The health care sector across the U.S. has been one of the strongest performing sectors over the past year, but the chart patterns discussed below suggest that the sentiment is shifting. For active traders, it may be worth noting that, while the health care sector has led the trend higher, the signs of weakness could be a leading indicator of a broader move lower to come.
Health Care Select Sector SPDR Fund (XLV)
For followers of technical analysis interested in gauging the trend of the overall health care sector, it may be worth taking a closer look at the Health Care Select Sector SPDR Fund (XLV). As you can see below. the 200-day moving average (red line) has propped up the price on each attempted move lower since the start of 2019.
Interestingly, Tuesday's 2.05% move lower triggered a break below the long-term support level, which suggests that the bears are now in control of the momentum. The increase in the day's trading volume also suggests that there is a good amount of conviction in the sell-off and that it could continue over the coming days. A sustained move lower over the next few trading sessions could also trigger a bearish crossover between the 50-day and 200-day moving averages, which would in turn mark the beginning of a longer-term downtrend.
UnitedHealth Group Incorporated
The failed move to create new highs over the past several months has put the uptrend in UnitedHealth Group Incorporated (UNH) into jeopardy. Active traders will also likely look to the recent bounce off of the 200-day moving average as a sign that the bears are in control of the momentum. Tuesday's close below the March lows on higher-than-average daily volume suggests that the downward momentum is gaining conviction and could continue over the coming days or weeks. Bearish traders will likely look to place their orders as close to the dotted resistance as possible and place stop-loss orders above the swing high near $250.
Merck & Co., Inc. (MRK)
Merck & Co., Inc. (MRK) has been one of the strongest health care-related stocks due to its strong pipeline and exposure to gene therapy. Taking a look at the chart, you can see that the upward trendline has propped up the price on subsequent pullbacks, but price action over the past couple of trading sessions suggests that the uptrend is starting to reverse. Bullish traders will likely want to keep a close eye on $72.57 because a close below that level would likely signal the beginning of a long-term move lower.
The Bottom Line
Health care has been one of the strongest performing sectors in the United States over the past 12 months, but the charts discussed above suggest that the story could be changing. Active traders will keep a close eye on nearby support and resistance levels to see how prices behave and determine whether a move lower is a leading indicator for the broader market.
At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.