Trading Places with Tom Bowley

Healthcare Strengthening With Medical Supplies And Pharmas Following Biotechs Lead

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Market Recap for Thursday, September 7, 2017

Thursday's action was just further confirmation of a strengthening healthcare group (XLV, +1.11%).  The group has been outperforming the benchmark S&P 500 index since December, breaking a relative downtrend.  Yesterday, the XLV broke out again relative to the S&P 500.  This remains the best sector to trade/invest in as we're seeing both absolute and relative breakouts on solid volume and with strong bullish momentum.   That last part is important to me because the aggressive sectors have broken out recently with nasty negative divergences on their weekly charts.  Healthcare seems like the real deal.  Here's the relative breakout of the XLV yesterday:


The blue directional lines above highlight the periods of relative strength and the accelerating momentum within the healthcare sector.  We are seeing absolute breakouts in industry groups within healthcare to support the relative strength.  Below are two such charts - pharmas ($DJUSPR) and medical supplies ($DJUSMS):

Biotechs ($DJUSBT) were already very strong technically, now we're seeing other healthcare industry groups chiming in.  I'd look for continued relative strength here into year end and early 2018.

Pre-Market Action

U.S. futures are pointing to a lower open as Dow Jones futures are down 64 points with a little more than 30 minutes left to the opening bell.

Current Outlook

I believe weekly negative divergences continue to play out and that's resulting in mostly sideways consolidating action.  Selling could intensifty, especially given the seasonally bearish month of September being upon us.  Keep in mind that the worst period within September is from the 16th through the 30th so the worst historical period has yet to arrive.

Sector/Industry Watch

Not to be outdone, the Dow Jones U.S. Medical Equipment Index ($DJUSAM) also looks bullish, another healthcare industry group.  I'm having some technical issues displaying charts, but the DJUSAM recent broke out of a bullish wedge and is also adding to the healthcare rally.

Historical Tendencies

Three notable NASDAQ 100 stocks enjoy their best month of year (seasonally) during the upcoming month of October.  I've listed them below with their average October return in parenthesis:

Cognizant Technology (CTSH):  +10.5%
Alphabet (GOOGL):  +12.2%
Lam Research (LRCX):  +11.8%

These will be three stocks to watch as we approach the more seasonally favorable October to January period for equities.

Key Earnings Reports

(actual vs. estimate):

KR:  .39 vs .41

Key Economic Reports

July wholesale trade to be released at 10:00am EST:  +0.4% (estimate)

Happy trading!

Tom

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Tom Bowley
About the author: co-founded Invested Central and served as the site's Chief Market Strategist for more than 10 years. His unique trading style combines both his fundamental and technical strategies to systematically manage risk while trading. A regular contributor to StockCharts.com's bi-weekly ChartWatchers newsletter since 2006, Tom's role at StockCharts has expanded significantly since he joined the company as a full-time Senior Technical Analyst in March of 2015. Learn More
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