JNJ Sneezes And Healthcare Catches A Cold:
JNJ was one of the stalwarts in the healthcare arena, until shareholders were blindsided last Friday as the stock plummeted more than 10%. Of course it being the largest component in the XLV, some other names were most likely unfairly punished. But the sector has been performing wobbly ever since, and it recently stood atop the major S&P sector leaderboards. However on a one week basis it is at the bottom of the leaderboard rankings, edging out just energy to show you how quickly sentiment has changed within the space. Now I may be a bit bias but I think the technicals revealed some foreshadowing of the JNJ event as the XLV made that double top at 96, and went very quickly from all time highs to correction mode as the ETF is down 10% from its most recent 52 week highs. Of course the Obamacare ruling recently did not help the group at all as UNH, the ETF’s third largest component, is now testing 200 day SMA support, a line that has provided comfort since early ’16.
Were Small Caps The Canary In The Coal Mine?
Small caps are often considered a good leading indicator to market direction. They are more nimble and give a good sense before the mega cap supertankers shift in their ways. Below is the WEEKLY chart of the PSCH, the small cap healthcare ETF. It shows an alarming decline of nearly one quarter of its value from the late August highs. Its daily chart, not seen here, has the look of a bear flag breakdown from a 120 trigger on 12/13 which carries a measured move lower of 25 handles. The fund had set up nice as it formed a 3 week tight pattern at all time highs the weeks ending between 8/31-9/14, which all CLOSED within just 1.59 of each other. But it broke the OPPOSITE way that it traditionally does, and when that occurs the move can be powerful. In fact this week looks to be setting up, depending on Fridays CLOSE, for a bearish three black crows formation. Some names in the space have been holding up well including HZNP and AMPH, while others crater like ENDP now down 50% from highs made just 2 weeks ago, not a typo.
Examples:
When former best of breed names turn bearish the drops could be breathtaking. If it happens to occur in the healthcare sector they could be even more stunning. Below is the chart of NBIX and how it appeared in our Healthcare Report on 12/7. Sometimes obviously luck plays a role, but one should just go about the normal business of trading chart patterns responsibly, and if something extraordinary happens in your favor do not let it go to your head. NBIX was a former leader rising from round 40 number the week ending 4/4/17, that rose more than 30%, to nearly 130 the week ending 9/14/18. Since the week ending 11/9 it has recorded THREE weekly declines of at least 9% and it now sits 44% off most recent 52 week highs. The best charts on the way up or down offer add on points on PROFITABLE trades, not one under water and NBIX was no exception. It sliced a rounding top pattern well before the recent bear flag formation.