The summer rally seems to be picking up steam. The S&P 500 and the Nasdaq have made record highs. The Dow Jones Industrial Average is not as strong as other indices but is now near its February highs, explains Bonnie Gortler, contributing editor to Signalert Asset Management's Systems & Forecasts.

Weekly market breadth has been improving the last few weeks, also showing signs that the rally is intensifying as more and more stocks are participating. If market breadth is favorable, this would bode well for further gains in 2018 including additional sectors of the market to participate.

Figure: Health Care Select SPDR (XLV) Weekly Price Channel, top) and 12-26-9 MACD (bottom)

chart 1

The chart above is the weekly (intermediate) price channel (purple lines) of the SPDR Health Care ETF (XLV). The XLV tracks healthcare stocks from within the S&P 500 Index predominantly in the Pharmaceutical industry and Healthcare Equipment & Supplies totaling 66.73%.

The top 5 holdings as of 08/29/18 are Johnson & Johnson, (JNJ), UnitedHealth Group (UNH), Pfizer (PFE), Merck & Co. (MRK) and AbbVie (ABBV) — totaling 33.38% of the ETF.

XLV just recently surpassed its old high on 1/22/18 of 91.56, trading at 92.74. The upside objective is 103.00, approximately a 10% potential gain.

It’s not uncommon that after a new high is made, a short-term pullback occurs. Support is at 88.00, an ideal buy area if there is a weakness in the near term, a likely area where the XLV should hold.

If you are looking for a MACD oversold condition in XLV, you would have to wait for the weekly MACD fell below zero which is not likely over the next several months.

The XLV is trading near its highs for 2018 and is clearly gaining momentum. Now is the time to buy healthcare for your investment portfolio. Key support area on any near-term weakness is 88.00.

Figure: Monthly Health Care Select SPDR (XLV) / S&P 500 (SPY) Index Ratio (Top) 12-26-9 MACD of XLV/SPY Ratio (Bottom)

chart 2

The top part of the chart is the monthly Health Care Select SPDR relative to the S&P 500 Index (SPY). The XLV/SPY ratio peaked in July 2015 (blue circle). A rising line means the XLV is stronger, and if falling, the SPY is stronger.

In July 2018 the XLV/SPY ratio turned up. Also, the downtrend from July 2015 (orange line) has been broken (circled in red). This is bullish for healthcare. XLV is now stronger than the S&P 500 (SPY). 

The lower portion of the chart is MACD of XLV/ SPY. Momentum has stopped falling and a MACD buy signal (blue circle) has been generated confirming a change of leadership from SPY to XLV.

Healthcare compared to the S&P 500 has been in a long-term downtrend since July 2015. The downtrend from July 2015 has been broken. You can now look forward to a potential change of leadership and outperformance to healthcare over the next several weeks to months.

With the trend favorable, if you have cash on the sidelines, or if you are overly exposed in one sector, now is a good time to invest 5-10% in Healthcare Select SPDR where the long-term trend will be supporting your investment.

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