STOCKS

Since this sector has outperformed for the last few years, MoneyShow’s Tom Aspray examines the charts to see whether it still makes sense to be in this sector or if it’s time to move on.

The current fragile state of the US stock market was highlighted Monday when the S&P futures dropped 15 points in 60 minutes as stocks dropped in an apparent reaction to an article in the Financial Times on what the Fed might do.

Stocks in Asia were mixed overnight and are slightly higher in Europe as are the US futures. Today, we get the latest reading on the Consumer Price Index and Housing Starts along with the beginning of the FOMC meeting.

From a technical perspective, it is still my view that it would take “two consecutive days of solid price gains along with strong A/D numbers” to indicate that the correction was over.” Clearly volatility has picked up but it is difficult to determine whether the bullish sentiment has decreased enough to support a new phase.

The healthcare sector has exceeded almost all expectations in the past few years. As I noted last December, the sector broke 12-year resistance in 2012, which suggested it should also be a strong performer in 2013. Many are now wondering whether they should stick with the healthcare sector, take profits, or look for new health care stocks to buy.

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Chart Analysis: The daily chart of the DJ Health Care Sector (DJUSHC) shows that it broke its daily uptrend, line a, in early June but has bounced nicely from support at line b.

  • There is further support in the 490 area and the rising 20-week EMA (not shown).

  • The minor 38.2% support is now in the 482 area, which is about 5.7% below current levels.

  • The relative performance peaked in April but still has been able to hold above its uptrend, line c.

  • Volume picked up Monday, and the OBV is very close to moving above its WMA.

  • The weekly OBV (not shown) did confirm the recent highs and is well above its rising WMA

  • A close back above 527 should confirm the uptrend has resumed

The Select Sector SPDR Health Care (XLV) is up over 21%, so far, this year and the weekly chart shows that the starc+ band was tested a few weeks ago.

  • From the May 22 high at $50.40, it corrected 6.4% to a recent low of $47.16.

  • There is monthly pivot support now at $46.47 with quarterly pivot support at $44.23.

  • The long-term support, line e, is in the $42.50 area.

  • The weekly relative performance shows a longer-term pattern of higher highs and higher lows.

  • The RS line has turned up from its WMA and moved through short-term resistance at line f.

  • The weekly OBV completed its bottom formation in December, point c.

  • The OBV made further new highs last week and continues to lead prices higher.

  • The weekly starc+ band is at $50.96 for this week.

NEXT PAGE: A Stock to Buy on Pullback

Tickers Mentioned: Tickers: XLV, DJUSHC, ABC