I don’t think I need to say much here. I mean, we’re talking about the best sector on earth over the last couple of years. It’s reputation precedes it. But even with all of these gains and a beautiful uptrend, there are many investors that still prefer to rotate out of this space and into some of the underperformers. Here’s why I’m piling in regardless of recent gains.
Earlier this week I was on Fox Business talking about why I liked Healthcare (see here), but today we’ll look at the charts themselves. Here is the daily candlestick chart showing the recent consolidation over the past 3 months. A market in such a huge uptrend can consolidate gains in two ways: either through a downside price correction or sideways through time. The latter is obviously the more bullish of the two.
Notice how the size of this range since December has been within 4 points. We take the size of this base and add it to the breakout level, in this case just around 71.25. Our measured move target based on this amplitude is just over 75. It just so happens that this is the same target that we achieve by calculating the 261.8% Fibonacci extension of the last correction that took place between September and October.
To me, this is where we’re headed: north of $75. But more importantly, the risk is very well defined. I can’t preach this enough. It’s not about where I think it’s going. That’s less relevant. The real question is, “where am I wrong?”. In this case, we only want to be involved in healthcare if we are above this downtrend line from the December highs. If we are within this 3-month range, there is no reason to be in this.
If you want a little more beta, there is a leveraged Healthcare ETF: $CURE
I like it.
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