Healthcare starting to kick into gear- What to Favor
- SPX & QQQ bounce nearing strong trendline resistance; a reversal seems likely
- Healthcare starting to outperform into a seasonally bullish time
- Pharmaceutical stocks likely outperform into mid-July, but Biotechs, Services names should be given a strong look on any weakness
- BMY, MRK, PFE, LLY, JNJ, VRTX, AMGN, CI, ANTM, HUM are favorites
Monday’s rally has reached resistance for SPX and QQQ, and near-term overbought conditions combined with Elliott-wave projections and bearish short-term cycles all combine to make a stallout and trend reversal likely heading into this week’s quarterly rebalance. I anticipate that while the broader Equity trends have begun a bottoming process which likely lifts from July into September, the near-term bounce has failed to make sufficient evidence to suggest that more upside needs to happen during this final week of the month and quarter. SPX managed to retrace nearly an exact 50% of the most recent pullback throughout the month of June. QQQ, meanwhile, has rallied to test what appears to be a strong area of downtrend line resistance. I had mentioned 298-304 last week and am uncertain that QQQ will need to get into this zone of resistance before turning lower. Tuesday should result in a reversal, and support lies at 271,260.
Healthcare looks quite bullish heading into the end of Q2
Healthcare has started to kick into gear as Q2 is coming to a close. XLV-0.31% , the SPDR Healthcare Select Sector Fund ETF, is higher by over 8% in the rolling five-day period, the best performing of any of the major S&P sectors.
What’s encouraging is that this sector is starting to turn higher on both an absolute but also a relative basis to SPX. This gives some comfort that Healthcare’s recent outperformance likely continues heading into one of the more bullish seasonal times for the group all year (July Avg. performance for XLV-0.31% is +3.25% over the last 10 years on average).
As seen below, RYH, the Invesco Equal-Weighted Healthcare ETF, has managed to snap back to regain May lows in the last week. That’s an initial positive while relative charts of RYH vs SPX have attempted a breakout of this long-term downtrend. Note, this has been attempted unsuccessfully in months past. However, given the recent uptick in Biotech stocks, I feel that Healthcare likely can start to outperform further and should be overweighted.
Biotech finally starting to show some meaningful stabilization
Interestingly enough, it hasn’t just been Medical Devices, Healthcare Services and Pharma that have been working of late.
Biotechnology stocks have also snapped back with a vengeance, and the SPDR Series Trust S&P Biotech ETF (XBI) has rallied to the highest levels in more than a month.
Technically speaking, this looks to be near an important area of resistance near its ongoing downtrend from last fall along with prior March 2022 lows, both which intersect near $80.
Given that broader markets have not showed sufficient evidence of having made intermediate-term lows, it’s likely that XBI likely stalls here and backtracks over the next 2-4 weeks. This should provide an excellent entry for longs given that momentum gauges like RSI and MACD have both improved in recent weeks.
At present, until XBI can exceed $80, it will likely be better to be selective in what longs to favor. My favorite Biotech names to buy technically are names like VRTX-1.02% and AMGN-0.19% . REGN-0.09% has shown a bit of near-term deterioration, so this has fallen out of favor a bit near-term, but likely will be attractive to buy into mid-July on any weakness in XBI.
Pharmaceutical stocks remain the best part of Healthcare
Just in the last week, we’ve seen some huge outperformance in one of the groups which I’ve been discussing in recent months as likely having a very bright future: Pharmaceutical stocks.
The S&P Pharmaceuticals, Biotechnology and Life Sciences index has been higher by nearly 9% in the last week, with contributions from Pharma but also Biotech names as this group has begun to stabilize.
Four out of the top 10 best performing DJIA stocks last week were found in Healthcare, and UNH, MRK, PFE, JNJ were all higher by more than 7%.
Given that markets haven’t shown sufficient signs that a true bottom has already been made, it makes sense to still favor Pharma outperformance over Biotech, and I expect that Pharma should still present the best way to profit from Healthcare as it nears its seasonally bullish month of July.
Daily charts of the VanEck Pharmaceutical ETF PPH-0.63% , show prices just having exceeded the minor downtrend which had been present since April of this year. Despite some minor consolidation in recent months, this remains within striking distance of all-time highs, and I anticipate that highs likely are challenged and exceeded in the weeks/months to come.
My top Pharmaceutical stocks to favor technically include : PFE, MRK, LLY, JNJ and BMY
Other Healthcare names outside the Pharma and Biotech sub-sectors which have a lot of interest to me technically include CI, HUM, ANTM, UNH and MCK. These are technical standouts and I like buying all of these given their bullish technical structure and momentum.
