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.

Stock Market Update

Stocks were up today with the Dow and S&P making another test of the recent highs. As you can see in the above chart, not all indices are near their recent highs. The NASDAQ and Small caps are still diverging and as long as they continue to make lower highs, I will stay with my short positions.

Not all stocks were up today. Some of the major stocks such as GS and several of the banks were actually down. As I said before, this rally has no legs behind it but I must admit being short these past 2 weeks has been very difficult. Even though I am pretty much flat on most of my positions (up small down small) it's been very challenging to remain short with such a weak dollar. Seems like every night I check on the dollar around 1:00 am find that it's up a bit. I then go to bed and wake up in the morning to find that the S&P futures are sharply higher with stocks indicated to gap up at the open. That's happened a few times to me these past 2 weeks. Not a good feeling to say the least!

Given the fact that their are so many stocks not near their recent highs, I will remain short with my protective stops in the market. Enough said.