Seeking Alpha Analyst Since 2010
Moneyshow's Tom Aspray takes a look at one of the year's top performing sectors that has broken out of a long-term trading range and this has important implications for the coming year.
The inability of Speaker Boehner to even get the support of his own party Thursday night triggered a sharp plunge in the stock index futures. In one hour, the March E-Mini S&P 500 futures dropped from 1436.50 to a low of 1391.25, but finished the hour at 1421.
At the lows, the futures were down over 3% as they barely held above the early December lows at 1390.50. It is likely that many stops were hit and quite a few traders are waking up to the grim news that they were stopped out well below where the market is likely to open Friday. Clearly there will be more selling on the open, but it would take a close under the early December lows to weaken the technical outlook.
Even though we head towards 2013 with a high degree of short-term uncertainty the technical action suggests that this correction should be an opportunity to stuff your stocking with stocks. There is one sector whose long-term charts make it a likely market leader again in 2013, and one stock looks quite attractive on a pullback to year-long support.
Chart Analysis: The monthly chart of the S&P 500 Health Care sector shows that the trading range, going back to 2000 (lines a and b) was completed in March as the resistance at 420 was overcome.
The iShares Nasdaq Biotechnology Index (IBB) is up 33.2%, so far in 2012, and its monthly chart shows that it overcame major resistance, line e, last January.
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UnitedHealth Group Inc. (UNH) is a $56.65 billion operator of health care plans that current yields 1.6%. UNH made a high in June at $60.75, which was just above the 2007 high of $59.46.
What it Means: The health care sector is one of my Best Sector Bets for the New Year and the long-term monthly chart provides more evidence of its potential for 2013. There are likely to be sharp setbacks along the way. For example, in the summer of 2011, IBM corrected from $185 to $157 in just four weeks.
The Select Sector SPDR Health Care (XLV) is part of the Charts in Play Portfolio, and I would look to get back in iShares Nasdaq Biotechnology Index (IBB) on a correction. The strong yearly support for UnitedHealth Group Inc. (UNH) also makes it a good candidate at lower levels.
How to Profit: For iShares Nasdaq Biotechnology Index (IBB), go 50% long at $132.12 and 50% long at $128.90, with a stop at $124.38 (risk of approx. 4.7%).
For UnitedHealth Group Inc. (UNH), go 50% long at $53.78 and 50% long at $52.46, with a stop at $49.58 (risk of approx. 6.6%),
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.