Group Outlook:
Todays “turnaround Tuesday” was visually impressive, but lets not lose sight that there still is damage to be worked off. Perhaps the ugly reputation of the month of October is coming to a conclusion, but lets remember the violent moves we are witnessing are indicative of topping behavior. I personally think we are still in a sell the rally mode, but we have to be open to further strength too. The reasons for my less than sanguine narrative are listed below on the current WEEKLY chart of the XLV. Volume trends have been suspect, and more importantly is the price action. The daily chart did hold a double bottom near the 89 number today, but one likes to see some more time separation between the two lows. It still has some work to do to negate the bearish engulfing weekly candle at all time highs the first week of October and the bearish shooting star last week. A weekly CLOSE above the very round 90 would go a long way to invigorating the bulls.
Subsector Strength:
All of the major S&P sectors are pretty diverse in nature and healthcare is no different. Surely all of the specific spaces within will act individually and here it is still some of the same. The IHI has been the best actor of the three groups shown below. It is higher by 19% thus far in 2018, as the IBB and XBI are floundering near the UNCH mark with the IBB up 2% YTD and the XBI down by the same amount. The IHI still remains in correction mode down 10% from most recent 52 week highs, although it is the only of the 3 aforementioned ETFs that did not undercut its 200 day SMA, as the IBB and XBI CLOSED below it Tuesday. The XBI is nearing bear market mode as it trades 18% off its most recent 52 week highs. The top 4 holdings in the IBB are the old four horseman in the arena as AMGN GILD BIIB CELG make up 1/3 of the ETF. AMGN is by far the best behaved of the four, just 6% off most recent highs, but it must recapture the very round 200 number and its 50 day SMA to be considered investable in my humble opinion.
Examples:
We have always maintained that one must search diligently for names shrugging off market storms, as they could be the leaders when the rally resumes. In a tough environment it should not be that hard to find, as so few will do just that, but if one can determine which ones do it can go a long way to potential profits. Below is the chart of TNDM and exactly how it was profiled in our 10/12 Healthcare Report. This month it recorded a higher low as the XLV registered a lower low, and although there is still three more sessions this week, one should watch to see how it CLOSES. There is a potential for a bullish 3 week tight pattern to emerge as the last 2 week finished within just one penny of each other, even though the range the last 2 weeks traded roughly between the round 30-40 numbers. Even through the recent carnage this stocks 50 day SMA still sloped upward and the double bottom pattern below has now morphed into a possible cup base formation. Its action is still constructive but bulls would feel much better adding to its ABOVE its 50 day SMA which now aligns with the round 40 number.