Healthcare Bucks the Primary Market Trend -- for Now

I shared in Thursday's post, Leadership, how the health care sector lagged the decline (did not share in the decline), and now leads the market higher; an indication of relative strength. I also pointed out Johnson & Johnson (JNJ) for leading the leaders, and for its screaming opportunity. (In fact, a Core Opportunity.) Friday, Dorsey Wright corroborates my perceptions...

Today we continue our discussion of the Healthcare Stocks that are currently members of the Rydex Russell Top 50 ETF (XLG). For starters, the Healthcare sector is the best performing sector out of the ten broad economic sectors this year as it is down only -23.9%. To put this another way, the broad Healthcare sector is actually outperforming the S&P 500 [SPX] by 14.5% on the year. (It’s all relative, right?) The Healthcare sector is one that has been showing strength in this market since August of this year. This is about the time frame that the broad Healthcare sector became recommended (emphasized) in Level Five of our Dynamic Asset Level Investing (D.A.L.I.). In other words, this is a broad sector that should warrant your attention... There are some compelling signs building for some of the larger cap stocks in this sector that are members of the XLG...

Johnson & Johnson: The maker of Tylenol has been in high demand this year, at least for its product offerings. As far as the stock is concerned, JNJ has held up relatively well, and up until October of this year JNJ was actually swimming in positive territory. In September JNJ actually hit a new high at $72 before selling off in October down to an eventual low of $53. Since then the stock has, more or less, been trading sideways just below the bearish resistance line. Most recently, JNJ held support at $55 for the second time now, and with the addition of an x at $60, this puts the stock price right at its downtrend line. Watch for a move to $61 in order for JNJ to return to a near term buy signal as well as shift the overall trend back to being positive. Such a breakout would cause the technical attribute reading for this stock to uptick to a 4 for 5’er, and would mark the first time since the Fall of 2005 that JNJ could make this claim. In all, JNJ has positive strength on a relative basis, and a move to $61 can be used as the first action point for investors.

From post to post, I strive to show the market rarely is monolithic in either its rises or declines -- something somewhere somehow always bucks the primary trend. Coming off a monolithic decline (October 2008), the random pockets of strength bud into fruition, thus breaking the back of the overall decline -- at least for a while.

A while that likely will measure in weeks, if not months. (And already has, measured from the October 10 low.) From that vantage (the coming high point), we shall see what comes next.

Comments

[Dan Jacome:]

JNJ is a great company and will be for a long time, but its valuation was rich and out of line with where it has traded in the last decade. If you can argue that JNJ is a "better" company now and deserves a higher P/E, fine, go ahead and bid it up. But as I wrote here seekingalpha.com/artic...
JNJ is looking at patent loss headwinds and a nasty stent landscape and in my mind had gotten a bit rich - stock is down 18% since then...

2008 Dec 21 10:23 AM

[axelrod608:]

We really need to refine our terminology. J&J does NO health care I'm aware of. The health insurance companies are in the INSURANCE business not health care. The primary reason we have the most expensive, least available health care in the developed world is that so few of our "health care dollars" go to health care SERVICES.

Capitalism does not work when it comes to health care.

2008 Dec 21 10:59 AM