Good morning,
Markets have been volatile under the surface recently, but we haven’t seen much of a flight to safety. In fact, the typically more-defensive healthcare sector has underperformed the S&P 500 by 4% over the past three weeks.
In today’s report, I’ll break down why I believe the recent pullback in healthcare is an opportunity, and why it remains one of the top sector overweights in our ETF portfolios.
We’ll review:
The top-down technicals
Industry-focused ETFs
The healthcare stocks on our Blue Chip Hot List
And other bullish charts in the sector
Let’s get into it!
Top-down technicals
Recent pullback is an attractive entry point for XLV
Healthcare pulled back about 6% since the mid-August highs, but is finding support at the 50-DMA and was a notable outperformer yesterday. It’s too early to say the pullback here is fully over, but ultimately, this breakout measures to $190.
Relative performance may be working on a long-term bottom
The relative trend for healthcare is objectively neutral, right at a flat 200-DMA. However, when you look at the long-term view, you can see this follows the worst stretch of relative performance on record:
I love the John Roque quote, “We’re not in a reversion to the mean business, we’re in a reversion beyond the mean business”, and I think it applies here. Combined with the strength of the absolute chart, the setup is there for years of healthcare outperformance. It’s currently our largest sector overweight in the ETF models, alongside energy.
