Volume and relative performance analysis suggests that two big drug stocks and a primary health care sector ETF are likely to outperform through the typically defensive summer months.
Overseas markets appear to have survived the holiday weekend, and despite a choppy European session on Monday, markets were higher early Tuesday. The first few months of 2012 were characterized by initial disbelief in the stock market’s strength, followed then by a level of optimism in March and early April that enticed many into stocks at just the wrong time.
While the negative market sentiment has not yet reached levels generally associated with significant market bottoms, the sharp decline in Treasury yields indicates where investors are placing new money. The fiasco over the Facebook (FB) IPO has also done little to inspire investor confidence.
Though the Spyder Trust (SPY) is down almost 4% over the past three months, the Select Sector SPDR - Health Care (XLV) is actually up slightly during that same period. As I discussed here last Friday, it is my view that the current decline will provide a good opportunity to buy those stocks that have attractive yields and are outperforming the overall market.
These two drug stocks as well as one of the leading health care sector ETFs should be purchased over the next week or two as the market corrects to more important support.
Chart Analysis: The Select Sector SPDR - Health Care (XLV) made a new high at $38 in early April and had a low of $35.81 last week. The weekly uptrend, line a, and the lower Starc band (Starc-), are in the $34.80-$35.20 area.
Abbott Laboratories (ABT) is a $96 billion drug manufacturer whose stock currently yields 3.3%. Abbott is scheduled to be broken into two companies by the end of 2012. The stock price is up 8.4% since the start of March. In early May, ABT had a high of $63.20.