Despite last Friday's lower close, stocks put in a powerful performance Monday, which likely surprised those fixated on the latest Fed temper tantrums. The Dow Transports once again led the Dow Industrials higher as it was up 1.69%. It started leading the market higher last Wednesday but has still not made new highs.
The Dow Utilities were also strong as they gained 1.72% heading into the start of today's FOMC meeting. The short-term technical picture has improved as the McClellan oscillator has risen to -11.99. Another strong day or two is needed to confirm that the market's correction is over. The S&P futures are lower in early trading.
From the February 25 high at $212.24 to last week's low of $204.40, the Spyder Trust (SPY) corrected 3.7%. It is now up 1.48% for the year. As I pointed out Friday in the weekly sector table, the Sector Select Health Care (XLV) was the top major sector ETF that I follow. XLV was up another 2.21% Monday and is now up 7.34% for the year. This is almost 6% better than the SPY.
Using relative performance analysis as the basis for both your sector and stock selection process can help you sidestep many market corrections. The market leaders will generally hold up much better during overall market corrections and correctly placed stops will often hold.
Healthcare has been a favorite for new stock picks in 2015 with recommendations in Three Market Leading Healthcare Picks and February's Buy More Stocks in a Top Sector. It has been a favored sector since 2012 when it broke through long-term resistance.
In today's column, I will update my analysis on this important sector as well adjust the stops on my prior picks. Also, I have one new healthcare pick that looks ready to move higher.
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- The upside target from the formation is in the $75-$76 area.
- The monthly projected pivot resistance is at $75.44 with the weekly starc+ band at $76.15.
- With Monday's strength, the weekly RS line has moved to further new all time highs.
- The RS line dropped down to test support, line b, the week before XLV broke out.
- The weekly on-balance volume (OBV) broke through resistance from 2014 on December 19.
- The OBV pulled back to its WMA in early January before accelerating to the upside.
- The daily studies are positive, but the OBV has not yet confirmed the new highs.
- The 20-day EMA is at $71.81 with further support at $71.14 (the quarterly pivot) that was tested last week.
- The stock has accelerated to the upside all quarter, though prices stalled briefly at the quarterly projected pivot resistance at $104.15.
- Half of the position was sold at $103.67 or better.
- The monthly projected pivot resistance at $110.31 has now been reached.
- There is initial support now at $102.80-$104 with the 20-day EMA at $103.14.
- The weekly relative performance held well above its rising WMA in early 2015.
- The RS line is still rising sharply and confirming the price action.
- The weekly OBV has been above its WMA since May 2014 and continues to act very strong.
- ABC was up 3.75% Monday and closed above the daily starc+ band.
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Eli Lilly & Co (LLY) is a $78.7 billion drug manufacturer with a current yield of 2.77%. It was recommended in late January.
- The weekly chart shows that LLY has formed lower highs, line a, but was up 1.69% on Monday.
- The correction from the December high at $74.57 held above the quarterly pivot at $67.60.
- A weekly close above $73 should confirm that the correction is over.
- The weekly starc+ band is at $75.60 with the quarterly projected pivot resistance at $82.45.
- The weekly RS line moved back above its WMA last week suggesting that the correction may be over.
- The longer-term support at line b, was briefly violated in early March.
- The weekly OBV is still barely below its WMA and needs a strong close this week to turn positive.
- The daily OBV turned positive on Monday.
St. Jude Medical (STJ) is a $19 billion developer, manufacturer, and distributor of cardiovascular medical devices. It has a current yield of 1.70%.
- STJ has been in a narrow range so far in 2015 with resistance at $68.99 and support at $63.93.
- A close above the trend line resistance, line d, and the December high at $69.95 will complete the correction.
- The weekly starc+ band is at $72.76 with chart targets in the $76-$77 area.
- The RS line is back above its WMA but still well below the strong resistance at line e.
- There is short-term support for the relative performance at line f.
- The OBV broke through long-term resistance, line g, in early February.
- The daily technical studies turned positive Monday.
- There is short-term support at $66.50-$67 and then at $65.50.
What it Means: The upside breakout in the Sector Select Health Care (XLV) suggests it is just starting a new leg to the upside. If the broader market's correction is over, then many of the healthcare stocks could go much higher.
I still like all of my healthcare picks, though Hospira Inc. (HSP) is being bought out for a nice profit while Amgen Inc. (AMGN) was stopped out for a 3.9% loss. It looks as though patience will finally pay off in Eli Lilly & Co (LLY).
How to Profit: For St. Jude Medical (STJ) go 50% long at $66.72 and 50% at $65.78 with a stop at $63.19 (risk of approx. 4.6%).
Portfolio Update: For AmerisourceBergen Corp. (ABC) went 50% long at $92.44 and 50% at $91.24. Raise Sold 50% at 103.67 or better. Use a stop at $101.84.
For Eli Lilly & Co (LLY) should be 50% long at $70.68 or better and 50% at $69.77 with a stop now at $67.93. On a move above $73, raise the stop to $70.77.
For Stryker Corp. (SYK) should be 50% long at $93.88 and 50% at $92.76 with a stop at $89.33. On a move above $96, raise the stop to $90.74.
For DENTSPLY International (XRAY) should be 50% long at $51.32 and 50% at $50.46 with a stop at $49.22.
For Actavis, Inc. (ACT) went 50% long at $268.34 and 50% at $263.04 sold half at $298.30 or better. Raise the stop to $275.44.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.