DOW TESTS 200-DAY LINE TO LEAD MARKET HIGHER -- HEALTHCARE SPDR MAY BE BOTTOMING -- BIOTECHS LOOK STRONG

DOW TESTS 200-DAY LINE... October has turned to be a strong month for the market, and industrials in particular.   Chart 1 shows the Dow Industrials reaching a two month high and trying to close above its 200-day moving average.   The Dow has gained more than 5% for the week and 14% for the month.   That's the Dow's biggest monthly gain in years.   Industrials were also the week's strongest sector.  Chart 2 shows the Industrial Sector SPDR (XLI) also testing its 200-day average.   Its relative strength line in the upper box has also hit a new high for the year.   Chart 3 shows Caterpillar gaining 14% for the week and reaching the highest level in five months.   Ten market sectors gained on the week with strong gains in consumer staples and financials.  Communication Services were the only losers.

S&P 500 CLEARS 50-DAY LINE... The rest of the market also gained but by a smaller amount.  Chart 4 shows the S&P 500 trading above its 50-day line which suggests that higher prices are probably in store.   The S&P was held back by the tech and communication sectors.  So was the Nasdaq.  Chart 5 shows the Invesco QQQ Trust in a potential bottoming formation. It needs a close above its October high and its 50 day average to turn its short-term trend higher.    Part of the recent sector performance appears to be a rotation out of big tech growth stocks into more value oriented sectors of the market.   That may explain why the three biggest sector gainers during October have been energy, industrials, and financials while technology has lagged behind.   Healthcare has been a standout performer.

HEALTHCARE SPDR MAY BE NEARING UPSIDE BREAKOUT... Investors looking for a defensive sector with promising upside potential might want to take a closer look at healthcare.   Chart 6 shows the Health Care Sector SPDR (XLV) trading above its red 200-day moving average and in a potential bottoming formation.   The XLV appears headed toward a test of its August high.  Its relative strength ratio in the upper box is also hitting new highs.   Its biggest monthly gainers have come from healthcare providers and pharmaceuticals.   Biotechs also look promising.  Chart 7 shows the Nasdaq Biotechnology iShares (IBB) clearing its moving average lines.