Health Care continues to remain trapped between the 50 and 200-day moving averages in a sideways consolidation. Under the surface, relative performance vs. the S&P 500 maintains its uptrend, despite the recent pullback. Momentum within individual sectors components has been building, but will it be enough to power the sector through the 200-day moving average?
S&P 500 Health Care
The Health Care sector has regained the 1,450 level that was highlighted in our last note on the space and is now trapped between the 50 and 200-day moving averages. The group is one of the few that has not put the pre-COVID highs into play yet, but we are hard pressed to make a strong bullish case for this absolute trend until the price is above the 200-day moving average.
Relative to the S&P 500
While the absolute trend remains less than compelling, the relative trend remains bullish, above the breakout level and holding its ground at the rising 50-day moving average.
Drilling down on the industry groups within the Health Care sector:
Health Care Equipment
Health Care Equipment stocks have found support at the pre-COVID highs and are now doing battle with the declining 50-day moving average. The rebound is welcome, but the trend continues to favor the bears for now.
Relative to the broader Health Care sector, Equipment remains an underperformer, trading below the declining 50-day moving average.
Health Care Supplies
The Health Care Supplies group remains in a downtrend below the pre-COVID highs and the declining 50-day moving average. This dynamic begins to the put the pandemic lows into play.
Relative to the Health Care sector, the trend is bearish, 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 rebounded from support to retake the 50-day moving average and now trade in a consolidation. A break of the downtrend line could set the table for a run to new highs.
Relative to the sector, the trend is grinding to the upside as it rides a slowly rising 50-day moving average.
Biotechnology remains in a wide, sloppy consolidation as it oscillates around the 50-day moving average. It is hard to make a convincing case until there is a clear break in either direction.
Relative to Health Care, Biotechnology continues to outperform. The ratio is testing the 50-day moving average as it works to complete a bearish to bullish reversal.
Pharmaceutical stocks are testing the 50-day moving average above the rising trend line to keep the benefit of the doubt with the bulls.
Relative to the sector, Pharmaceuticals have begun to fade from resistance, as we discussed in our last note on the space. The ratio is below the 50-day moving average, which is beginning to roll over.
As the sector continues to grind in a sideways consolidation, the percentage of components in a bullish momentum regime (RSI > 50) continues to climb, crossing above the 75% mark for the first time since late June. There were 268 instances since 2003 where the percentage of Health Care components in a bullish momentum regime crossed above the 75% mark for a median gain in the sector of 2.63%, with a 67.17%-win rate over the following quarter. While these results have been attractive, investors would be prudent to apply a magnified risk management process as the sector remains below its 200-day moving average.
This note is a preview of our Sector Deep Dive. See our thoughts and more in the full report.
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