Group Overview:
Credit in markets, like anything else in life, must be given its due when deserved. Healthcare is certainly a great case. It is the best behaved major S&P sector YTD, and when you hold that lofty position everyone is gunning for you. I may use the analogy of being the best tennis player in the world, as there is always someone looking to take your place. Now of course trends tend to remain in place, a lot more then they reverse, but when some technical evidence suggests a rest may be warranted, one should proceed cautiously. That may be whats happening within the space, via the XLV. Below is a weekly chart that shows it still may have put in a double top when attempting to take out a cup base trigger just above 96. More concerning to me is the volume trends and the erratic price action. The ETF slumped 5.5% last week in elevated trade, and the weeks ending 10/12 and 10/26 lost 3.4 and 4.5% respectively. I am not saying this group is going to undergo any meaningful correction, but after its big run this year it would be prudent for the fund, to perhaps trade sideways and gain some stamina before resuming its uptrend.
Round Numbers Don’t Lie:
Before we get carried away with the recent action within some of healthcare, let’s remember that the IBB is still deep within correction mode with the ETF now 15% off most recent 52 week highs. Buyers have vigorously defended the very round 100 number since breaking above the figure the week ending 6/23/17, that rose nearly 10% in the best weekly volume since then. Now I am believer that the more times a level is touched, the more likely it is to be broken, although many feel that to be the opposite. Notice on the chart below, courtesy of IBD, that the round par number HAS held firm many times since the bullish ascending WEEKLY triangle breakout in a pattern that began in September of ’16 (it did achieve its measured move of 18 handles too). So far so good for the ETF, but if 100 were to give way in the near term, things could get ugly. Until that time, the burden of proof is on the bears to prove this is shortable. It has the look of a bear flag here, but without CONFIRMATION one should be hesitant to act.
Examples:
Within strong sectors there will always be names left behind. That action is often a tell. We know healthcare is still the best performing major group YTD with the XLV higher by nearly 12%, just ahead of the moribund utilities. Stocks that do not join in on the euphoria, should not be trusted. Below is the chart of MDCO and how it appeared in our Healthcare Report from 12/7. It is lower by 50% from most recent 52 week highs, inexcusable in a space where it should be benefitting from a rising tide. The bear flag formation was taken out to the downside this week and the measured move is to 16. One could on the potential way to the measurement could add to below the very round 20 number, which held on a CLOSING basis between 11/26-20 even though each session was below 20 intraday.