HEALTHCARE ETFS LEAD MARKET WITH NEW HIGHS -- ACTAVIS BREAKS TRIANGLE RESISTANCE AS BOSTON SCI BREAKS JUNE HIGH -- 10-YEAR TREASURY YIELD HITS SUPPORT AS TLT FORMS BEAR FLAG -- AEROSPACE-DEFENSE ETF SHRUGS OFF SEQUESTER WITH NEW HIGHS
HEALTHCARE ETFS LEAD MARKET WITH NEW HIGHS... Link for today's video. After a correction in June, the healthcare ETFs resumed their longer term uptrends and recorded fresh 52-week highs this month. Chart 1 shows the Healthcare SPDR (XLV) moving from the lower left of the chart to the upper right over the last eight months. Nothing but uptrend here. A falling flag/wedge correction took shape from mid May to late June, and this correction ended with the early July breakout. With a move above 50 the last two days, XLV is showing chart strength by hitting a 52-week high. Broken resistance in the 49 area turns first support. Key support is set with the May-June lows. The indicator window shows the StockCharts Technical Rank (SCTR) moving above 70 in late January and remaining above this level for around six months. This means XLV has been in the 70th percentile for technical rank, which means it has been outperforming more than 70% of its peers (other ETFs).
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Chart 1
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Chart 2
Large-cap healthcare stocks are not the only ones making a move. Chart 2 shows the Equal-Weight Healthcare ETF (RYH) also breaking flag/wedge resistance with a surge to new highs in July. In contrast to the market-cap weighed XLV, the components of RYH are more or less equally weighted. Notice that the top ten stocks in XLV account for over 55% of the ETF. In contrast, the top ten stocks in RYH account for just over 20%. XLV is clearly weighted towards a few large caps. Despite its equal-weight approach, RSY is keeping pace with XLV and hitting a new highs. The ETF, however, is getting a little overextended short-term because it is up around 7% in four weeks. Broken resistance in the 96 area turns first support.
ACTAVIS BREAKS TRIANGLE RESISTANCE AS BOSTON SCI BREAKS JUNE HIGH... There are several notable stock moves within the healthcare sector today, and I will highlight a few. Chart 3 shows Actavis (ACT) breaking above the triangle trend line and exceeding its June high with a sharp advance the last three days. Chart 4 shows Boston Scientific (BSX) breaking above its June high and recording a 52-week high. Chart 5 shows Bristol Meyers Squibb (BMY) getting a bounce above the early July low. A follow through breakout would signal a continuation of the bigger uptrend. Chart 6 shows Pfizer (PFE) bouncing off support in the 27.25 area with a surge the last three weeks.
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Chart 3
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Chart 4
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Chart 5
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Chart 6
10-YEAR TREASURY YIELD HITS SUPPORT AS TLT FORMS BEAR FLAG... Treasuries were hit hard as the 20+ Year T-Bond ETF (TLT) fell over 13% from early May to early July. Chart 7 shows TLT getting an oversold bounce with a move back above 109 the last two weeks. The sharp decline in TLT can be attributed to tapering talk from the Fed. The bounce, while not that impressive, can be attributed to back peddling on taper talk. I would also surmise that the bond market is looking at Initial Jobless Claims ($$UNEMPCIN), which continue to fall. At this point, the overall trend remains down with first resistance marked in the 110-111 area. A break above this level is needed to signal the start of a bigger retracement bounce. For now, the advance looks like a rising flag, which is bearish, and support is marked at 108. A break below 108 would signal a continuation of the bigger downtrend.
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Chart 7
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Chart 8
The 20+ Year T-Bond ETF is an exchanged traded fund made up of a basket of Treasury bonds. To get a more direct insight into an actual Treasury bond, I always like to confirm my assumptions with analysis of the 10-year Treasury Yield ($TNX). Treasury yields simply move inverse to Treasury prices. This means $TNX is a direct reflection of the Treasury market. Chart 8 shows $TNX surging from early May to early July and pulling back to support the last two weeks. Actually, there is a consolidation with support in the 24-25 area and resistance around 27. A break below support would be bearish for yields and bullish for Treasuries. Conversely, a bounce off support would be bullish for yields and bearish for Treasuries. Which is most likely? Because the bigger trend is up for the 10-year Treasury Yield, I think support will hold and the uptrend will continue.
AEROSPACE-DEFENSE ETF SHRUGS OFF SEQUESTER WITH NEW HIGHS... Price action appears to be trumping fundamentals with the defense stocks. Even though I do not want to debate the fundamentals, I am surprised that defense stocks are performing so well in the face of sequester and downgrades. The defense industry is dependent on the government for most of its revenue. IBD confirms this by reporting that analysts expect earnings and revenue at Lockheed Martin to decline when it reports on Tuesday. This is also true for Raytheon and Northrop Grumman. With the budget sequester and downgrades, one might expect some selling pressure or relative weakness in defense stocks. Chart 9 shows the Aerospace-Defense ETF (PPA) with a familiar pattern. The overall trend is up. The ETF consolidated from mid May to June and broke resistance with a surge to new highs in July. Sequester? What sequester? Perhaps the fundamentals will catch up, but this is a clear example of why chartists should pay attention to price action first and fundamentals second. Most of the news we hear is already priced into the stock or the stock market.
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Chart 9
BROKEN RESISTANCE TURNS FIRST SUPPORT FOR LMT, RTN AND NOC ... Chart 10 shows Lockheed Martin (LMT) hitting a new high after a consolidation breakout. Broken resistance turns first support in the 108-109 area. Chart 11 shows Northrop Grumman (NOC) with broken resistance turning support in the 84 area. Chart 12 shows Raytheon (RTN) with broken resistance turning first support in the 68 area.
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Chart 10
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Chart 11
