Healthcare—still stuck in no man’s land

ixj

I get questions about healthcare on my BNN shows and on this blog. Is the sector due to rally? The sector has been a laggard for quite some time, as you can see on this chart. The iShares IXJ global healthcare ETF has been forming a giant symmetrical triangle since early 2015. As with any consolidation pattern, the 40 week (200 day) and 10 week (50 day) MA’s are useless as timing vehicles. The market is meandering around the MA’s.

 

As the IXJ neartermed (daily) chart below shows us, the sector is once again at a point where it may round over within the larger consolidation pattern. Momentum on the daily charts looks a little toppy and seems to be at a point of rounding over. When viewing an ETF, it should be kept in mind that volume and moneyflow is somewhat unique to the ETF itself—it doesn’t necessarily reflect that of the index. However, the S&P healthcare index chart (not shown) doesn’t post volume, so I’m forced to comment only on the ETF volume patterns. Either way, volume does tend to pick up in a sector ETF if the sector itself is doing well – and it declines if market participants are less interested in that sector. Despite the thin volume on this ETF, you can see that moneyflow (bottom pane) and moneyflow momentum (top pane) are relatively positive. Comparative relative strength vs. the S&P 500 is still weak (3rd pane from the bottom). Seasonality tends to be best in the late summer for this sector.

ixj nearterm

 

My thoughts on this sector is that there are few reasons to buy into it at this time. The big picture is neutral, and the neartermed view is a bit overbought.

 

Keith on BNN  “MarketCall Tonight” –Today  Feb 6th at 6:00PM

Phone in with your questions on technical analysis for Keith during the show. CALL TOLL-FREE 1-855-326-6266.

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6 Comments

  • If you look at HHL.TO, it has a very generous yield, and volume is quite decent.
    The holdings are large-cap US firms.
    The pattern is a consolidation one that is near its bottom of the range.
    As an income play, this would be a decent entry point for say, 1/2 a position?

    Reply
    • Robert–keep in mind that this is a closed ended fund–very different from an ETF. As such, the price can trade at premiums and discounts to the NAV–which can be a good or bad thing (!)
      Also–because there is a contained number of shares and less of a dedicated daily commitment by market makers and they are not run by a company that has made a specific commitment to ETF’s–this means that they may not have as much of a vested interest in ongoing issuing -such as is the case with an ETF–you could face a very low liquidity and thus a potential markdown in price if you tried selling on a day when other traders were not bidding. Yes, most closed funds offer a quarterly redemption at NAV – but you have to do it on their one day they offer this right, which may or may not be the day you want to sell
      So bear these things in mind–read their prospectus / OM carefully before buying and understand the product.

      Reply
      • Hello Keith, are you sure you are reading the latest info. I sent your reply to harvest Portfolios and here is their reply.

        —- [email protected]

        At this time Harvest has completed the conversion of four Closed End Funds (“CEF”) into ETFs both in CAD and USD units for each. Upon conversion each ETF has 3 Market Makers (“MM”) maintaining a price within one or two cents of NAV and these MMs are participating all through the trading day. Some of our ETFs trade more than others. Please refer to HHL and you will see that the volumes are quite high, in excess of 100,000 units per day and at times over 300,000 units. Regardless, the MMs are in place for each ETF and will support a bid or offer within two cents of NAV and the unit level is not fixed.

        Harvest made the decision early in 2016 to start the conversion process of CEFs into ETFs and we anticipate the development of additional products through conversions and originations. We can assure you of our commitment to the ETF business and ongoing vested interest in the proper pricing and trading of our products.
        At this time Harvest has completed the conversion of four Closed End Funds (“CEF”) into ETFs both in CAD and USD units for each. Upon conversion each ETF has 3 Market Makers (“MM”) maintaining a price within one or two cents of NAV and these MMs are participating all through the trading day. Some of our ETFs trade more than others. Please refer to HHL and you will see that the volumes are quite high, in excess of 100,000 units per day and at times over 300,000 units. Regardless, the MMs are in place for each ETF and will support a bid or offer within two cents of NAV and the unit level is not fixed.

        Harvest made the decision early in 2016 to start the conversion process of CEFs into ETFs and we anticipate the development of additional products through conversions and originations. We can assure you of our commitment to the ETF business and ongoing vested interest in the proper pricing and trading of our products.

        Reply
        • That will make their offering much more liquid and attractive–thanks
          Interesting, you might want to find out if there is any discount to NAV at this time–if there is, and they convert to and ETF (which will trade at or very near NAV) it could be an arbitrage opportunity! Normally, the market is onto such opportunities so they don’t exist for too long…but doesn’t hurt to find out…

          Reply
  • I habitually look at the 52 week highs and lows in the newspaper every day for a quick and dirty feel for the short term market health. (I look at other indicators in StockCharts too). The 52 week highs still far outnumber the lows but a tremendous number of those are now prefs and other interest rate issues. Generally the market looks a little tenuous these days but I am curious what the number of interest rate issues portends.

    Reply
    • Interesting observation Fred–I haven’t broken down the A/D figures – but I note that our Managed Income Platform here at ValueTrend (which holds mostly high dividend stocks ) has been outperforming the more growth focused Equity Platform. That backs your observations.

      Reply

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