move

( ~5% ) off lows followed by Thursday’s bullish reversal. We could upgrade the U.S market to a Confirmed Up-
trend as early as Monday should a new follow-through day occur. Currently, the inventory of high quality stocks

with risk optimal entry points is low given the severe technical damage that occurred prior to this week. If a new
follow-through day occurs, we want to see more leadership ideas emerging from constructive consolidations as

risk-on sectors/groups move above price- or moving-average resistance. We recommend waiting for a new fol-
low-through day before increasing risk.

Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 24 ideas gained 3% on average this week, outperforming the S&P 500 (2.8%) but underperforming
the Nasdaq ( 4.0% ).
Actionable Focus List ideas: Ciena ( CIEN ), Dr. Reddy’s Labs ( RDY ), Fabrinet ( FN ), Xilinx ( XLNX )
By Sector

Along with the strong bounce off lows across the major indices, U.S Focus List performance was driven by Tech-
nology, Retail, Health Care, and Financial. In Technology, CIEN and FN regained their 50-DMA, while VEEV

and XLNX bounced off lows and are just below this key moving average. In Retail, WING is forming the right
side of a base after bouncing off its 200-DMA. Four Health Care ideas jumped 3.8% on average, led by ILMN,
but all continue to consolidate in a base. Financial ideas also remain in consolidation after a strong recovery off
lows this week, but PYPL is exhibiting constructive price action as it forms the right side of base, with a potential
aggressive entry at ~$90.

Market View

Posted on by Raj Gupta

The U.S. market is in a Downtrend. The S&P 500 and Nasdaq made new year-to-date lows this week in heavy volume. Both have become extended to the downside, trading more than 12% below their respective 200-DMA. Though there are signs of capitulation, we do not recommend increasing risk until we see a new follow-through day. Multiple levels of resistance remain and there are little-to-no growth ideas at proper pivot points. A strong rally off the lows will give us clues as to what could eventually lead, when and if the market has indeed bottomed. At this point, it is too early to tell as ideas are still resetting and will need time to form proper bases. We continue to recommend a cautious approach. Avoid new buys until a new follow through day occurs.

Market View

Posted on by Raj Gupta

The U.S. market is in an Uptrend Under Pressure. The S&P 500 and Nasdaq reversed off earlier gains in the week and are again testing support at the October/November lows. Support remains between 2,532 and 2,600 on the S&P 500 and between 6,630 and 6,830 on the Nasdaq. We will downgrade the market to a Downtrend when and if the Nasdaq undercuts 6,830.

This remains a risk-off market. Defensive ideas and groups continue to lead, with few growth ideas acting well. Following Friday’s action, Utility is now the only sector trading above its 50-DMA. Cleaning Products, Food, Beverages, Utility, and Telecom make up the majority of the Top 10 ranked Industry Groups. Further, the action in Banks has been very concerning, with many now testing 2016 highs and erasing all 2017 gains. Our seven Bank Industry Groups are now trading a median of 22% off highs, with the 78 S&P 500 Financial stocks (not including Reits) trading a median of 24% off highs.

We maintain our cautious view of the general market and do not recommend increasing risk until we see better technical action across the major averages, growth-oriented sectors/industry groups, and risk-on ideas. Action remains wide and loose with multiple levels of major resistance to clear before a new constructive trend, higher, can develop.

Market View

Posted on by Raj Gupta

The U.S. market is in an Uptrend Under Pressure. The S&P 500 and the Nasdaq reversed off 50 and 200-DMA resistance this week and are again whipsawing back and forth with no clear direction. Should the indices undercut the October lows (S&P 500: 2,603; Nasdaq: 6,830), the November 28 follow-through day will officially fail, resulting in a market downgrade to Downtrend. Conversely, if the S&P 500 and the Nasdaq can rally off the lows, and clear and hold above their respective 50- and 200-DMA, we will move the market status back into a Confirmed Uptrend.

Within the S&P 500, ~65% of stocks are trading below their respective 200-DMA and a median of 24% off highs, indicating poor internal action and a lack of leadership. Eight of 11 O’Neil sectors are also trading below their 200-DMA after failing at that level Tuesday. The three sectors trading above the 200-DMA are Utility, Consumer Staple, and Health Care.

This backdrop warrants a cautious approach. Leadership is thin and breadth is narrow. We need to see indices tighten up and regain moving average support, and leadership broaden before we can recommend increasing risk in a more meaningful way.

Global Health Care Sector: Biotech/Pharma

Posted on by Raj Gupta

Some highlights from this report:

  • With its upcoming IPO, Moderna ( MRNA ) will be the largest biotech company to go public, but what’s even more exciting is its work with messenger RNA ( mRNA ) therapeutics and vaccines. These mRNA therapies use a patient’s own cells to prevent, treat, and cure disease, potentially opening an entirely new category of medicine.
  • The iShares Nasdaq Biotech ETF ( IBB ) and the iShares U.S. Pharmaceuticals ETF ( IHE ) have been choppy and rangebound. We continue to recommend a selective approach that focuses on technically intact profitable biotech and pharma companies with underpenetrated and superior FDA-approved drugs.
  • The Indian generic drug market looks set to outperform, with record numbers of FDA approvals that will help them seize advantage of the growing worldwide generic drug market. In North America alone, 70% of the drug market is now generic, up from 52% in 2006.
  • The attached report accompanies Raj Gupta’s webinar on the Best U.S. Biotech and Pharma Ideas in the Health Care sector, on Thursday, December 6, at 11am EST.

Market View

Posted on by Raj Gupta

The U.S. market is in a Confirmed Uptrend. The Nasdaq staged a day 5 follow-through day Wednesday, and has since consolidated

gains constructively. The S&P 500 also rallied strongly, and similarly has consolidated those gains constructively for the last two ses-
sions. Both indices are now facing resistance at their respective 50 and 200-DMA.

Technical action among growth ideas has been strong. Multiple risk-on ideas are now forming the right side of their respective ba-
ses, however, many are now also facing price and/or moving average resistance. Forty-three Nasdaq 100 stocks are trading below

their 50-DMA, despite rallying a median of 4% over the last five sessions.
To gain conviction in this new follow-through day, we will need to see both the major averages and ideas regain moving average
resistance over the next several sessions, which should lead to a broadening of leadership. Conversely, if we see the major averages
and ideas begin to fade at these levels, the follow-through day is at risk of failing.
Our recommendation is to gradually increase risk, buying only high-quality growth ideas that are breaking out of earlier-stage bases.

As the market progresses through resistance, additional ideas will emerge for new buying opportunities. We anticipate our U.S. Fo-
cus list count to increase when and if the market progresses higher.

Key Points from the latest Strategy View
• There are three main categories that encompass 27 prior instances when the S&P 500 has fallen to 9% or more from highs
and closed below its 200-DMA since 1970.
• Forward gains post-follow-through-day in bulls are substantially better. If the market struggles for the forward
four/eight/thirteen weeks post-follow-through-day, this has typically been a bad sign.
• One follow-through-day failure is fine, in fact, outcomes are even better. But, when two follow-through-day failures have
occurred (undercut of lows before new highs), each time this has led to a bear market.
o Bears have an average of six failed follow-through days before lows.

Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 38 ideas gained 4.7% on average this week, underperforming the S&P 500 (+4.8%) and the Nasdaq (+5.6%).

Actionable Focus List ideas: Aon ( AON ), Astrazeneca ( AZN ), Canada Goose ( GOOS ), Chefs’ Warehouse ( CHEF ), Ciena ( CIEN ), Dr Red-
dys Labs ( RDY ), Edwards Lifesciences ( EW ), Fabrinet ( FN ), Horizon Pharma ( HZNP ), Johnson & Johnson ( JNJ ), Livent ( LTHM ), Mi-
crosoft ( MSFT ), Nextera Energy ( NEE ), Planet Fitness ( PLNT ), PRA Health Sciences ( PRAH ), Procter & Gamble ( PG ), Rogers Communi-
cations ( RCI ), Starbucks ( SBUX ), Unitedhealth ( UNH ), Veeva Systems ( VEEV ), Zoetis ( ZTS ).

Market View

Posted on by Raj Gupta

The U.S. market is in a Downtrend. The Nasdaq undercut the October 29 low this week, invalidating the November 7 follow-through day ( FTD ). We
are now looking for a new low to be established for a minimum of three sessions before looking for a new FTD. Support on the Nasdaq is the April
low of ~6,800, while support on the S&P 500 is the October low of ~2,600. Both indices are currently trending downward, with resistance along
their 50- and 200-DMA.
There remains a lack of leadership in the market, with the majority of growth ideas still trading below their respective 200-DMA and few showing
signs of technical improvement. This backdrop warrants a cautious approach and is not indicative of a risk-on atmosphere.
Our recommendation is to raise cash if possible, or, if you must commit capital, buy only defensive ideas that have been consistently trading above
their respective 50-DMA. If we get another FTD in the next few weeks, our recommendation will be to only increase risk gradually. We need to see
the market prove itself by regaining prior support levels, allowing leadership to broaden outside of defensive sectors.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 36 ideas lost 4.7% on average this week, underperforming the S&P 500 ( -3.8% ) and the Nasdaq ( -4.3% ).
Actionable Focus List ideas: Aon ( AON ), Astrazeneca ( AZN ), Canada Goose ( GOOS ), Chefs’ Warehouse ( CHEF ), Fabrinet ( FN ), Horizon Pharma
(

), Johnson & Johnson (

), Nextera Energy (

), Planet Fitness ( PLNT ), Procter & Gamble ( PG ), Ulta Beauty ( ULTA ), Wright Medical ( WMGI )
USFL ideas weekly earnings line-up:
Wednesday: Close: VEEV
By Sector
Consumer Staple ideas on the U.S. Focus List led for a second straight week. NOMD, CVGW, and CHEF are all trading around their respective 50-
DMA, while LW, PG, and MKC are all trading less than 5% off highs and around their respective 21-DMA. Other sectors traded down, led lower by
Technology and Retail. There are now only six USFL Technology ideas remaining after multiple removals over the last several weeks. MSFT, INTU,
and VEEV are trading at their respective 200-DMA, while the remaining ideas, FN, XLNX, and CIEN remain intact trading above their respective 50-
DMA. Three of the remaining four USFL Retail ideas are under pressure. LULU is now trading more than 20% off highs and just above its 200-DMA,
while WING and OLLI are trading at their 100-DMA. ULTA remains strong, still holding up near highs with a relative strength line at new highs.
New Ideas or Deletions
We added Johnson & Johnson (

) and Nextera Energy (

), and removed Square ( SQ ), Alphabet ( GOOGL ), Servicenow
NOW ), Salesforce.Com ( CRM ), Adobe ( ADBE ), Paycom Software ( PAYC ), Quantenna ( QTNA ), Healthequity ( HQY ), Twilio
( TWLO ), and Five Below ( FIVE ) from the U.S. Focus List this week.