Health Care Has Been On Fire. Will The Uptrend Continue?

Health care has been the hottest sector of the US equities market over the last three months. The largest health care ETF, the Select SPDR Health Care ETF XLV, has risen over 11 percent since the beginning of June, compared to the S&P 500’s 6.5 percent gain. 

The driver of this rally can be traced back to earnings. According to Thomson Reuters Lipper Alpha, 94 percent of health care companies exceeded earnings expectations for the second quarter. Only consumer staples did better. 

And Wall Street is reacting. A Goldman Sachs analysis concluded that hedge funds have more than 17 percent of their assets invested in health care, making it the largest weighting of any sector. That’s about as big an endorsement as you’re ever going to get from the “smart money” on Wall Street.

Naturally, the next question is this: Will the trend continue into September? According to VantagePoint Software, which use artificial intelligence and intermarket analysis to make 1-3 day forecasts accurate up to 86 percent of the time, that answer is mixed. 

Looking At XLV

The Health Care SPDR ETF XLV rose 4 percent in August, marking the fourth straight month of gains. You can clearly see this trend on the chart below. 

What we’re specifically looking at here are the blue line, black line, and red-green bar at the bottom. The blue line represents a 3-day predicted moving average, and the black line represents a 10-day moving average. When the blue is above the black, that represents a clear uptrend signal. That’s clearly the case with XLV.

On top of that, the neural index at the bottom of the chart, which forecasts upcoming strength or weakness in a market, is showing continued upside to come. 

Health Care Stocks In Clear Uptrends

Celgene

Celgene Corporation CELG made waves with its Q2 earnings report in which the company raised their sales guidance for the fiscal year. It’s been a banner year for Celgene, who started 2018 off with a bang by acquiring Juno Therapeutics for $9 billion. 

But that’s old news. Looking at the stock on VantagePoint, this one looks primed to go lower for two main reasons: 1) the blue three-day predicted moving average recently crossed below the black 10-day moving average, and 2) the neural index turned red at the same time. 

Aetna

Aetna Inc AET is showing itself to be in a clear uptrend. Even though the blue and black lines are not very far apart, their consistent rise coupled with the green neural index and rising moving average differences tell us that more is in store for this one. We’ll want to see any one of those indicators turn before entertaining thoughts of weakness in the name. 

Perrigo

Perrigo Company PLC PRGO has a bit of a different story. Though the stock appears to want to give back some of the gains made over the last three weeks, during which it rose about 11 percent.  

On this one, the blue line represents a one-day predicted moving average. Though not as strong an indicator as the three-day predicted moving average, the bearish crossover from Thursday tells us that, at the very least, this uptrend is halted for now. 

Allergan

Allergan plc AGN is in a similar position as Perrigo. The neural index turned red on September 4, and even though the two moving averages are very close together right now—indicating there’s no real conviction on an uptrend or downtrend—that at least tells us that the upward momentum has paused. 

Not every health care stock is looking good right now. Merck & Co., Inc. MRK, Pfizer Inc. PFE and Bristol-Myers Squibb Co BMY are three health care stocks that look range-bound at the moment. 

But the health care sector will be one to watch for the next few weeks. If the strength that lasted throughout the summer continues into the fall, we could be looking at an all-time year for the sector. 

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