This Sector Is on the Verge of Hitting Its All-Time High

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Long before the global pandemic, a growing and aging population had steadily ramped up demand for healthcare services.

That helped drive the bull run in the Health Care Select Sector SPDR Fund (XLV). This rally has now lasted well over a decade.

XLV peaked at its all-time high this past April. At that point, it had risen almost fivefold since 2010 – the year it broke into its long-term uptrend.

But within that huge run-up, there have been periods of consolidation… like we’ve seen this year.

XLV has been trading in a rangebound pattern and is now only a couple of dollars below where it started the year.

And there have been plenty of strong moves within this sideways pattern. Now, XLV’s current big run-up is at a critical level.

So today, we’ll see what’s in store from here…

Defining Signals Show Major Reversals

On the chart below, the 50-day moving average (MA – blue line) shows XLV’s sideways trend in 2022.

The short-term 10-day MA (red line) reveals how much XLV has moved around within this sideways pattern. It has crossed the 50-day MA six times already this year.

Take a look…

Health Care Select Sector SPDR Fund (XLV)

Source: eSignal

Several defining signals have coincided with major reversals on the chart…

When the Relative Strength Indicator (RSI) formed a ‘V’ and rallied out of oversold territory (lower grey dashed line), XLV’s stock price also rallied.

The up move gathered momentum when the RSI gained traction in the upper half of its band (above the green line).

We saw this pattern in action when we checked out XLV back on October 26 (red arrow on the chart).

Back then, the orange line showed the RSI making higher lows out of oversold territory. That rally then accelerated when the RSI broke above resistance.

The sharp angle of the 10-day MA breaking above the 50-day MA added further confirmation of the strength of that rally.

However, it’s the reversals out of the RSI’s overbought territory (upper grey dashed line) that I want to concentrate on today…

Take another look…

Health Care Select Sector SPDR Fund (XLV)

Source: eSignal

When the RSI formed an inverse ‘V’ and reversed in late December 2021 and April (two red circles to the left), XLV’s stock price also reversed and pulled back heavily.

Those reversals gathered pace when the RSI fell below support.

XLV’s current up move also has the RSI in overbought territory (right red circle).

So what am I expecting from here?

Look for a Repeating Pattern

The two previously highlighted reversal patterns in the RSI provide a strong clue…

In both examples, XLV only reversed when the RSI made an inverse ‘V’ and then tracked back toward support (green line).

For XLV to reverse from its current upward move, we’ll need to see a repeat of that pattern.

The other thing I’m watching is our two MAs…

The 10-day MA is still bullishly accelerating above the 50-day MA. A turnaround of this pattern (in addition to the RSI forming an inverse ‘V’) would add further weight to any reversal.

And it would provide a setup for a potential short trade.

Yet if the RSI continues to track along the overbought line without any clear and sustained reversal, then we can expect XLV’s rally to continue… and potentially challenge its all-time high again.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

Reader Mailbag

In today’s mailbag, a One Ticker Trader member thanks Larry…

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– Bob S.

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