Group Outlook:

The relentless downtrend continues, without showing much signs of abating. In the healthcare group the volume suggests that investors are being forced out, or they just throwing in the towel. If there were some positive reversals we could interpret it as capitulation, but nothing of that sort has played out as of yet. At least today there seemed to be a tug of war between bulls and bears until the important CLOSE, with the bears continuing to win the battles, but the war debate is still up for grabs, but the pendulum is siding with the bears. Keep in mind when markets display bearish traits, it is often associated with violent moves in both directions. The XBI is lower 11 of the last 12 sessions, after wrestling, and losing with the very round par figure since late June. Notice there were several warnings signs delivered via bearish candlesticks at the 100 figure too. The ETF has declined 21 of the last 28 sessions, but today did register an inverted hammer candle as it trades 17% off most recent 52 week highs. Perhaps a bounce here can be expected, but it most likely will be an opportunity to reduce exposure or head entirely into cash.

Leading SubSectors, Or Prior Ones For that Matter:

In this recent sea of overall volatility there have been few places to hide as stocks and bonds have fallen in unison, an unusual development. Add to that leading subsectors within dominant spaces starting to crack, and it is not a recipe bulls have concocted. Below is a chart of the IHI, the medical devices ETF, and last week it recorded its first bearish engulfing WEEKLY candle in more than TWO year dating back to September 2016. Couple that with the fact that it happened at all time highs, on well more than double average weekly volume, and this week is following through falling 5.4% headed into Friday, on the equivalent trade from last week with yet another session to go tomorrow. The fund is lower 7 of the last 8 sessions, with the last 9 CLOSING in the lower half of the daily ranges. The margin clerks have sharpened with number 2 pencils and are going after the winners of 2018 with vigor.

Examples:

Healthcare has been a firm performer as of late, but of course just like everything else it is taking a pause. The IBB is now 11% off most recent 52 week highs, but is still higher by 2.5% YTD, and the broader XLV has advanced 9% in 2018 thus far. With those type of returns it would be easy to identify losers, and ones that could not keep pace with a hot group are prime shorting candidates. Of course in this space you could have unexpected takeovers, but below is the chart of CLVS and how it appeared in our Monday 9/17 Healthcare Report. It is now 68% off most recent 52 week highs after hitting a roadblock almost precisely at the very round 100 number the week ending 7/28/17. It is down by double digits this week by just more than 10%, and is looking to CLOSE in the lower half of the weekly range 11 of the last 12 weeks. A trend is a trend whether up or down and should be respected as trends are more likely to persist that reverse.

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