HEALTHCARE SECTOR NEARS UPSIDE BREAKOUT-- LED BY UNITEDHEALTH, JNJ, AND ABBOTT LABS
MONEY ROTATES INTO HEALTHCARE... One of the most encouraging developments over the last month has been the rotation into formerly lagging sectors like industrials, financials, and materials. That rotation also includes this week's upside breakout in the Dow Industrials to the highest level in more than a year. Small caps are close to doing the same (more on that shortly). An overbought condition in leading tech stocks may be contributing to that rotation. Today's message will focus on healthcare which is another lagging sector starting to look stronger. Interestingly, healthcare is the day's strongest sector while technology is one of the weakest.
Today's strongest sector is healthcare. Chart 1 shows the Health Care SPDR (XLV) on the verge of an upside breakout through its April high. A close above that level would signal a new uptrend in that sector. The XLV rally is being led by healthcare providers and pharmaceuticals. Three of the stock leaders are shown below.
UNITEDHEALTH TURNS UP... Chart 2 shows UnitedHealth Group (UNH) climbing above its 200-day moving average and now testing a falling trendline drawn over its December/April highs. UNH is the week's strongest healthcare stock.
JNJ AND ABT LEAD TODAY'S XLV RALLY... Two of today's strongest healthcare stocks that are in the pharmaceutical group are shown below. Chart 3 shows Johnson & Johnson (JNJ) surging to a new high for the year. The stock has also cleared its moving average lines in the process.
Chart 4 shows Abbott Labs surging to a challenge of its yearly highs. Its moving average lines are also in bullish alignment.
TECHS LOOK OVERBOUGHT... Up until recently, technology stocks have been the market's strongest sector. Some profit-taking, however, suggests that some short-term money is rotating into other parts of the market. The next chart may explain why. Chart 5 shows Technology SPDR (XLK) in a strong uptrend. The two arrows in the upper box, however, show the 14-day RSI line in very overbought territory. At the very least, that suggests that the XLK is due for a period of consolidation or some profit-taking. That wouldn't have a major effect in its major uptrend; but it may encourage investors to rotate some money into weaker parts of the market that offer better value like healthcare and small caps.
SMALL CAPS TEST RESISTANCE...Small caps have also been doing much better of late. As a result, they may be nearing an upside breakout of their own. Chart 6 shows the Russell 2000 iShares (IWM) testing two previous peaks formed over the past year. An upside breakout would complete a bottoming formation and would go a long way to broaden out this year's market rally. Footnote: Stronger bank stocks are helping support the Russell 2000 Small Cap Index.
