Health care stocks are experiencing one of their worst streaks of underperformance in history.
With policy uncertainty under RFK, industry-wide cost pressures, and an insurance sector crisis... these stocks haven't been able to get on trend with the broader market. In fact, they've barely participated this entire cycle.
In early May, the 4-week relative rate of change hit -13%, its lowest reading of all time. Health care stocks had never done so poorly over a trailing one-month basis.
Extreme momentum readings like this tend to show up at turning points in the trend.
So the question is simple…
Was the collapse in healthcare a sign of exhaustion or initiation?
In other words, is this blowout downside momentum signaling the end of an old downtrend… or the beginning of a new one?
And I think it's pretty obvious we’re looking at exhaustion here.
It simply can’t be the initiation of a new downtrend. XLV/SPY has been moving in a straight line lower for the last two and a half years. It’s already in a downtrend!
So I’ve been picking my spots and buying large-cap healthcare stocks in the long-term account... preparing for a sustained rotation.
Let’s start with Merck $MRK.
I think this massive dot-com bubble base finally resolves higher in the future, and I’m using the tactical reversal pattern that’s playing out right now to get a prime entry.
The dividend here is great so I plan to sit back and collect my 4% while I wait for this pharma leader to break out.
Pfizer is also working on a tactical base and pays a sky-high 6.7% yield. Here’s a zoomed-in look at Pfizer $PFE:
If we can clear and hold 26, Pfizer is headed back into the 30s.
One of my favorites in health care right now is Medtronic $MDT.
This is the best-looking fresh primary trend reversal in the sector.
If we’re above 92, I’m long MDT with an initial target of 110 and secondary objective of 135.
Next let’s look at some leaders. I think this monster base in GILD is about to resolve and I’m jumping it using the VWAP from the pivot highs.
We'll get confirmation this breakout is in the books above 123. From there, the first stop is 164.
Next is BSX which has completely ignored the broad weakness in health care this cycle.
This has been one of the best ones to own up until now and I think that only continues if the overall sector finds its footing.
I like BSX above 110 with a target of 175.
The stock reported an earnings beat and gapped to fresh all-time highs Wednesday. Another green candle or two will break this leader back out.
Last but not least, I came across a handful of potential failed tops in the sector.
First up, here’s Thermo Fisher $TMO.
The hook is already in for TMO. As long as we're above 430, this top is failing.
I'm long with a target back toward the old highs around 620.
And I feel the same way about Danaher $DHR.
It looks poised to trap the bears and scoop higher in similar fashion to TMO.
I plan to buy it on strength above 207 in the coming days and weeks.
While we’re at it, industry leader and largest XLV component Eli Lilly is unlikely to complete its massive top too. Especially if the broader space is just getting going.
So that bodes well for XLV itself as LLY will continue to be a primary driver of performance.
The bottom line is I’m expecting there to be more and more bullish opportunities in this battered sector in the future. I think the bottom is in.
For now, I like the idea of adding some quality exposure with these large cap anchor positions.
If you’re interested in the opportunities in this sector make sure you check out our biotech deep dive from last week. The bios are really waking up right now and the leaders look great. You can sign up for ASC premium risk free today to access our top long ideas in this industry.
