Another Health Care Chart Looks Sick
A popular pharmaceutical ETF is testing its (ill-fated?) post-2009 bull market trendline.
As the major stock averages continue to bide their time in sideways fashion, one of the weaker sectors in the market continues to look sick. We have covered the relative laggard health care sector plenty over the past few weeks. The focus in many of the posts has centered around the various indices’ tests of their post-2008-2009 bull market Up trendlines. Some tests have been successful (e.g., biotech index, BTK…for now) while some have failed (e.g., pharmaceutical index, DRG). Today’s Chart Of The Day adds another example of such a test from the health care sector. This time, it is a fund, the SPDR S&P Pharmaceuticals ETF, ticker, XPH.
Like its pharma index sister, the DRG, the XPH is testing its post-2009 Up trendline (on a log scale). That said, while the DRG had held its steeper trendline connecting the 2009, 2011 and early 2016 lows until breaking it last week, the XPH (on an unadjusted basis) broke its similar trendline last year. However, we see a new, shallower trendline connecting the 2009 lows and the March 2016 lows serving as support over the past 6 months. Tests of this line in May and June resulted in bounces in the XPH. A few months later, we see the XPH testing this line once again.
In a weakish tape today, we saw the XPH pop nearly 1%. Thus, the line continues to provide support. However, like a sick patient, a dose of medicine may provide a temporary jolt, but if the symptoms persist, a full recovery may remain elusive. As such, despite the temporary bounces, this chart still looks sick.
As we have mentioned often, the more frequent that trendline tests occur, the more likely, in our experience, the trendline is to break. The troubling thing is that with 4 touches of the trendline in 7 months, the symptoms seem to persist. That is, the XPH has been unable to create any meaningful separation above the Up trendline. Absent such separation, further tests will continue to occur. And likely sooner than later,
in our opinion, the XPH will break down through the trendline.
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The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.
