Overtime

Healthcare

Good morning,

Over the past two months, our ETF portfolios have gradually increased exposure to the healthcare sector, with the October trades pushing exposure up to benchmark-weight. As yesterday’s Playbook showed, the short-term relative trend of healthcare has flipped positive, but investors continue to yank money out of the XLV ETF.

Trend improvement amid sour sentiment can be a potent combination in financial markets, so I felt it prudent to take the sector into Overtime.

This week we will look at:

• Absolute and relative technicals for healthcare

• Industry-focused ETFs

• Leading and lagging stocks

• and more!

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Absolute and relative technicals

XLV: SPDR Healthcare Sector ETF

Neutral, rangebound, whatever you want to call it, the big picture of healthcare is a whole lot of nothing. That is bad when the rest of the market is moving higher, but feels a bit better when the market is correcting like it has the past few months. I suspect the next big move is higher, but tactically there is no reason to be long or short for absolute return focused investors.

Relative trend flips positive

This chart is the most pertinent to the move to market weight. With both the 1 and 3-month moving averages now upward sloping, the short-term momentum favors healthcare over the S&P 500 too strongly to remain underweight. The longer-term moving averages remain firmly downward sloping, keeping the sector from an overweight position.