The GICS Health Care Sector (ASX:XHJ) encompasses two main industry groups. The first includes companies who manufacture health care equipment and supplies or provide health care related services, and owners and operators of health care products, providers of basic health-care services, and owners and operators of health care facilities and organizations. The second group includes companies primarily involved in the research, development, production and marketing of pharmaceuticals and biotechnology products.
In the equities meltdown of 2008, this is one of the best performing sectors as it has been remaining into its historical high prices range for more than one year now. To illustrate this, the weekly chart shows the correlation of the XHJ (in black bars with scale on right) with the All Ordinaries Index (in red line with scale on left) since 2002.
From May 2002 to December 2007, the positive correlation between those two indices is almost perfect. This period of 5 years and a half encompasses the stocks long-term bullish trend started in March 2003 and finished at the end of last year.
As the All Ordinaries index plunged from 6,800 points in October 2007 to a recent low of 3,800 points one year later (therefore a decline of 44%), the XHJ remained at the same level, around 9,000 points (lows near 8,000 points and highs near 10,000 points in May and in September this year).
The daily chart clearly shows this trading channel of 2,000 points. The upside band of the channel is the resistance which has been tested twice already (points A and B). The downside band of the channel is the immediate support which has been validated in August 2007 and in July this year (points C and D).
Recently the XHJ posted a low at 8,444 points (October 23) before bouncing back by more than 10%. Yesterday the index closed at 9,323 points. This early rebound is likely to gain some positive momentum and to drive the Index towards its resistance line (the upper band of the trading channel). The indicators are bullish. The Relative Strength Index (RSI) is well oriented and the MACD has just triggered a bullish signal.
In this bullish scenario, the first resistance will be therefore the area just below 10,000 points. It’s just a 7.5% move up from the current level. It means that it’s a close target and the price action may clear this level as the Index is far from its overbought area and that a strong rebound on the markets would easily drive it higher.
Good Investing,
Gabriel
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