Health Care ETF Chart: Range Trade
By L.A. Little of tatoday.com, author of Trade Like the Little Guy.
The health care sector continues to draw considerable press given the insatiable appetite for President Obama's push for health care "reform." During this ongoing debate, health care stocks, as viewed through the
Healthcare Select Sector SPDR Fund
(XLV) - Get Report
have steadily risen higher and higher. So as the debate nears an end, might the health care stocks head for the hills or go higher still?
Starting with the long-term view, we can see the current trend is
.
It is confirmed sideways because at this late date we have yet to cross and hold the swing point high from the middle of July 2008. We have attacked it with volume, but it has yet to be captured.
The good news is volume was left at that high, which means that at some point in the future prices will make their way back to those highs. In the meantime, more work has to be done. That work already has begun with prices retracing about 10% in February. The support zone looks to be reasonably solid on this long-term view with the $29 to $30 range providing a solid looking base.
On the topside, the initial target will once again be the recent highs. With all the volume that is now posted at those highs, XLV could be a range trade for a few months as strength builds to get over those highs but still leaves trades within.
Turning to the weekly chart, we can see the high volume high and high volume low that was left on the chart during the January gallop and February fall.
The uptrend line underscores the idea that the trend on this time frame is bullish.
It's the daily chart that provides the parameters for this trade. The hammer reversal off the February lows left a long tail with volume on the weekly time frame.
You have to respect the fact that the lows could be tested and if they are nothing wrong would exist with this ETF unless volume expanded heavily into those lows. With that in mind, on this time frame, we have a confirmed trend change from suspect bullish to confirmed sideways. It almost turned confirmed bearish which would make me much more cautious on the long-term trade, but so far the test of the swing lows did hold on price.
As a trader, you want to buy the lows given the intermediate- and long-term trends. For my thoughts about the price points regarding where I would want to purchase XLV, take a look at the accompanying video.
Charting How to Get Long Health Care
And, as always, keep trading the charts!
Analyst David MacDougall is hosting a live chat in the Stockpickr Forums today, March 4, starting at 10 a.m. EST, to discuss health care stocks, including big pharma and the insurers. Log in or sign up at Stockpickr to join the discussion!
At the time of publication, Little had no positions in the securities mentioned, though positions can change at any time.
L.A. Little, author, professional trader and money manager, writes daily on
www.tatoday.com
, a free educational site for traders and investors. He has been featured in numerous publications and is the author of
.
His background includes degrees in philosophy, computer science, computer information systems and telecommunications. With a trading philosophy centered on capital protection first and the accumulation of consistent gains over time, L.A. espouses a simplistic technical approach to trading the markets that is a throwback to the days of past. With a focus on swing points and the qualification of trends, L.A. provides a breath of fresh air to an otherwise crowded room of derivative indicators with the emphasis on technical minutiae.
