The healthcare sector has underperformed the rest of the stock market for most of this year … and particularly for the last six months. That could be changing soon … in a big way.
The SSI chart on XLV, the ETF that tracks healthcare stocks from the S&P 500, tells the story …
XLV literally started and ended 2016 right at $70 per share. It triggered an SSI entry signal in April … right at about $70 per share. Since then, it has risen to $75 and fallen to $66 (all moves within its expected volatility range of 12.8%) and returned again … to $70.
So … why do I think all that could be about to change?
The healthcare stocks sector is trading in a very strong area of support. It went through the SSI yellow zone and came within pennies of hitting the SSI Stop signal (see SSI chart above). It has since moved higher and currently rests just inside the SSI green zone.
The volume-at-price (VAP) chart on XLV shows that XLV is sitting right on its biggest price-volume point at, you guessed it … $70.
Another striking feature of the above chart is the downward price spike that occurred in August of 2015. These kinds of sharp spikes down are very often a sign of higher prices to come because they effectively clear out all the sellers that have been hanging out at lower price levels. These kinds of events are referred to by insiders as “running the stops” or, more colorfully, “wash and rinse cycles.”
This is exactly what happened in the financial sector as well. XLF is the financial sector ETF. Like XLV, it also spiked lower in August of 2015 and, about a year later, moved sharply higher off of strong VAP support.
This same kind of opportunity may be setting up in the healthcare sector right now. The sellers in the healthcare sector have been exhausted. Support has held. The sector is poised for a breakout to the upside … and that upside could be very potent.
Finally, my time-cycles are forecasting a move higher in the healthcare sector for the next four months as well.
The healthcare sector is normally thought of as a defensive sector with the ability to outperform a market that is moving lower. If the markets take a breather, as I suggested last week, the healthcare sector could buck the trend.
To your good health!
Richard Smith, PhD
CEO & Founder, TradeStops