HEALTHCARE SPDR IS TRYING TO CLEAR MOVING AVERAGE LINES -- MEDTRONIC AND BOSTON SCIENTIFIC LEAD MEDICAL EQUIPMENT GROUP HIGHER -- MERCK AND MCKESSON ARE DRUG LEADERS -- TECH SECTOR IS ONE OF MAY'S WEAKEST GROUPS
HEALTHCARE IS GETTING BETTER ... While a lot of attention is being given to stock market swings over the last month, and recent selling in everything related to tariffs and global trade, one group has been quietly getting stronger. And that's healthcare. Healthcare remains this year's weakest sector. Over the past month, however, it has gone from last to third place. Right behind utilities and REITs. It's the second strongest sector for this week, right behind utilities. All of which suggests that some defensive money is starting to rotate into healthcare. As one stock analyst on CNBC suggested yesterday, healthcare is not only considered to be a more defensive sector; it's one of the cheapest parts of the market. And far cheaper than other safe havens that have already had a strong run (like staples, utilities, and REITs). And its recent chart action suggests that it may be getting stronger.
HEALTHCARE SPDR MAY BE TURNING UP... Chart 1 shows the Health Care SPDR (XLV) trying to clear its two moving average lines. Which could lead to a test of its early May intra-day peak at 90.85. A close above that barrier would turn its trend higher. And it's starting to show relative strength. That can be seen by the gray histogram bars which plot a ratio of the XLV divided by the S&P 500. After falling through the first four months of the year (as the stock market rose), the ratio has done much better over the last month. That stronger performance has accompanied nervous stock selling over the last month and general rotation out of riskier stocks into more defensive ones. Two of today's stronger healthcare groups and are medical equipment and drug stocks.
STRONGER HEALTHCARE GROUPS... Chart 2 shows the Dow Jones US Medical Equipment Index consolidating above its 200-day line. A move above its 50-day line would be a strong sign for the group. Chart 3 shows the Dow Jones US Pharmaceuticals Index trying to close above its moving average lines. That would be a positive sign as well.
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Chart 1
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Chart 2
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Chart 3
METRONIC AND BOSTON SCIENTIFIC TURN UP ... Two of today's leaders in the medical equipment group are shown below. Chart 4 shows Medtronic (MDT) surging above moving average lines to 94 which puts it in place to challenge its first quarter highs. Chart 5 shows Boston Scientific (BSX) climbing to the highest level in nearly two months, and on pace to challenge its early April peak at 39. BSX is also trading above both moving average lines. Both are healthy looking charts.
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Chart 4
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Chart 5
MERCK AND MCKESSON ARE DRUG LEADERS ... Chart 6 shows Merck (MRK) rising above its April peak near 80 to reach the highest level since early April. MRK bounced off its 200-day average in mid-April, and has cleared its 50-day line since then. Chart 7 shows McKesson (MCK) clearing its 200-day line in early May; and successfully retesting it since then. That's a positive sign.
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Chart 6
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Chart 7
WEAK TECHNOLOGY SECTOR WEIGHS ON NASDAQ MARKET ... While healthcare stocks have moved up in sector rankings over the last month, technology has fallen. Technology stocks went from the year's strongest sector at the end of April to the second weakest over the last month. Only energy has done worse. That has a lot to do with technology's heavy exposure to China. That's especially true of semiconductors which have been the weakest tech group. And explains why the Nasdaq has underperformed other major stock indexes during May. And it's undergoing an important technical test. Chart 8 shows the Nasdaq Composite Index trying to stay above its 200-day moving average (red line) and its late March intra-day low at 7579. The Dow Industrials and S&P 500 are also retesting their 200-day lines. That's an important test for the market's 2019 uptrend.
