Tom Bowley and I have been talking on MarketWatchers LIVE about sector rotation and how the healthcare sector is getting more "healthy". Today I got confirmation that this sector is back in favor. A PMO BUY signal was generated on both the Healthcare SPDR (XLV) and on the equal-weight Healthcare ETF (RYH).
After enjoying Julius de Kempenaer's presentation on yesterday's MarketWatchers LIVE show, I was inspired to do a short-term Relative Rotation Graph (RRG) of the sector SPDRs. Tune in on Friday's MarketWatchers LIVE show and I'll show you how easy it can be to create these charts. We can see that XLV is now rotating out of the "lagging" quadrant and has entered the "improving" quadrant. Julius also told us that seeing a northeast "compass" move generally implies higher prices on the way.
Looking at the XLV chart, you can see that I've annotated the new PMO BUY signal. It's not an optimum signal given the recent whipsaw, but the SCTR is certainly confirming the rally. An ascending triangle pattern has executed as expected to the upside. Typically you can measure the height of the back of the pattern (in this case $2) and add it to the top to get a minimum upside target. That calculates to a move to $85.
A symmetrical triangle evolved on the RYH chart. These are continuation patterns, so the expectation was an upside breakout which we got today. Again, I'm also not liking the flat PMO but it is on a new BUY signal and the SCTR has been improving quickly, suggesting that RYH is strengthening longer-term over its peers. You can also use a similar calculation on symmetrical triangles (though not everyone does it) by measuring the height of the pattern and adding it to the top of the pattern. This means a minimum upside expectation around $185-$186.
Conclusion: Given the new PMO BUY signals and the execution of some beautiful bullish chart patterns, Healthcare stocks and ETFs should continue to rally. The RRG chart also suggests this as XLV is moving from lagging to improving as it rises at an angle less than 90 degrees.
Helpful DecisionPoint Links:
DecisionPoint Shared ChartList and DecisionPoint Chart Gallery
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
Technical Analysis is a windsock, not a crystal ball.
Happy Charting!
- Erin
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