The Health Care Select Sector SPDR (XLV) has underperformed the S&P 500 since August, and even though prices have improved this month, a review of your holdings in this sector might not be a bad idea. Similar to our post about the utility sector today, we want to look at the relative strength of the XLV compared to the S&P 500.
Relative strength has been around for a long time, but it doesn't seem to be used much in the media. If you are trying to figure out sector rotation, this is the tool for you. You just compare the price performance of the sector to the S&P 500, if that is your benchmark. If the sector (or industry, group or company) is up 15%, let's say, and the S&P is up 25% over the same period, the sector is underperforming and we would probably want to under-weight or market-weight it in our portfolio.
In this one-year daily chart, above, we have the price chart of XLV and a line chart of the S&P 500. The S&P 500 is up around 24% in the past year and the XLV is up around 12%. A 12% return is not shabby, but you did not match nor beat the market. The On-Balance-Volume (OBV) line has moved up to a new high for the year, besting the July peak, but prices are well below their best level. The XLV could move higher but it may have a problem overcoming its early August high. Momentum is not diverging from the recent price action.
In this three-year weekly chart of the XLV, above, prices recently closed above the 40-week moving average line. This line has an upward slope, which is positive, but the slope is vastly weaker than the slope we can see back in 2014. The weekly OBV line has been in a downward drift since August and does not support the current advance. The weekly Moving Average Convergence Divergence (MACD) oscillator crossed below the zero line in January for a cover-shorts buy signal. This indicator may or may not cross above the zero line for an outright go-long signal -- it depends on the price action.
Bottom line: Names like Johnson & Johnson (JNJ) , Pfizer PFE, Merck (MRK) , UnitedHealth (UNH) , Amgen (AMGN) , Medtronic (MDT) , AbbVie (ABBV) and Bristol-Myers (BMY) are large weights in the XLV. ABBV and BMY have the weakest-looking charts in this group and may well be the first to be trimmed as you monitor your portfolio.