HEALTHCARE SPDR TURNS UP -- PHARMA IS LEADING -- PHARMACEUTICALS SPDR REACHES THREE-MONTH HIGH -- PHARMA LEADERS ARE ABBOTT LABS, LILLY, AND PFIZER -- ZOETIS HITS NEW RECORD -- SOME MONEY MAY BE ROTATING FROM TECHS INTO CHEAPER DRUG STOCKS
HEALTHCARE SPDR TURNS UP... Last Friday's message suggested that the healthcare sector appeared to be basing. But it needed a close over its April/May highs to turn its trend from "sideways" to "up". Chart 1 shows the Health Care SPDR (XLV) exceeding those two peaks this week. That means that healthcare stocks are finally joining the market's uptrend. That's a good thing for the market because healthcare is the third biggest sector in the S&P 500 (13%). Last Friday's message showed Biotech iShares (IBB) turning up and showing new leadership. It pointed out, however, that pharmaceuticals were the year's weakest part of the XLV. That's not good because pharma is the biggest part of the XLV with a sector weight of 30%. Biotechs account for only 18%. The good news today is that pharmaceuticals are one of this week's strongest healthcare groups. So let's focus there.
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Chart 1
PHARMACEUTICALS SPDR TURNS UP... Chart 2 shows the S&P Pharmaceuticals SPDR (XPH) rising above its 200-day average this week and reaching the highest level in nearly three months. And it's starting to show relative strength for the first time this year. That can be seen by the rising XPH/S&P 500 ratio in the top box. Since pharma is the biggest part of the healthcare sector, and represents nearly a third of its value, that suggests this week's XLV upturn may have staying power. Some of the big pharma names are leading the rally. I showed Merck (MRK) turning up last Friday. Let's look at some other pharma leaders today.
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Chart 2
ABBOTT LABS, LILLY, AND PFIZER ARE LOOKING STRONG... The three big pharma leaders shown below all have promising chart patterns. Chart 3 shows Abbott Laboratories (ABT) having broken the upper resistance line in a bullish "symmetical triangle". That puts it in position to challenge its all-time high formed during January. It's relative strength line (top box) has shown leadership all year. Chart 4 shows Eli Lilly (LLY) trading at the highest level in five months and nearing a test of its all-time highs formed between February and December. Its relative strength ratio is on the verge of an upside breakout of its own. Chart 5 shows Pfizer (PFE) nearing a test of overhead resistance formed during February and April. An upside breakout appears likely. There's one more lesser known drug stock that's having an even stronger day.
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Chart 3
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Chart 4
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Chart 5
ZOETIS HITS NEW RECORD ... This next drug stock may not be as well known as the prior three shown above. But it's one of the biggest holdings in the Pharmaceutical SPDR (XPH). It also happens to be one of its strongest stocks. The daily bars in Chart 6 show Zoetis (ZTS) breaking out today to a new record high. The pharma leader has been trading sideways since March and has now completed that sideways consolidation pattern to resume its uptrend. Its relative strength ratio (top box) has been rising all year and now appears to be resuming that uptrend. As I mentioned earlier, stronger pharmaceuticals are a good thing for the healthcare sector. And a stronger healthcare sector is a good thing for the rest of the stock market. This week's buying of healthcare stocks also shows that investors are starting to look beyond technology stocks that have led the market higher. A new record by consumer cyclicals has broadened out the market rally. So has the upturn in healthcare stocks. Profit-taking in technology stocks this week suggests that some money may be rotating into cheaper parts of the market that are starting to rally. Pharmaceuticals certainly come to mind.
