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After holding the line for over a year, Health Care has both lost an important long-term support zone and experienced a 50/200-day moving average Death Cross in the same week. However, under the surface, the group remains an outperformer in losing less than the S&P 500. Volatility among sector components has approached levels not seen since the depths of the pandemic leading to a potential countertrend bounce, begging the question; will it be enough for the sector to recapture the breakdown level to the upside?

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S&P 500 Health Care

The Health Care sector has finally succumbed to the selling pressure that has gripped other parts of the equity market. The bulls failed to defend the 1,450 level that we highlighted in our last look at the space, and the door is now open to a move toward the pre-COVID peak. The bullish to bearish reversal has been completed, and the bears are in control of the trend.

Relative to the S&P 500

While the absolute trend remains weak, the group continues to be “less bad” relative to the S&P 500. The ratio is above the rising 50-day moving average and price-based support.

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

Health Care Equipment

Health Care Equipment stocks are under pressure, moving below the pre-COVID highs and trading below the declining 50-day moving average. 

Relative to the broader Health Care sector, Equipment remains an underperformer, trading near the lows of the past four years below the declining 50-day moving average.

Health Care Supplies

The bearish case on the Health Care Supplies group continues to play out as the index remains under intense pressure after undercutting the pre-COVID peak. The group is below the steadily declining 50-day moving average, and there is scope for a move to the COVID lows.

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

After leaving a false breakout on the chart, the Health Care Providers and Services stocks have lost the 50-day moving average and price-based support. The group has completed a reversal, and the bears are now in control.

Relative to the sector, the trend is in the early stage of a possible reversal, moving below the 50-day moving average.

Biotechnology

Biotechnology is another group that has left a false breakout on the chart after failing to hold above 5,100. The index is below the 50-day moving average and in a choppy consolidation that has been in place since January 2021.  Bulls want to see support at 4,300 holds

Relative to Health Care, Biotechnology continues to outperform. The ratio is above the 50-day moving average as it works to complete a bearish to bullish reversal.

Pharmaceuticals

Pharmaceutical stocks are moving lower with the broader market and sector. The group is below the 50-day moving average, which is beginning to turn lower. The bulls will have to work hard to maintain their position.

Relative to the sector, Pharmaceuticals are on the verge of reaching the highs seen in the depths of the pandemic. The group may meet some resistance there.

Breadth

Last week’s price action in both breaking down below long-term support and the sector’s 50/200-day moving average Death Cross brought unsurprisingly with it a high number of sector components in volatility breakouts, equaling the 50% mark for the first time since March of 2020. There were 34 instances since 2001 where the percentage of Health Care components in volatility breakouts was greater than or equal to 50% for a median gain of 6.37% with an 87.88%-win rate over the following quarter. It’s worth noting that median gains have tended to peak 59 trading days out at 7.22% on an improved 90.91%-win rate, so consideration should be given to hold times. While these results have been attractive, investors would be prudent to pay attention to overhead resistance at the 1,450 zone.  

This note is a preview of our Sector Deep Dive. See our thoughts and more in the full report.

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Disclosure: This information is prepared for general information only and should not be considered as individual investment advice nor as a solicitation to buy or offer to sell any securities. This material does not constitute any representation as to the suitability or appropriateness of any investment advisory program or security. Please visit our FULL DISCLOSURE page.