So You Want To Own Healthcare Stocks?

Healthcare is the hot space to own. There is a good demographic reason to buy healthcare stocks: we're getting older. Pharmaceuticals and Bio-Pharma are a real hotbed of innovation so there are also fundamental reasons. But right now there are not any really good technical reasons to buy it. Take a look at the chart of the Healthcare Select Sector SPDR (XLV).

The monthly chart above shows that since September 2012 the stock has been technically overbought. This is a condition that can persist, and it has for nine months. But with a flattening of the Relative Strength Index (RSI) at the 85 level and topping tails in the last two monthly candles it is time to get a bit cautious if you are long, or start whetting your chops for a pullback to get in if you missed the move.

The weekly view is very similar to that monthly chart, but more advanced towards a move lower. The RSI here has started to pullback from the a peak near 87 and the Moving Average Convergence Divergence indicator (MACD) rolling lower. It also shows candlesticks that reinforce a pullback. The Doji Star two weeks ago was confirmed lower last week.

Finally the daily chart shows that the sector is still bullish short term. With a RSI on this timeframe that is trying to hold at the mid line and a Doji Hammer on Monday’s candlestick. This could be a reversal if it is confirmed higher Tuesday. The MACD suggest that the downside may not be over though. A good spot to entry show this multi-timeframe view hold up is at the 47 level, previous support as shown in the blue box.

Although the weekly and monthly charts suggest that the 40 area is good support. You can start an entry with a 1/4 position size, by selling the July 46 Put if you just cannot wait. Those will get you about 45 cents and an entry at 45.55 if it drops, or some income if the correction happens through time.