HEALTHCARE IS GETTING BETTER -- LILLY LEADS RISING DRUG GROUP -- OIL NEARING TEST OF $40
HEALTH CARE IS TOP SECTOR... Healthcare was the day's top sector. Chart 1 shows the AMEX Health Care SPDR moving up toward its April high after bouncing off its 50-day line last week. Even more impressive is its relative strength line which has been moving up since the end of March. That was right around the time that interest rates started rising and money started moving into defensive sectors of the market -- like healthcare.
Chart 1
HEALTHCARE VERSUS THE S&P... The best way to demonstrate the defensive qualities of the healthcare sector, and to put its recent rebound into perspective, is with a relative strength chart. Chart 2 is a ratio of the Healthcare ETF divided by the S&P 500 for the last two years. To the far left, the ratio had been rising (since 2000)until October 2002 when the market bottomed. At that point, the market turned up and healthcare started to underperform. That is reflected in a falling XLV/S&P ratio. There's no need for playing defense when the market is rising. The ratio bottomed during November as the market rally started to stall. It turned up again in April as interest rates started to jump and the market fell even further. The ratio has moved over its 200-day moving average and is testing the upper end of its eight-month trading range. An upside breakout through its February high would be another bullish sign for the group.
Chart 2
HEAVILY WEIGHTED IN DRUGS... A large part of the recent healthcare strength is coming from the drug sector. That's because the biggest holdings in healthcare ETFs are in drugs -- and drugs have been rising. Chart 3 shows the Pharmaceutical Index ($DRG) moving up to challenge its April high and trading well over its 50-day average. Its relative strength line turned up a month ago. The five biggest holdings in the Healthcare SPDR shown in Chart 1 are Pfizer, JNJ, Merck, ABT, and LLY. Of those five, Lilly is the first one to reach a new 52-week high -- as shown in Chart 4. The LLY/DRG ratio also shows the stock to be a leader in the pharmaceutical group.
Chart 3
Chart 4
AVERAGES BOUNCE ON LIGHT VOLUME... The major market averages experienced minor bounces again today. And again it happened on light volume. The Nasdaq 100 (QQQ) is still trading over its 200-day average and did better than the Dow or the S&P. All three averages, however, are still trading under their 50-day lines. Nothing to get too excited about. The 10-year T-note yield closed at a new eight-month high. Another selloff in the dollar boosted gold $2 to $394 -- therely keeping bullion over its spring low at $390. Crude oil climbed 60 cents to 39.58. The Energy sector shrugged off early selling in the oil service group to close higher. Crude oil is drawing near $40 which is the all-time high reached during 1980 and 1990. That makes $40 a very important number.
Chart 5
Chart 6
Chart 7
