MEDICAL EQUIPMENT STOCKS ARE LEADING HEALTHCARE HIGHER -- GROUP LEADERS ARE STRYKER, WATERS, AND ZIMMER HOLDINGS -- AIR PRODUCTS AND MONSANTO LEAD CHEMICALS HIGHER -- AUTO BREAKOUT MAY BE GIVING BOOST TO STEEL COMPANIES
MEDICAL EQUIPMENT STOCKS SHOW NEW MARKET LEADERSHIP... The market's strongest sector over the past week has been healthcare. By looking at the Sector Summary list for the past week, however, it's possible to see which medical groups have led it higher. Biotechs and pharmaceutical stocks have done well. The top healthcare group over the past week, however, has been medical equipment. The weekly bars in Chart 1 show the Dow Jones US Medical Equipment Index ($DJUSAM) breaking through its 2011 peak to reach the highest level in more than four years (black circle). The index is now challenging its previous peak set in mid-2008. The green line is a relative strength ratio of that index divided by the S&P 500. The group has been an underperformer over the last three years. The RS line, however, is breaking a three-year down trendline and appears to be on the verge of hitting a new 52-week high (green circle). That suggests the medical equipment group is worth paying closer attention to.
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Chart 1
STRYKER AND WATERS CORP ARE MEDICAL GROUP LEADERS... By scolling down the list of medical equipment stocks, the next two show up as market leaders. Their chart patterns (which you always need to check) confirm their improving relative strength rankings. The weekly bars in Chart 2 show Waters Corp. (WAT) breaking a falling resistance line extending back to mid-2011. At the same time, the rising green line (Waters/SPX ratio) has also broken its down trendline. That means the stock is showing absolute and relative strength, which is a strong combination. The weekly bars in Chart 3 show Stryker Corp (SYK) breaking out to the highest level in eighteen months. Its relative strength ratio (green line) has turned up as well.
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Chart 2
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Chart 3
ZIMMER HOLDINGS REACHES FOUR-YEAR HIGH... The strongest chart pattern of the medical equipment leaders belongs to Zimmer Holdings (ZMH). The weekly bars in Chart 4 show the stock rising above 70 for the first time since 2008 (black circle). That's an impressive breakout. Its relative strength ratio (below chart) has just broken a falling resistance line extending back to 2008. That's another positive sign. Here's the best way to use the Sector Summary page. Look for the strongest sector first. Then look at the strongest group within that sector. Then look for the strongest stocks in that leading group. Click on the chart of each stock to see which ones are displaying strong chart action. The three medical equipment stocks shown today qualify on all counts.
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Chart 4
CHEMICAL LEADERS ... The second best sector over the past week has been material stocks. The Sector Summary list shows that specialty and commodity chemicals have been the two strongest groups. The two following stocks are chemical leaders with promising chart patterns. The weekly bars in Chart 5 show Monsanto (MON) climbing to the highest level in more than four years. Its relative strength (green line) is rising as well. Monsanto provides seed for agriculture planting around the world. Increased demand worldwide (especially South America) has made that a profitable area. Chart 6 shows Air Products and Chemicals (APD) close to breaking out of a "symmetrical triangle" (see converging trendlnes). That's normally a continuation pattern which, in this case, is a bullish pattern. An upside breakout through the upper line would confirm that. It's relative strength ratio (green line) has turned up as well.
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Chart 5
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Chart 6
AUTO REBOUND HELPS STEEL STOCKS -- NUCOR NEARS BULLISH BREAKOUT ... My December 27 message showed the Dow Jones US Autombiles Index ($DJUSAU) on the verge of a bullish breakout. The weekly bars in Chart 7 show that bullish breakout taking place over the last two weeks (black circle). Ford and General Motors have both hit 52-week highs. The upside breakout in autos may explain new interest in industrial metal stocks, and steel stocks in particular. In fact, steel stocks have been the strongest part of the materials sector over the last month. The solid gray line on Chart 7 plots the Market Vectors Steel ETF (SLX), and shows steel stocks jumping over the last month as well. The 20-week Correlation Coefficient (below chart) has strengthened recently to .79 (up arrow) which shows a strong link between auto and steel stocks. That makes sense since it takes a lot of steel to build cars. One of the recent steel leaders is Nucor (NUE) which is in the process of challenging its 2010/2011 highs (Chart 8). Its relative strength line is rising as well. Increased demand for autos may also work to the benefit of palladium and platinum which are used in car construction. That may explain why they're both doing better than gold or silver.
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Chart 7
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Chart 8
RISING FORD SHARES BOOST PALLADIUM -- STILLWATER MINING BENEFITS... Chart 9 shows a strong visual correlation between Ford (gray area), Palladium iShares (black line), and Platinum iShares (orange dashes). Since palladium and platinum are used in automobile catalytic converters, it makes sense that demand for those two precious/industrial metals should rise and fall with demand for autos. It's noteworthy that both metals hit bottom last August at the exact same time that Ford started rising. All three have risen since then. One stock that should benefit from those rising metals is Stillwater Mining (SWC) which is the only U.S. producer of palladium and platinum. Chart 10 compares that stock to palladium over the last three years. It seems clear that they rise and fall together. The weekly bars show Stillwater testing a resistance line drawn over its 2012 highs. An upside breakout above that line would be a positive development for the mining stock.
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Chart 9
