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 remains in a Confirmed Uptrend. The S&P 500 and Nasdaq continue to hold near all-time
highs, consolidating the last two weeks of gains over the last several sessions. Distribution did rise to five days on
the S&P 500 (three in the last four sessions) and four on the Nasdaq, though one day is set to expire on the

Nasdaq at the end of next week. There will also be further expiration on both indices the week after next. Near-
term support remains the rising 21-DMA (S&P 500: 2,968; Nasdaq: 8,104).

Ten of 11 O’Neil sectors remain clearly above the 50-DMA, while Energy is trading right around that level after
falling ~3% this week. Breadth remains strong with ~80% of S&P 500 stocks above the 50-DMA and ~45%
trading within 5% of a 52-week high. Leading ideas continue to act well, with the majority holding trend despite
this week’s pullback.

Market View

Posted on by Raj Gupta

The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq are trending constructively higher
with just two and three distribution days, respectively. Near-term support remains the 10- and 21-DMA on both
indices.

Multiple sectors and industry groups are participating in this rally. All 11 O’Neil sectors remain above their re-
spective 50-DMA, led this week by Retail, Energy, Transportation, and Technology which all rose at least 1%

each. 84% of S&P 500 stocks are trading above the 50-DMA and 45% are trading within 5% of a new 52-week
high.
Current upward progress has been better than historical successful follow-through days. After five weeks since
the June 7 follow-through day, the S&P 500 has rallied 4.9% and the Nasdaq 6.5%. In the 18 instances since
1970 where the first follow-through day after a downtrend led to new highs, the median one-month gain was
3.1% and the median two-month gain was 5%.

Illumina

Posted on by Raj Gupta

Key points:

  • We recommend reducing position sizes following major technical deterioration post preliminary Q2 results. The next level of support is ~$300.
  • Fundamental ratings: EPS Rank 79. Composite Rating 94. SMR Rating A.
  • Technical ratings: RS testing new year-to-date low. RS Rating 86, but expected to fall. A/D Rating C.

Market View

Posted on by Raj Gupta

Strategy

S&P 500 Earnings

Median S&P 500 sales and EPS are both forecast to grow 4% y/y, which would tie Q1 2019 for the slowest sales growth since Q4 2016 and would be the slowest earnings growth since Q1 2016.

However, we expect a normal beat of 3–4%. The bigger key will be to see if the trend in downward revisions after earnings comes to an end. Forward earnings have been consistently revised lower since September 2018.

Into the beginning of the season, the VIX is low, at 13, and investment advisors are slanted bullish, at 53%, although not an extreme level (60%+).

Given a falling 10-year bond yield (historically inverse relationship with market P/E ratio), the market multiple should expand. Unless forward earnings are much worse than expected, this could fuel a push further into all-time highs.

Market View

Posted on by Raj Gupta

The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq closed slightly lower this week, but both continue to hold trend above all major moving averages. The 21-DMA has risen above the 50-DMA on both indices and is now acting as our primary level of support. Resistance is all-time highs on the S&P 500 at 2,964, while resistance on the Nasdaq is the June 20 intraday high of 8,088. Distribution remains low at one day on the S&P 500 and two on the Nasdaq.

Sectors that sold off earlier in the week, including Transportation, Consumer Cyclical, Health Care, and Financial, were able to retrace the majority, if not all, of early week losses over the last two sessions. Ten of 11 O’Neil sectors are trading back above their respective 50-DMA, with Energy sitting just slightly under that level. Following Friday’s rally in Financials, 72% of S&P 500 stocks are now trading above their respective 50-DMA, up from 70% last week.

We remain in a news-driven environment with major catalysts potentially occurring over the weekend. As of now, the Confirmed Uptrend remains intact, with current upward progress in-line with historical successful follow-through days, leading ideas that are holding support, and a low number of distribution days. We recommend a patient approach, holding leading ideas and looking to increase risk should the market push up and through resistance in the coming days.

Market View

Posted on by Raj Gupta

Strategy View
The Global Index (VT) is back above the 50-DMA for the first time in six weeks.
Market conditions are skewed positive. The 50-50 market direction indicator turned positive two weeks ago and
now more than 75% of global markets are in a Confirmed Uptrend. Generally higher conviction at 70%+.
• While the U.S. and mostly other small markets ( Australia/N.Z., Greece, Poland, Russia ) were the leaders
through last week, we had several major upgrades this week. On the DM side, there were follow-through

days in the U.K., Japan, and Hong Kong, among several others; and on the EM side, there were follow-
through days in Brazil and Taiwan.

The U.S. market had a typical pullback after a larger-than-normal leg higher through April. The first follow-
through day is working (historical success rate of ~55% on the first try after pullback from highs).

• Number of U.S. Focus List stocks back well above long-term average of 50, at 64 currently.
Number of weekly breakouts in the U.S., developed, and emerging all back to normal or above normal levels.
Global themes with most breadth in leadership:
• U.S.: payments/financial services, software, med-tech, aerospace/defense

• Developed ex-U.S.: chemicals, financial services, software, aerospace/defense, food/beverages, med-
tech

• Emerging ex-China: banks, consumer loans, real estate development, telecom, apparel/consumer, min-
ing

• China: banks, food/food service/alcohol, medical service, construction equipment
• Frontier: banks, telecom, cement, retail

Edwards Lifesciences

Posted on by Raj Gupta

Key points:

  • The stock is actionable as it is forming the right side of a 13-week consolidation. Resistance: ~$198. Support: 200-DMA (~$166).
  • Fundamental ratings: EPS Rank of 93, Composite Rating of 97, top SMR Rating of A.
  • Technical ratings: RS line near all-time highs, RS Rating of 85, A/D Rating of B.

Nanosonics Update

Posted on by Raj Gupta

Key points:

  • The stock is breaking out of a stage-two cup base with heavy volume, turning actionable.
  • Technical ratings: RS line near all-time highs, RS Rating of 90, A/D Rating of B+.
  • Fundamental ratings: EPS Rank 90, top Composite Rating of 99, SMR Rating of B.

Market View

Posted on by Raj Gupta

Strategy View

We are more positive given that a majority of global markets are back in an Uptrend, but would like to see the proportion rise to 70%+ for more confidence.

Global indices (Total World-VT, Nasdaq-0NDQC, iShares Developed-EFA, iShares Emerging-EEM, CSI 300-0CHSS300) have all bounced, but are still just in the middle of two-month ranges, at best, and volume to the upside on the recent bounce has been generally lackluster.

For the time being, focus on stocks that are part of broader working themes (we used groups with outsized proportion of stocks within 5–10% of highs to determine working themes), including:

Global utilities, segments of software in developed markets (U.S., France, Australia), payments/financial services globally, U.S. aerospace and defense, U.S./Europe med-tech, APAC real estate development, emerging market banks, emerging market telecoms, and China financials, food/food services, and medical services. Areas of consistent weakness include global autos/parts and steel, and developed market banks.