USING PERFORMANCE CHARTS AND MARKET CARPETS TO FIND GROUP LEADERS -- MERCK LEADS PHARM HOLDERS TO UPSIDE BREAKOUT AND TEST OF OLD HIGH IN HEATHCARE SECTOR
HEALTHCARE IS ONE OF NEW MARKET LEADERS ... In response to a question about how I go about my daily analysis, I used the Market Summary page yesterday to show new buying in small caps, financials, and energy stocks. Today, I'm going to show how to use the Performance Charts (PerfCharts) to spot market leaders. Chart 1 shows the AMEX Sector SPDRs for the last month. You can view these charts in line or bar format. I'm using the bar format here. [The bar chart is activated by clicking on the second box to the left below the chart]. Notice that the S&P 500 box is dark. Clicking on that box makes the S&P 500 the zero line and shows the nine sectors "relative" to the S&P 500. The three leaders over the last month are utilities, healthcare, and consumer staples. I recently showed utilities hitting a new record high. Chart 1 shows the Health Care SPDR close to doing the same. The rising trend in Chart 2 is confirming the strong performance bars in Chart 1. Let's dig a bit deeper and see if we can fine-tune healthcare leadership.
Chart 1
Chart 2
PHARMA IS INDUSTRY LEADER ... Chart 2 applies the same approach to Industry Groups. It shows the strongest industry group over the last month to be Pharmaceuticals (black bar). That suggests that pharmas are emerging as leaders within the healthcare sector. That stronger relative performance is being confirmed by the rising relative strength ratio in Chart 4. That chart also shows the Pharm Holders breaking out to a new six-month high today. Let's dig a little deeper and see where the Pharma leadership is coming from.
Chart 3
Chart 4
MERCK IS PHARMA LEADER... To find today's leaders in the healtcare sector, I go to the Healthcare Market Carpet under S&P Sector Carpets. Right click and choose Market Cap Mode. That arranges the stocks by their size. The greenest boxes are the day's strongest stocks (and the red ones the weakest). Merck jumps out as the biggest and greenest box. The Top 5 list also shows Merck to have the day's best combination of size and strength. You can click on each and every stock on the top five list or in the Carpet itself. Merck, however, would be the first place I'd be looking today for healthcare and pharma leadershhip. Chart 6 shows Merck trading at a new 52-week high today. Its rising relative strength line is measured against the Healthcare SPDR. That confirms that Merck is a leader in the group and the stock most responsible for today's stong action in the pharmaceutical group and the healthcare sector.
Chart 5
Chart 6
THERE'S NO NEED TO LOOK AT EVERYTHING ... The reason for today's explanation is to demonstrate that there's a simpler way to scan through all the daily market noise. By using the Market Summary Page, PerfCharts, and Market Carpets, you can look for market leadership in stock sectors, industry groups, and individual stocks within those groups. Those tools allow you to zoom in on those parts of the market that are doing something important (and not waste time on those that aren't). You still have to do some analysis once you arrive at some leading candidates. But you have to look at a lot fewer charts. The monthly bars in Chart 7 show Merck trading at a new six-year high. It's been outperforming the S&P 500 over the last two years. Its 2% gain today was one of the reasons the Dow Industrials closed in the plus column. If you're like me and believe that the economy and stock market are in for rougher sledding in the new year, it's a good idea to be looking at defensive sectors like healthcare. You could buy the entire sector via the Healthcare SPDR (XLV), use the Pharm Holders to participate in that industry rally, or try an individual stock leader like Merck.
Chart 7
