A few weeks ago, we checked in on the Health Care Select Sector SPDR Fund (XLV)…

After rallying to its all-time high in April 2022, XLV had transitioned into a sideways pattern.

While some might be put-off by rangebound markets like XLV’s, I find that these charts can bring plenty of trading opportunities.

When we last looked at XLV on January 11, it had reversed sharply off the upper side of its range.

Then, after a fight to hold short-term support, it was right on the cusp of making another leg down.

That down move is now gathering momentum. So today, we’ll see how things might play out from here…

Transitioning Into a Range-Bound Pattern

The chart below shows how XLV entered into a rangebound pattern after peaking at its all-time high (A) in April 2022.

But within that range, there have been plenty of countermoves. Both the 10-day moving average (MA – red line) and the 50-day MA (blue line) have crossed each other multiple times.

Take a look…

Health Care Select Sector SPDR Fund (XLV)

Source: eSignal

Yet, despite all that movement, both are tracking closely to where they were in February 2022.

When we looked at XLV last month (red arrow), we saw how XLV had reversed off its upper range when the stock price and Relative Strength Index (RSI) started heading in different directions.

Although XLV had been making higher highs (upper red line), the RSI was making lower highs (lower red line). That decline in buying momentum saw XLV reverse and then start heading down.

However, it was the subsequent action around the RSI and XLV’s short-term support level that I was watching closely…

At the time, XLV was fighting to hold that support level (orange line) while the RSI was tracking on top of its own support (green line).

Take another look at the chart…

Health Care Select Sector SPDR Fund (XLV)

Source: eSignal

Since then, the RSI has continued to track lower. And that has steadily pulled XLV below support.

The other development I’ve been watching relates to our MAs…

Back in January, the 10-day MA was tracking down and closing in on the 50-day MA. Now, the chart shows that it has bearishly crossed below it and is continuing to head lower.

So, what am I looking for from here?

When Support Turns Into Resistance

Once a support level breaks, it can often turn into resistance (and vice versa).

So, with both the RSI and XLV falling through support this past month – what happens next with both will be key.

If the RSI counter-rallies but fails to break resistance, then that’ll add further strength to that resistance level.

It also means the RSI will likely stay in the lower half of its range and continue pulling XLV lower too.

The same applies to XLV’s resistance. If XLV retests that resistance level and rebounds lower, then that’ll add further weight to XLV’s emerging downtrend.

I’ll also keep a watch on our MAs…

If the 10-day MA continues to head lower and drags the 50-day MA down with it, then that’ll show more evidence that XLV’s downtrend is gathering speed.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

Reader Mailbag

In today’s mailbag, One Ticker Trader members share their thoughts on Larry’s service…

Hello! I just wanted to send a quick email to let you know I’m really enjoying trading with your service. The rush of not knowing what the market is going to do reminds me of playing roulette in Las Vegas.

I’m a gambling girl at heart, which makes my hubby nervous at times… but he trusts my judgement just like I trust yours. After all, you have years of experience in trading.

I joined late December and I’m already up over $1,600 – slow and steady which I’m totally good with. A win is still a win even if you sit on a trade for two weeks and that’s what I had to learn… patience!

– Krista A.

Hi, Larry. Thanks for your video update. I’m a subscriber but I’m not in the Apple trade (no available cash). However, I’m with you on this trade and I’m watching it – and I agree with you all the way.

I think this rally in the markets is not to be trusted, and I suspect that in the next week or two we will see the markets (and AAPL) take a swoon. I just wanted to thank you for keeping us updated and for letting us know what your thoughts are.

– Dan B.

Larry, thank you for that good article on XME. It’s going to keep rising I think… the RSI is too strong over line. I’m a member of One Ticker Trader, although I’m just catching up now on the reading. I wanted to learn how to trade options, and I think I found a good place.

Don’t worry about AAPL, just leave it alone in the future. It’s too strong. It was the only stock I held until ’15 when it went bad for a while. I sold before finding out that Warren Buffett bought $20 billion of it on the dip. He’s got a chapter in the book too, so that’s the way it goes.

– Trevor K.

Thanks for sending in your thoughts! If you have any questions or comments, then you can always send them to feedback@opportunistictrader.com.