In the past few weeks, we have repeatedly highlighted that the Health Care sector had dramatically fallen out of favor, turning negative on the year and reaching extremely oversold levels. But since last week, the sector has begun to turn around. While the sector ETF’s chart (XLV) may not have bottomed at any obvious support level, two of the industries within the sector have bounced at interesting levels. The US Medical Devices industry ETF (IHI) fell pretty much vertically, right through the 50-DMA, in this most recent sell-off. Early last week, it came down to the 200-DMA which proved as much firmer support. The ETF bounced off this moving average last Monday (4/22) and has gained just over 5% since. Meanwhile, Pharmaceuticals (PPH) fell right through the 50-DMA as well as its 200-DMA, but it also put in a bottom early last week. The Pharma ETF seems to have found support near the $60 mark, at the bottom of a range from earlier this year and from the spring of 2018.
While Health Care has been rallying, so too has the Financial sector (XLF). XLF is currently the most overbought of the sector ETFs sitting just over 2 standard deviations above the 50-DMA. Of the underlying industries, Financial Services (IYG) and Insurance (KIE) have been notably strong. IYG has a similar chart pattern to the S&P 500, but while the broader index may have reached all-time highs, IYG still has a bit more progress to make. The most recent leg higher in the past month has brought IYG back into its range from late summer/early fall of last year. Currently, it needs to move another few points higher to reach its own all-time highs. S&P Insurance (KIE) on the other hand has been ripping higher, now sitting extremely overbought after a 2.56% gain over the past week (the third best of all industry group ETFs in that time). While this may not provide the best time to hop in (our Trend Analyzer gives the ETF a poor timing score), the push above last year’s highs is worth noting.
Speaking of new highs, both Consumer Goods (IYK) and Aerospace and Defence (PPA) are breaking out above last year’s highs. Both have reached extreme overbought territory at their current levels meaning momentum may carry them a little bit higher, but these highs may not hold for long. Additionally, there may be more short term momentum as these two have some strength in their underlying companies’ earnings reports. Today alone, Estee Lauder (EL) for Consumer Goods and L3 Technologies (LLL) and Harris (HRS) for Aerospace & Defense all reported earnings Triple Plays.
Construction spending data has been a bit mixed in recent months, with today’s print coming in weaker at -0.9% MoM. The Dynamic Building and Construction Portfolio ETF (PKB) has not necessarily been reflective of the weaker prints, rising over 26% year to date. After a strong run through the first four months of the year, PKB closed yesterday back into the lower end of last year’s range. The ETF now has upside towards last year’s highs around $32. Meanwhile, Real Estate (IYR) has been in a steady uptrend all year. In recent week’s, the industry has stumbled, pulling back to the 50-DMA. Whereas IYR was overbought before this, it is now only neutral and has a good timing score in our Trend Analyzer.
IYR is not alone in seeing a pullback in an uptrend. Semis (SMH) have seen the same following some weaker earnings last week from the likes of Intel (INTC). Given the industry’s impressive 33.19% run so far this year, some type of greater mean reversion is increasingly possible, so this pullback should be watched. Start a two-week free trial to Bespoke Premium to access our Chart Scanner tool and much more.