Relative Strength Leaders
It remains a challenging market environment that will persist into the year. Almost all S&P 500 sectors are down for the year except the S&P Energy sector (XLE). The two consistent S&P outperformers have been Energy (XLE) and Healthcare (XLV).
It is reasonable to expect Energy to outperform based on the geopolitical events from the Ukraine-Russian war, rising inflation, and the OPEC + members endorsing a steep cut to its output target. Curbing supply in an already tight energy market has led to another sharp rise in oil prices, triggering another rally in energy stocks.
Why the recent increase in interest in the Healthcare sector?
Investing in the Healthcare sector can be influenced by many factors, including a classic defensive sector, demographic trends (i.e., aging population and baby boomers), advancement and technological advances in medicine, diabetes, obesity, and expanding the global reach of diseases (pandemics), Medicare, HMOs, tax reform, U.S. government spending, and regulation.
With every sector struggling and selling continuing, it has become difficult to generate performance. Nonetheless, long-biased money managers will continue to buy during broad market downturns. They may be rotating into the Energy and Healthcare sector, at least from a near-to-intermediate-term perspective.
There are two risks when buying in bearish markets. The first is when you buy the wrong stock in a bear market, it may never recover. Some of the best-performing names during a bull market may react differently during a bear market. Second, timing the entry point becomes increasingly important. Buying at the wrong time can lead to problems as entry points matter, including if you are a long-term investor. It may be the difference between winning and losing positions.
A relative strength and SCTR studies show dramatic improvements in three specific S&P Healthcare industries – Health Care Providers ($DJUSHP), Biotechnology ($DJUSBT), and Pharmaceuticals ($DJUSHP). They are breaking out or nearing technical breakouts. They differ from many other sectors and industries, which continue to set new 52-week lows.
There are fifteen (15) S&P Healthcare names that show strong relative strengths and SCTR scores and, most importantly, are trading above their 50-day and 200-day moving averages: BIIB (SCTR = 99.4), LLY (96.9), MRK (96.7), CAH (95.7), REGN (94.4), CI (94.3), MOH (93.8), VRTX (93.1), AMGN (93.0), GILD (92.6), HUM (92.4), A (86.3), ABBV (84.4), BMY (82.7), and DXCM (81.6).
Six (6) S&P 500 Biotechnology stocks: BIIB, REGN, VRTX, AMGN, GILD, and ABBV.
Three (3) S&P 500 Pharmaceuticals: LLY, MRK, and BMY.
Three (3) S&P 500 Healthcare Providers: CI, MOH, and HUM
There are nineteen (15) S&P Energy names that show strong relative strengths and SCTR scores and, most importantly, are trading above their 50-day and 200-day moving averages: COP (SCTR score = 99.2), MPC (97.8), XOM (97.7), DVN (97.6), PSX (97.3), OXY (97.1), HES (96.2), VLO (95.5), FANG (95.1), SLB (94.9), MRO (94.7), PXD (92.3), EOG (91.1), CVX (88.9), APA (84.7)
Seven (7) S&P 500 Integrated Oil and Gas: COP, MPC, XOM, PSX, HES, MRO, and CVX
Seven (7) S&P 500 Exploration and Production: DVN, OXY, VLO, FANG, PXD, EOG, and APA.