Healthcare Sector Overview:
Price action does not lie, people do. Below is the graphic of the 11 major S&P sectors and their YTD returns. If one were to just look at that, and not have been privy to anything that has transpired in October, one would have thought we were just humming along quietly. Well lets give credit where it is due, as healthcare recently overtook technology for 2018 thus far. Perhaps on this longer term view we are seeing that maybe this could be just a garden variety market correction, as two of the top three performers are just the groups bulls want to see participating. That being said there have been some real eye opening down moves among some former leaders in the space. Names like NVCR, SGEN, BMY and ABMD are all lower by 28-40%. The XLV did find some love at its rising 200 day SMA this week, but to be balanced it is higher by just 1.3% this week so far, recouping very little of last weeks 4.5% drop in energetic trade. Volume has been somewhat suspect on the move as of late, but thats normal as many have little belief as they are shaken out and head to the sidelines. Lets see what November brings. A volume surge would be just what the doctor ordered, pun intended.
Recent IPO Activity Concerning?
Below is the chart of new issues that are about to come to market from IBD. Obviously one can see how it is dominated by healthcare related names. Now with current market conditions the appetite for names going public is being curbed somewhat, but it does concern me when I see an abundance of names from a specific sector coming to the market. To me it conveys lets get in while the going is still good, before it ends, an urgency if you will. This month alone their have been nine healthcare names that came public, and 8 of the 9 are impressively trading higher from the offer price. Six of the top ten performing IPOs in 2018 have emanated from the sector too, with ALLK and INSP delivering returns of more than 100%. A stock that came public early last year is shows the contrary with JNCE an alarming 86% off its highs made following a double top near 29 in March this year. Again a great illustration of how technical analysis does not let you fall in love with stocks. Relationships are broken with stops.
Examples:
We often like to state the stock that break in the OPPOSITE direction of what they traditionally should do can have powerful moves. Below is the chart of MYGN and how it was presented in last weeks Healthcare Report. Perhaps in hindsight I could have recognized that this name was demonstrating decent relative strength compared to not only its group, but to the overall market as well. On a strict PRICE action basis it did present a nice opportunity as a potential short play beneath a bearish head and shoulders formation. It never did take out the suggested trigger on a CLOSING basis so the trade was never entered, but it is showing some signs that it wants to resume its uptrend (since the week ending 5/11 has recorded four double digit weekly advances) as it breaks above the negative pattern. Tuesday it rose more than 7% and one can now play it long with a buy stop above its 50 day SMA at 46 and add to above a possible cup base trigger of 50.54.