HEALTHCARE IS WEEK'S STRONGEST SECTOR -- PHARMA HAS BEEN A SECTOR LAGGARD -- BUT IS STARTING TO MOVE UP IN THE RANKINGS -- DOW JONES PHARMACEUTICALS INDEX IS RISING TO FIVE-MONTH HIGH -- PHARMA ISHARES ARE DOING THE SAME -- JNJ AND LLY MAY BE BREAKING OUT
HEALTHCARE CONTINUES TO GET STRONGER... Last Friday's message wrote about healthcare stocks going from one of the market's weakest sectors to one of the strongest. During the first eleven months of the year, healthcare was the market's second weakest sector (with only energy doing worse). Over the last month, healthcare moved up into second place (just behind technology). Over the last week, healthcare moved into first place; and is hitting a new record again today. Its chart reflects that improvement.
The daily bars in Chart 1 show the Health Care Sector SPDR (XLV) recently rising above its 2018 and 2019 highs to achieve a major bullish breakout. The solid gray area shows the recent improvement in its relative performance. After declining for most of the last year, the XLV/SPX ratio turned up during October and is now trading at the highest level in five months. As last Friday's message also pointed out, healthcare still remains one of the market's cheapest sectors. And one of its best values.
HEALTHCARE LEADERS... All of the subgroups within the XLV have gained ground over the last month. The three strongest are shown below. Chart 2 shows the Dow Jones Health Care Providers Index rising to the highest level in a year. Chart 3 shows the Dow Jones Medical Supplies Index nearing a test of its July peak. A close above that summer high would put the group at the highest level in a year as well. Chart 4 shows the Dow Jones Biotechnology Index already at a new 52-week high. All three appear to be in healthy uptrends. There appears to be a fourth group that may just be getting started.
PHARMACEUTICALS ARE TURNING UP... I always like finding a market that's starting to go from weakness to strength. Both on an absolute and relative basis. The healthcare sector is a good recent example of that. But there may be another example of that happening within the XLV itself.Chart 5 shows the Dow Jones Pharmaceuticals Index climbing today to the highest level in five months. That group has been the weakest part of the XLV for the entire year. But it's moved into third place for the past week; and into first place in the XLV today. That certainly makes a group worth looking at. Its falling relative strength ratio in the upper box demonstrates how weak its been during 2019. Which also makes it one of the best values within a relatively inexpensive sector. And one that's just starting to move up in the sector rankings. Chart 5 also shows its price pattern over the last year contained between two converging trendlines. That potential "symmetrical triangle" in a longer-range uptrend is usually a bullish pattern.
PHARMACEUTICALS ISHARES ARE RISING... A number of ETFs tied to big pharma are also turning up. Chart 6 show the U.S. Pharmaceuticals iShares (IHE) rising to the highest level since the start of July. It has also climbed well above its red 200-day moving average. A couple of individual drug stocks may be breaking out as well.
TWO POTENTIAL DRUG BREAKOUTS... Chart 7 shows Johnson & Johnson (JNJ) trying to clear its mid-October peak. If it does, that would put it at the highest level since July. Chart 8 shows Eli Lilly (LLY) challenging its September high around 116. A close above that previous high would put that stock at the highest level since June.
MERCK NEARS POTENTIAL RECORD... Chart 9 shows Merck (MRK) already in an uptrend and nearing a test of its second half highs. A close above those previous peaks would put that drug leader at an all-time high.
