HEALTHCARE SPDR NEARS UPSIDE BREAKOUT -- DRUG STOCKS ARE ALSO BREAKING OUT -- BANKS RALLY ON FED DAY

HEALTHCARE SPDR NEARS UPSIDE BREAKOUT...Money has been flowing into healthcare stocks since the end of April. And the sector may be on the verge of a bullish breakout. The daily bars in Chart 1 show the Health Care SPDR (XLV) testing its early March intra-day peak at 93.10. A decisive close above that level would put the XLV at the highest level in six months. And would constitute a bullish breakout. The XLV/S&P 500 relative strength ratio (upper box) bottomed in late April and has been rising since then. All groups in the XLV are rising, including biotechs which have had a strong week. Healthcare providers are also up today. The group leaders, however, remain in medical equipment and supplies. Pharmaceuticals are the group I've been following most closely. Chart 2 shows the Dow Jones Pharmaceuticals Index rising above its May peak. Stocks in that group hitting new highs include Abbott Labs (ABT) and Merck (MRK).

BANKS RALLY ON FED DAY... On a day when most observers expect a more dovish tone from the Fed regarding the direction of interest rates, bank stocks are having a relatively strong day. That's a bit unusual considering that lower rates are usually negative for banks. Today's bounce in oversold bond yields may be helping. Chart 3 shows the S&P Bank SPDR (KBE) up for the second day in a row, and attempting to clear its 200-day moving average (red line). Regional banks are leading the day's rally. It will be interesting to see how rate-sensitive banks react to whatever the Fed does or doesn't do (or say) this afternoon. Either way, a decisive close above its moving average lines would be a positive sign for the group. And financials in general.