NYSE traders work after the opening on November 8, 2019 (Photo by Johannes EISELE / AFP) (Photo by … [+]
October has been a good month for a number of sectors, including financials, industrials, materials, and of course, technology. Most bottomed in early October. For example, the Financial Sector Select (XLF) made a low on October 3 of $ 26.45, but moved above $ 30 on Thursday, November 7.
With all the major averages at new all-time highs, even seasoned investors might need some help finding promising new positions to establish. Luckily, this week we’ll review some of the opportunities available for new positions, and take a look at a few places to invest $ 2000.
sectorrundown
This sector summary table from Stockcharts.com lists the key S&P Sectors by performance over the past 30 days. The Financial Sector Fund (XLF) is leading the pack, up 11.0% this month, followed by the Industrials Sector Fund (XLI), up 9.9%, and the Materials Sector (XLB) at 8.9%.
Of course, this recent performance needs to be viewed with regard to a longer perspective of past performance. For this analysis, I found Morningstar assesses sector funds with a “Trailing Total Return”, which “represent a fund’s gains over a specified period of time” and includes “both income (in the form of dividends or interest payments) and capital gains or losses (the increase or decrease in the value of a security).”
Many would be surprised that, XLF’s 3-Year Trailing Total Return is only 16.29% and only 10.84% going back the past 5 years. Though this does not mean XLF cannot gain even more in the coming months, it does inform the investor or trader that the current return is exceptional in terms of the ETF’s historical return.
XLF has rallied sharply for the past four weeks, and broke through key resistance two weeks ago. From a technical standpoint, this makes a significant pullback likely, which could present a lower-risk buying opportunity than establishing a new long position at current levels.
TomAspray – ViperReport.com
The CandalGlance chart above (from Stockcharts) features two of the more broadly-based health care ETFs. These charts are a tool that I use with my students in technical analysis to review their portfolio and also to find new opportunities.
The Health Care Select (XLV) and Vanguard Health Care (VHT) have recently broken out of their trading ranges. The width of the price range since the April lows can be used to determine price targets. This analysis suggests that these ETFs could move up 10% or more from current levels.
XLV has 61 holdings, while VHT has 388. However, both have over 8% in Johnson & Johnson (JNJ). While broadly-based, both funds have too much concentration in the top ten holdings, with 50% of XLV and 43% of VHT composed of their top ten stocks. XLV is much more liquid, trading 8.7 million shares per day, while VHT only trades 179,000. VHT is rarely a favorite of short term traders, making it less volatile, which is why I prefer it.
VHT
The weekly chart of the Vanguard Health Care (VHT) shows that the close on November 1 at $ 176.58 was above the weekly resistance (line a). The previous all-time high, from October 2018, was $ 178.25. There is daily chart support at $ 173, with further support in the $ 172-area. The 20-week exponential moving average (EMA) has turned up and is now at $ 170.62.
The weekly trading range, when measured from the October 2019 low, is $ 13-wide. When added to the breakout, this gives one a measured target as high as the $ 186-$ 188 area. The weekly relative performance (RS), which measures a ETF or stock’s performance versus the S&P 500, is still below its weighted moving average (WMA). The RS needs to overcome its downtrend (line c) to signal that VHT is a new market leader.
The On Balance Volume (OBV) has moved through the resistance from October 2018 (line d) and confirmed the upside breakout in prices. The OBV is now well above its rising WMA, which is consistent with a long term change in trend. The daily OBV (not shown) also looks strong.
tablehealth
This table lists two of the other health care ETFs that I like alongside their assets under management (AUM) and expense ratio. iShares U.S. Medical Devices (IHI) is highly rated by Morningstar. It is a more narrowly-based ETF, with 56 holdings, with 71% in the top ten holdings. It has holdings of over 10% in Abbott Laboratories (ABT), Medtronic (MDT) and Thermo Fisher Scientific (TMO).
ihi
iShares U.S. Medical Devices (IHI) is up 23.96% YTD, compared to a 10.49% gain in the XLV. The weekly chart shows a trading range with resistance (line a) at $ 252.36 and support at $ 235.10 (line b). The slightly-rising 20-week EMA is at $ 242.99.
Since the S&P 500 has been so strong recently, IHI’s relative performance (RS) is declining and below its WMA. IHI simply has not kept pace with the S&P. IHI’s OBV is locked in a trading range and looks ready to close the week below its WMA. A move in the OBV above its downtrend (line c) should precede an upside breakout from the trading range.
iShares NASDAQ Biotechnology (IBB) is the largest of the biotech ETFs, and it concentrates on the larger biotech companies. The four largest holdings in IBB include Celgene Corp. (CELG), Amgen (AMGN), Gilead Sciences (GILD) and Vertex Pharmaceuticals (VRTX).
IBB
IBB triggered a weekly doji buy signal at the start of October (see shaded area) and then broke the weekly downtrend (line a) a week later. The July high at $ 110.85 was overcome. There is next resistance, from earlier in the year, is at $ 116.08. The former downtrend at $ 105.63 is first support, with the 20-week EMA providing further support at $ 104.75.
The weekly RS is barely above its WMA, but still below the recent highs and the major downtrend (line b). The OBV had a strong move early in October as its downtrend (line c), and its WMA were decisively overcome.
So where should someone invest, and when? Let’s take as an example investment budget of $ 2000 to establish positions this month. Clearly, VHT is the most diversified health care ETF, so one might consider buying $ 500 on Friday November 15, and then another $ 500 in two weeks on Friday, November 29th. For IHI and IBB, one should consider a $ 250 investment in each on the same days as above, for a total investment in the three ETFs of $ 2000. I will be updating the chart of these ETFs regularly on Twitter, and following up on this article.
In my Viper ETF Report and the Viper Hot Stocks Report, I update my A/D Market Trend analysis twice each week with specific buy and sell advice. New subscribers receive six trading lessons for just $ 34.95 each per month.