Green in the sea of red: Healthcare (1)
Summary
This week we are sharing 2 rebound trade opportunities in healthcare and biotech,
XLV and 
XBI, which are showing relative strength against S&P500 and Nasdaq, making them better candidates to trade for rebound.
Since the beginning of 2022, skyrocketing inflation and increasing recession risk have pushed the broad equity markets to the downside. S&P500 is down more than 20% from peak, while the more tech heavy Nasdaq is down close to 30% from peak as of today. If we look back the whole rally, it all started during Mar-2020 as the Fed reacted aggressively toward covid by massive money printing (i.e. quantitative easing). In fact both S&P500 and Nasdaq are now getting closer to the 250 weeks moving average, which is approximately where the post-covid rally had broken the pre-covid peak. Rebound is very likely to happen as “where it started” is usually a strong resistance level that slows correction.
S&P500
Nasdaq100
To execute this trade, instead of directly longing the indexes, healthcare and biotech sector ETF,XLV and XBI are showing relative strength against S&P500 and Nasdaq100, which make them better candidates to trade the idea. Fundamentally speaking, we believe the reason behind the strength is due to the irreversible trends of aging population across the globe especially among developed countries; as well as in the seemingly more frequent pandemic outbreaks during recent years. Both trends create steady demand for healthcare and need for biotechnological innovation. The MRNA technology is a good recent example to illustrate the importance of biotechnological innovation in fighting pandemic.
We recommend more conservative traders to execute the idea withXLV (this post), while more aggressive traders can go with XBI (link here: tradingview.com/chart/XBI/NRHjtfui-Green-in-the-sea-of-red-Biotech-2/) which is relatively volatile.
Note: XBI also come with 3X leveraged ETF
LABU (bullish) and LABD (bearish) for those who are looking for more leverage with same amount of capital
Technical
XLV is still outperforming major indexes. Instead of downtrend, XLV is still in a consolidation period. XLV has been trading in extending box range since Oct-2021, with 1 extension to the upside in Dec-2021, and 1 extension to the downside this year on Jun-13.
The more than 8 months of consolidation period has flattened the 250 days moving average, yet not bending it downward (yet?). 20 days and 50 days moving averages have been crossing each other multiple times during the consolidation period, making them less indicative from a technical perspective. CurrentlyXLV is trading below 250 days moving average, tested but failed to penetrate the moving average on Jul-8, if it still cannot get above the 250 days moving average in the coming months, the downside pressure will materialize into an actual down trend.
In summary, these are the important levels one should pay attention to:
Downside support
Upside resistance
This week we are sharing 2 rebound trade opportunities in healthcare and biotech,
XLV and XBI, which are showing relative strength against S&P500 and Nasdaq, making them better candidates to trade for rebound.Since the beginning of 2022, skyrocketing inflation and increasing recession risk have pushed the broad equity markets to the downside. S&P500 is down more than 20% from peak, while the more tech heavy Nasdaq is down close to 30% from peak as of today. If we look back the whole rally, it all started during Mar-2020 as the Fed reacted aggressively toward covid by massive money printing (i.e. quantitative easing). In fact both S&P500 and Nasdaq are now getting closer to the 250 weeks moving average, which is approximately where the post-covid rally had broken the pre-covid peak. Rebound is very likely to happen as “where it started” is usually a strong resistance level that slows correction.
S&P500
Nasdaq100
To execute this trade, instead of directly longing the indexes, healthcare and biotech sector ETF,
XLV and XBI are showing relative strength against S&P500 and Nasdaq100, which make them better candidates to trade the idea. Fundamentally speaking, we believe the reason behind the strength is due to the irreversible trends of aging population across the globe especially among developed countries; as well as in the seemingly more frequent pandemic outbreaks during recent years. Both trends create steady demand for healthcare and need for biotechnological innovation. The MRNA technology is a good recent example to illustrate the importance of biotechnological innovation in fighting pandemic.We recommend more conservative traders to execute the idea with
XLV (this post), while more aggressive traders can go with XBI (link here: tradingview.com/chart/XBI/NRHjtfui-Green-in-the-sea-of-red-Biotech-2/) which is relatively volatile.Note: XBI also come with 3X leveraged ETF
LABU (bullish) and LABD (bearish) for those who are looking for more leverage with same amount of capitalTechnical
XLV is still outperforming major indexes. Instead of downtrend, XLV is still in a consolidation period. XLV has been trading in extending box range since Oct-2021, with 1 extension to the upside in Dec-2021, and 1 extension to the downside this year on Jun-13. The more than 8 months of consolidation period has flattened the 250 days moving average, yet not bending it downward (yet?). 20 days and 50 days moving averages have been crossing each other multiple times during the consolidation period, making them less indicative from a technical perspective. Currently
XLV is trading below 250 days moving average, tested but failed to penetrate the moving average on Jul-8, if it still cannot get above the 250 days moving average in the coming months, the downside pressure will materialize into an actual down trend.In summary, these are the important levels one should pay attention to:
Downside support
- 118.75: Jun-13 new box bottom
- 109.74: Post covid peak before rallying to the upside
Upside resistance
- 132.04: Jul-8 attempt of breaking 250 days moving average
- 143.42: Apr-8 new box top
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