HEALTHCARE IS TOP DEFENSIVE SECTOR -- LEADERS INCLUDE BRISTOL MYERS SQUIBB, SCHERING PLOUGH, UNITEDHEALTH, AND MYLAN LABS -- MCKESSON AND ST JUDE MEDICAL GAP HIGHER -- HEALTHCARE SPDR NEARS TEST OF JANUARY HIGH

HEATLHCARE RS LINE HITS NEW HIGH ... Over the last year, the three top performing market sectors have been consumer staples, healthcare, and utilities (in that order). Although all three have lost money, they've lost a lost less than the market as a whole. That's perfectly normal during a bear market when investors favor defensive stocks. Chart 1 shows the relative strength lines for those three defensive categories over the last six months. [The three lines are plotted "relative" to the S&P 500 which is the flat black line]. Although all RS lines have risen during that period, the only one to hit a new high is the ratio of the Healthcare SPDR (XLV) [blue line]. That puts healthcare in a leadership role among the three.

Chart 1

HEALTHCARE LEADERS... I've used the sector market carpets to isolate four healthcare leaders that are showing both absolute and relative strength. All four show relative strength ratios at 52-week highs. All four are also trading above their 200-day moving averages which represents a long-term resistance line. The strongest trend of the four healthcare leaders is Bristol Myers Squibb which is shown in Chart 2. That big pharma leader is nearing another 52-week high after having cleared its 2008 highs. Chart 3 shows another big pharma -- Schering Plough -- having reached a four-month high after clearing its 200-day line. Unitedhealth Group in Chart 4 has just cleared its 200-day line and has broken out to the highest level in four months. Chart 5 shows Mylan Labs doing the same thing.

Chart 2

Chart 3

Chart 4

Chart 5

MCKESSON AND ST JUDE MEDICAL GAP HIGHER... Two big reasons why healthcare is today's top sector are shown below. St. Jude Medical is gapping 13% higher today and is trading over 50 for the first time in two months (Chart 6). McKesson is gapping 12% higher. Both of their relative strenth lines are at 52-week highs.

Chart 6

Chart 7

HEALTHCARE SPDR LEADS S&P 500 ... Chart 8 compares the Healthcare SPDR (XLV) to the S&P 500 (green line). The daily price bars show that the XLV has been trading over its 50-day average (blue line) throughout January (while the S&P 500 is below its 50-day line). A comparison of the price bars (XLV) and the green line (S&P 500) shows that the healthcare SPDR has been much stronger than the S&P since mid-December. The XLV appears heading for a test of its early January peak. A close above that level could trigger a further rally toward its 200-day average (red line). That could also boost the S&P 500 which is trying to bounce off psychological chart support near 800 (Chart 9). The stochastic lines are recovering from a short-term oversold condition (below 20) which is also supportive. The S&P needs to close back over its 50-day line to improve its short-term momentum. At the moment, a trading range exists between its late November low and its early January high.

Chart 8

Chart 9