Time Magazine made President-elect Donald Trump as Person of the Year. In their interview with Trump, he claimed “I’m going to bring down drug prices”. Surrounding that statement, among others, there is a level of uncertainty about the future of the Obamacare / Affordable Care Act.
Despite the fears surrounding Trump’s pharmaceutical and health care sector polices, there are some balances. For one, it is thought that a Republican-controlled Congress would not support government regulation on drug prices. Some feel that Trump is posturing in order to create a better negotiating environment on drug pricing and regulation.
A report by Yardeni research puts healthcare at the low end of its historic forward PE range (14.2) and below that of the S&P500. So value seekers might be interested in this sector. But what about the charts?
As you will note on the weekly chart below, we have a pretty defined rectangle in the sector that has been in place since mid-2015. The index ETF (XLV) shown is bouncing off of $65 for the 4th time since mid-2015. It should be noted that the healthcare sector is strongest to the end of December, although it can also have a pop into the last part of January before it slows.
On the near-termed chart below, you will see that the pattern has been that of a triangle. This pattern suggests a short termed consolidation is taking place. Typically, a breakout from a triangle to the upside is bullish. It would suggest that the $75 top in the bigger picture rectangular trading range is likely to be achieved, should we see a breakout. You’ll note that moneyflow (top, bottom panes) is getting stronger, and we’ve had a few encouraging momentum crossovers. We are long the BMO Healthcare ETF (ZUH-T) as a trade for a 1-2 month period. This will not be a long termed position for us, especially if the sector reaches the ceiling as noted on the weekly chart.
I believe you got your symbols crossed.
HHL.TO Your readers will lik you mentioning this one in particular since it has a very high yield.
BTW HHL is a covered call ETF–I dont believe it is currency hedged–which for me and my 1-2 month horizon is important–also the cost of writing calls increases the MER, thus for a pure capital gain play over a short period such as mine, the income from the call writing doesn’t offset the loss in performance. Case in point–HHC has under-performed the index and the iShares/BMO healthcare ETF’s lately
Also–thanks very much for noting my symbol boo-boo. Its been fixed!
Always enjoy your comments. You mention being invested in the BMO product ZUH to represent the US health care sector. Idea for future blog might be why would you select this ETF over the ishares product. In particular the index products and what you find most important when picking one ETF over another company’s product.
Terry–they are both good ETF’s pretty much covering the same thing. The BMO version has about 25 bps less management expenses
My guess is that it might be a bit early for XLV. Interestingly, I have been applying a 20 dma to CMH and while it must be accompanied by the usual other indicators, is a fairly reliable indication of where an issue may be going. And of course, trendline is still most important. On that basis, XLV does look promising on the daily charts but the weekly chart still looks rather dismal.
to me its a 1-2 month trade–short termed blip then out.
Hi Keith- I realize that we are in the favourable season for equities of which I am a huge fan of (and have a position in HAC) but are the market valuations not getting a little bit high? Not to mention rates are rising, the deficit is continuing its record pace, costs of servicing the debt will double and we have a loose cannon coming to the White House. I’m down to 50% equities in this period of positive seasonality and thinking of cutting it down to 25%,
Is it just me being paranoid or are you a bit cautious now also?
PS- Still waiting for your ETF!!
Thanks for the informative blogs and have a Merry Christmas.
Hi Randy–the ETF has been put on the side for a few months but yes, it is most certainly going to happen.
Re the market–i think the market will correct in the middle of January. There is both the Santa rally and presidential inauguration that can push markets higher into 2nd/3rd week of January. Thereafter, I wouldn’t be surprised to see a correction into February – but expect markets to resume upside after any pullback.
So what’s the verdict? Buy, hold, sell for health care ETFs?
I hold the ZUH units as described in the blog–and look for it to be a near-termed trade – I hope to see minimum $42 on that ETF, highest upside is top of band described for the overall index, which might be about $45-46 for ZUH. if the trade fails in the next month or so, I move on.