Seasonality Skepticism:
Behavior in life, as in the markets tends to rhyme. Below shows the seasonality chart of the overall healthcare market represented by the XLV. This 3 month period happens to be easily the best of the year, but May did not get the memo. Could that be foreshadowing of trouble to come? Looking at the present situation it has broken above a symmetrical triangle, that coincided with the very round 90 number. Monday did record a doji candle, and Tuesday followed with a bearish engulfing candle. Back to back questionable candles should keep one of the defensive, as we know quick failures of breakouts are red flags.
IHI Left To Its Own Devices:
The healthcare arena is a diverse space, but there has been a consistent front runner within. The medical devices has been a strong performer as the IHI trades just 1% off most recent 52 week highs. Compare that to the XLV and XBI that are currently 5 and 20% off their respective peaks. Like most ETFs the fund is top heavy with the top 3 holdings, ABT MDT and TMO, making up more than 37%. All three registered dubious candlesticks Tuesday, so a prudent pause, and consolidation, here would be the best bulls could hope for. But pullbacks are to be bought, not sold.
Examples:
Healthcare remains the weakest major S&P sector YTD and while we love to scour the universe for names bucking the trend, it is notable to realize stocks that are exhibiting weakness in an already soft group. Below is the example of AGIO and how it appeared in our 6/6 Healthcare Report. It now trades 51% off its most recent 52 week highs, and not surprisingly it was repelled at the very round par figure almost one year ago precisely. The very round 50 number is now in play as it is has recorded just three CLOSES above 50 since breaking below it on 5/10. Feels like the path to least resistance is lower here. Trade accordingly.