Tuesday, December 01, 2009

Strong Health Care Means Weak Stock Market




In the above chart you can easily see that the healthcare stocks were one of the strongest groups for the month of November. In the lower panel is a ratio chart of the healthcare stocks vs. the S&P500. Notice how this ratio line has turned up indicating that healthcare is stronger than the S&P. The downtrend line has also been broken suggesting that healthcare stocks should continue to outperform the S&P500.

The question that comes to mind is what does it mean for the stock market when healthcare stocks are stonger than the S&P? Well the answer can be seen in the chart below.

In the top panel is a 10 year weekly chart of the S&P and in the lower panel is a ratio line of healthcare vs. the S&P500. Notice whenever we have a rising ratio line (healthcare outperforming the S&P500) it almost always precedes or coincides with a falling stock market. We saw this happen in 2000-2002 and in 2008-2009.

So here we are at the end of the year and what is leading the market higher on this last push up to new highs? Healthcare! This can't be good for the market.

2 comments:

Fenster said...

Weak!

What are you seeing that we aren't?

ben said...

It looks like the market may
push to new high this week.
Friday's job report is likely
to be doctored for political
purpose. In my daily life,
I don't see "enonomic recovery":
The "for sale" sign has been sitting in my neighbor's yard for more than 1 year and there is no
taker. I see more people losing
their jobs. People are just getting temporary low-pay jobs.
But as long as the dollar is losing its value, S&P will do the opposite. Perhaps when it takes out most shorts around 1120-1130,
it will go down without me being on board...

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