XLV’s Record Rally: Must-Know Investing Moves of the Year | Don’t ignore this chart!

If you ran a StockCharts scan of the all-time high on January 9, one of the exchange-traded funds (ETFs) you’ll come across is XLV, the Healthcare Select SPDR Fund. XLV is an index ETF representing the healthcare sector. Playing a defensive game, XLV’s performance over the past few months has been stellar, rising 16% from an October low of 122.04 to a high of 141.56 last Tuesday.

So do you see the sector rotation gaining enough momentum for long-term growth? With attractively low valuations, new weight loss drugs hitting the market, and healthcare utilization potentially increasing, is now the time to take the plunge?

One-year snapshot of sector performance

Chart 1. Sector summary. Pay attention to XLV’s relatively lukewarm one-year performance.Chart source: StockCharts.com. For educational purposes.

Next time we head to StockCharts Sector Summary Looking at the sector’s performance across sections and over the year, we see that XLV has returned 5.87% over the past 12 months. Compared to technology, communications, and consumer discretionary, which have been among the best performers this year, Healthcare (XLV) has room to run.

XLV also has a StockCharts technical ranking. (SCTR) received a relatively high score of 89 points. What’s important about this? SCTR uses six technical indicators to compare the technical strength of one stock or ETF to all other stocks or ETFs in its peer group. A lot of technical work is done by comparing technical strengths.

But before we look at the current price action of XLV, let’s add something else. Let’s take a look at the seasonal performance of the S&P 500 ($SPX) over the past 10 years. This is intended to give you better context on the current price action and help you decide whether to enter a position now or wait.

XLV’s 10-Year Season Snapshot

The seasonal performance of XLV over 10 years is as follows:

Chart 2. XLV’s 10-year season performance. Note the difference between higher closing rates and market returns.Chart source: StockCharts.com. For educational purposes.

We can see that November is a relatively strong month for XLV. The average high closing rate is 78% (see numbers at the top of the bar) and the average return is 3.6%, which is also the highest “average” return on a 10-year basis.

High closing rates and average returns have historically declined since November. Despite a high closing rate of 60%, the average return in January is 0%. So, according to this chart, July and November are XLV’s strongest months in terms of returns and high closing rates.

Now let’s compare XLV’s seasonal performance with the S&P 500 ($SPX).

10-Year Seasonal Performance of XLV vs. S&P 500

When we look at XLV’s performance compared to the S&P 500, the picture changes quite dramatically.

Chart 3. XLV Seasonal Performance vs. S&P 500. Depending on whether you are looking to outperform the broader market or diversify your holdings within the broader market, this seasonal chart, which highlights relative (seasonal) strength, looks a little different than the picture. Draw a picture. Previous chart.Chart source: StockCharts.com. For educational purposes.

When it comes to outperforming the S&P 500, XLV’s strongest months are December (historically outperforming the overall index by 1.1%) and June (outperforming the S&P by 0.8%). In terms of performance, July may have been SLV’s second-strongest month, but the S&P 500 tended to outperform SLV in the same month.

So what does XLV look like now? Let’s start with the long term (see weekly chart below).

Chart 4. Weekly chart of XLV. Notice how the volume by price and the 50-day SMA converge near the same range, indicating potential support.Chart source: StockCharts.com. For educational purposes.

While XLV has barely reached all-time highs, note the significant change in Chaikin Money Flow (CMF), which has averaged net positive over the past four years. After months of deficits, it is now slightly above the zero line. Increased selling pressure indicates weakness. However, this is not necessarily what the price action is telling us.

200 period simple moving average (SMA) shows a steady upward trajectory. But take a look at the 50-day SMA and see how the price has fluctuated up and down the SMA over a wide trading range over the past two years. If the current breakout fails, but you remain fundamentally bullish, look at the 50-period SMA for a potential bounce. This relative range also matches the longest one. Quantity by price Well, it makes a strong case for support.

Let’s take a closer look by looking at the daily chart (see below).

Chart 5. Daily chart of XLV. Notice how the daily chart suggests the same support range as the longer-term weekly chart above.Chart source: StockCharts.com. For educational purposes.

Relative Strength Index (RSI) This confirms the likelihood that XLV will experience near-term weakness, providing an “overbought” reading for RSI. Both the 200-day SMA and price-specific volume converge in the $130-$131 range for potential support (similar to the weekly chart). Ichimoku Cloud adds another layer of identifying potential support within its scope.

Below the chart, see XLV’s relative performance against the S&P 500 (remember the previous seasonal chart). XLV’s recent poor performance suggests that the healthcare sector may have plenty of room to run, given the right economic factors.

But when can we expect this? Or if it’s completely unpredictable, what’s a good tactical entry point?

Evaluate entry points using seasonality

Some investors look to healthcare stocks to diversify their revenue streams, while others do so in anticipation of a turn in the economic cycle. For now, analyst expectations for 2024 remain mixed.

So, looking at seasonality to provide context for potential entry points (assuming you are bullish on XLV), we know that February has historically been a bad month for XLV (in terms of higher closing rates and returns) per se. . And compare it to the S&P 500.

Some investors may anticipate XLV’s peak season from June to November and consider the underperforming months an ideal time to buy. If you share this thesis, waiting until the price of XLV reaches the $130-$131 range could provide an ideal opportunity to open a position for a long-term trade. In this case, we recommend setting the price alert to $131.

View seasonality charts for broader context

Some stocks tend to shine brighter during certain months of the year. StockCharts’ interactive seasonal charting tool allows you to dive deeper into this aspect of technical analysis. This tool allows you to explore how often security rose during each month of the year. Pick stocks and see if there are seasonal patterns in their performance. If you’re unfamiliar with this method or tool, check out this tutorial..

How to set up technical price alerts

Set up technical alerts These support and resistance levels will help you compare potential entry points with market developments that may influence your decisions.

To access the Technical Alert Workbench, follow these steps:

• Log in to your account.
• At the top of the page, click Next. dashboard.
• Click Next. warning button or new button your notifications panel.
• Select the type of notification you want to create from: Alert type Button in the upper left corner. To create a price alert, select “Price Alert” as the alert type.
• Add COST to the symbol box and set a price trigger.
• Choose how you want to receive notifications and then click Next. Save Alert button.

disclaimer: This blog is written for educational purposes only and should not be construed as financial advice. You should not use any of our ideas and strategies without first evaluating your personal and financial situation or consulting a financial professional.