Health Care: Hard to
Make a Diagnosis

For long-term “buy and hold” investors, the Health Care sector has been a frustration for over a year, while tactical traders have welcomed the volatility. Relative to the S&P 500, the group is at a key long-term relative support zone and is one that the bulls are watching closely. Short-term breadth has approached washed-out levels and could be a potential opportunity for those looking to buy the recent weakness, but risk management should be heightened as the sector trades below both 50 and 200-day moving averages.

S&P 500 Health Care

The Health Care sector remains above the key 1,450 level that we have been highlighting, keeping the group in the sloppy consolidation that has been in place for a year. Price is below the 50 and 200-day moving averages. This neutral trend makes it hard to make a compelling case in either direction. We await a clear break.

Relative to the S&P 500

For much of the year, the group’s less bad performance has put it in a leadership position. That role is now in question as the ratio has lost the 50-day moving average and is testing support. Holding here is important; breaking above the 50-day is needed for the leadership position to be established.

Drilling down on the industry groups within the Health Care sector:

Health Care Equipment

Health Care Equipment stocks continue to battle support at the pre-COVID highs, below the 50 and 200-day moving averages. Holding 1,900 is key for the bulls as they try to build a base. However, it is hard to make a compelling case until 2,100 is breached to the upside.

Relative to the broader Health Care sector, Equipment remains an underperformer, trading below the declining 50-day moving average. There are early signs that a base is being built, but more time is needed.

Health Care Supplies

The Health Care Supplies group does not present a compelling bullish case as it trades below the 50 and 200-day moving averages and resistance at the pre-COVID highs.

Relative to the Health Care sector, the trend is bearish, remaining below a declining 50-day moving average and trading below the lows seen at the COVID trough.

Health Care Providers & Services

The Health Care Providers and Services stocks have seen a slight pullback from the highs but remain above the rising 50 and 200-day moving averages. Price-based support moves up to the 1,590 level. Above these marks, the bulls are in control of the trend.

Relative to the sector, the group has added to the bullish trend that we highlighted in our last note. The ratio is at new highs above the rising 50-day moving average.

Biotechnology

The trend in Biotechnology stocks remains the same as what is was the last time that we looked at the group, a wide sloppy consolidation around the 50 and 200-day moving averages. It is hard to have much conviction in either direction.

Relative to Health Care, Biotechnology has given up some of its leadership position. The ratio is below the 50-day moving average and has stalled in its bearish-to-bullish reversal.

Pharmaceuticals

In the Pharmaceutical space, the bulls lose the benefit of the doubt we gave them in our last note. The index has fallen below the 50 and 200-day moving averages as well as the June low. Time is needed for the bullish trend to reassert. 

Relative to the sector, Pharmaceuticals continue to roll over, below the declining 50-day moving average. Odds favor continued underperformance.

Breadth

The percentage of Health Care components making new one-month lows spiked above the 70% mark in the August 29th trading session as the sector printed a new one-month low. There were 21 instances where the percentage of Health Care components making a new one-month low crossed above the 70% mark for a median gain in the sector of 7.70%, with a 77.78%-win rate over the following quarter. While these results have been attractive, they have also been historically rare, with a sample size of 21 since 2008, so investors should receive these data with reduced enthusiasm. 

This note is a preview of our Sector Deep Dive.