Group Outlook:
Healthcare is off to a soft start in ’19, with the XLV rising 3.5%, besting only the utilities of the major S&P sectors so far. The XLV is in a precarious position, as a tug of war is unfolding at the round 90 number. Give the fund credit for CLOSING above its 50 day SMA for 4 consecutive sessions, but the last 2 have registered bearish candles. As much I admire the candlesticks, they always come behind PRICE action. A powerful move through 90 would be a great sign that this group is ready to back up its best behaved major S&P sector from 2018 gaining more than 6%.
Large Cap Likability:
In times of distress market participants will search for a more defensive posture. Perhaps they want to maintain market exposure, even if they sacrifice absolute returns for relative returns. The ratio chart below comparing small cap healthcare to their larger cap peers, shows this stance. This chart is stressing to remain in bigger cap names like an AMGN or MRK which are holding right near 52 week highs and pay a dividend better than 2%.
Examples:
The software group has been a standout and the chart below, from our 12/31/18 Healthcare Report, combines it with healthcare. We were WRONG about the name, as we felt a move into the round 10 number which doubled as a bear flag breakdown would be a favorable short. It has since made a powerful move rising 30% the last 4 weeks, but recently ran into some headway at its 200 day SMA. The run was also stopped here at a gap fill from the 11/1/18 session, and the 12 number was resistance between last March-August. Perhaps another short is warranted, as always with a tight stop.