HEALTHCARE PROVIDER INDEX REACHES SIX-MONTH HIGH -- LED BY AETNA AND ANTHEM -- RAIL INDEX TURNS UP -- LEADERS ARE NORFOLK SOUTHERN, KANSAS CITY SOUTHERN, AND UNION PACIFIC -- DOW TRANSPORTS EXCEED MAJOR RESISTANCE LINE -- S&P GROWTH ISHARES UNDERPERFORM
HEALTH CARE PROVIDERS INDEX TURNS UP ... I've been writing a lot about the recent upturn in the healthcare sector. Most of my attention has been on biotechs, pharmaceuticals, and medical equipment stocks (Boston Scientific, Thermo Fisher, Zimmer, and Waters). Today's message will focus on health care providers which are also healthcare leaders. Chart 1 shows the Dow Jones US Health Care Providers Index ($DJUSHP) trading at a new six-month high and well above its 200-day moving average. Its relative strength ratio (top of chart) is improving as well. A number of individual stocks in that group also look strong.
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Chart 1
AETNA AND ANTHEM ARE HEALTHCARE LEADERS ... Aetna (AET) is one of today's top percentage gainers in a rising healthcare sector. Chart 2 shows the health care provider nearing a six-month high after clearing its 200-day average. Its 50-day average (blue line) is about to cross over its 200-day (blue line) which is bullish for the stock. Its relative strength line (above chart) is improving as well. Chart 3 shows Anthem (ANTM) in an even stronger position. As I've been showing recently, money has been flowing into an undervalued healthcare sector.
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Chart 2
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Chart 3
RIDING THE RAILS... Rails are turning up as part of an improving transportation group. Chart 4 shows the Dow Jones Railroad Index ($DJUSRR) surging to a five-month high after clearing its 200-day average. The rail/SPX ratio (top of chart) has turned up as well. Norfolk Southern (NSC) is the day's rail leader. Chart 5 shows NSC gapping 8% higher. Other rails have turned up as well.
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Chart 4
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Chart 5
KSU AND UNION PACIFIC TURN UP... Chart 6 shows Kansas City Southern (KSU) rallying to the highest level since last October. It's the strongest of the rail stocks. Chart 7 shows Union Pacific (UNP) rising to a six-month high after clearing its 200-day average. [CSX has cleared its 200-day line as well]. Rails may be benefiting from more traffic in improving commodity markets.
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Chart 6
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Chart 7
TRANSPORTATION INDEX CLEARS FALLING TRENDLINE... Transportation stocks are another undervalued part of the market that are finally turning up. Chart 8 shows the Dow Jones Transportation Average on the verge of a new five-month high after rising above a resistance trendline starting last March. It's also well above its 200-day line. Transports are one of the most economically-sensitive parts of the market. A upside breakout would also put the TRAN in better sync with the Dow Industrials which are testing their old highs. The TRAN/INDU ratio (top of chart) show that transports have actually been outperforming the industrials since January.
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Chart 8
GROWTH ISHARES WEAKEN... Yesterday's message showed funds starting to move out of growth sectors of the market (like technology) into more undervalued parts of the market that include energy, financials, and healthcare. We're seeing more evidence of that today with selloffs in big tech stocks like Microsoft and Google. Meanwhile, lagging sectors (which include transportation stocks) are starting to outperform. Chart 9 shows the S&P Growth iShares (IVW) heading lower today. The IVW/SPX ratio (top of chart) is near a new 2016 low. Value stocks are holding up better. It remains to be seen if that's enough to prevent a market pullback.
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Chart 9
OVERBOUGHT S&P 500 VULNERABLE TO PROFIT-TAKING... The daily bars in Chart 10 show the S&P 500 up against resistance at its fourth quarter high. In addition, its 14-day RSI line (top of chart) is forming a small "double top" near overbought territory at 70 (see arrow). Daily MACD lines (below chart) are starting to roll over as well (blue circle). That leaves the S&P vulnerable to short-term profit-taking which could it bring it back to its early April low or moving average lines.
