Seasonality Tailwinds:

Yesterday we discussed with the comeback strength in the industrials group, the opposite can be said for healthcare. The group via the XLV is the worst performing of the major S&P sectors during the last one month period lower by 1.2%, even worse than the moribund financial arena. For those more patient investors seasonality may be on their side. In the chart below we see that although April tends to be a bit above average, the months of May-July are the best 3 month period of the year dating back to 2015. In fact the XLV CLOSED higher than where it opened in May and July for the last 4 years.

Defensive Posture:

When bull markets mature, there is a penchant to reach out for more defensive names. Keep in mind I am not making any predictions about the direction of the overall markets as trends can overshoot much longer than we think on both the up and downsides. But the ratio chart below contrasting the small caps to the large caps shows little appetite for risk. Market participants are clearly favoring conservative names. Stocks like MRK, ABT and LLY maintain their strong uptrends and also pay decent dividends. 


We spoke of the weakness in healthcare earlier, and astute investors will keep an eagle eye on any names that are bucking the trend. Outperformance from a name shrugging off a weak sector is a potential big winner when the group reasserts its muscle. Below is the chart of CARA and how it appeared in our 3/26 Healthcare Game Plan. It has held its 200 day SMA, a line that has been resistant since breaking below last December. The round number theory is coming into play here, with an add on above the figure in a bull flag. 

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