The COVID pandemic pushed our health care sector to its absolute limits.

From frontline responders to researchers developing new vaccines, the industry worked around the clock for two and a half years.

But as the worst of the pandemic passes into rear-view, one thing remains unchanged…

The demand for health care services will continue growing.

In fact, when we last checked the Health Care Select Sector SPDR Fund (XLV) on May 26, we saw how XLV had been in a long-term uptrend for over 12 years.

However, after peaking at its all-time highs in April, XLV retraced strongly before bottoming out in June.

Now a new uptrend is gaining momentum. So today we’ll discuss what’s in store for XLV.

XLV’s Recent Action

Check out XLV’s chart…

Health Care Select Sector SPDR Fund (XLV)

Source: eSignal

‘A’ on the chart represents XLV’s all-time high of $143.42 on April 8.

And that high coincided with the Relative Strength Index (RSI) forming an inverse ‘V’ in overbought territory (upper grey dashed line).

When the RSI reversed lower, XLV retraced from its high. And as selling pressure grew, the RSI traded straight down into the lower half of its range.

It also caused the 10-day moving average (MA – red line) to bearishly cross down below the 50-day MA (blue line).

In May (red arrow), XLV tried to rally again when the RSI briefly broke up through resistance (green line). However, XLV topped out right on the 50-day MA before heading lower again.

You can see the impact of that June selloff by how much XLV gapped down. Take another look at the chart…

Health Care Select Sector SPDR Fund (XLV)

Source: eSignal

That move put the RSI into oversold territory (lower grey dashed line) – and XLV into its current low of the year at ‘B.’

But after the RSI formed a double ‘V’ (red circle) at this level, XLV’s current rally began.

Once the RSI bounced back up to resistance, XLV rallied 10% in less than two weeks. And despite a brief pullback in July, XLV resumed its current trend higher.

Where XLV Goes From Here

So, what can we expect from here?

After breaking back up through resistance, the RSI has retested that level (now support) multiple times.

Apart from a brief break below in July, the RSI has remained mostly in the upper half of its band. The longer the RSI remains in this upper range, the longer we can expect this rally to run.

I’m also watching the action of our two MAs…

After initially breaking back above the 50-day MA, the 10-day MA tracked just above it throughout early July. However, since mid-July, the 10-day MA has been accelerating steadily above the 50-day MA.

For this uptrend to gain further traction, this pattern will need to continue.

If both scenarios continue to play out with our RSI and MAs, then a break back above $136 could soon be on our radar.

But as always, we need to closely watch the RSI for any potential change in momentum.

Although the market is enjoying a bounce right now… momentum and direction can change in an instant.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

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