Why the Health-Care Sector is One to Watch

The Health Care SPDR (ETF) (XLV) and sector component Illumina, Inc. (ILMN) have been technical outperformers

by Karee Venema

Published on Feb 6, 2015 at 10:38 AM
Updated on Apr 20, 2015 at 5:32 PM

The health-care sector has put in a strong performance over the past 52 weeks, as evidenced by the price action in the Health Care SPDR (ETF) (NYSEARCA:XLV). Year-over-year, this exchange-traded fund (ETF) has tacked on more than 25% -- and based on its current perch at $70.53, is within a stone's throw of its Dec. 8 all-time peak of $71.43.

What's more, of the 35 stocks that fall under our health-care umbrella, 80% are currently trading above their 80-day trendlines, and have averaged a 52-week gain of 24.3%. In spite of this, only 58% of covering analysts maintain a "buy" rating, and it would take more than a week to cover all of the shorted shares, at average daily trading volumes. Should XLV continue its longer-term trajectory -- perhaps amid another batch of well-received M&A news -- a round of upgrades and/or some short-covering activity could help propel the ETF higher.

Drilling down on specific names, San Diego-based medical equipment manufacturer Illumina, Inc. (NASDAQ:ILMN) has been charting a path steadily higher for some time. On a year-over-year basis, the shares have tacked on 24% to trade at $194.57.

More recently, the equity pulled back to its rising 80-day moving average after hitting a record peak of $213.33 on Jan. 28 -- a trendline that has served as a springboard for the shares in the past. In fact, according to Schaeffer's Senior Quantitative Analyst Rocky White, in the 10 other times this signal has occurred over the past three years, ILMN has gone on to average a 21-day gain of 4.7%, and has been positive 78% of the time.

Daily Chart of ILMN Since February 2014 With 80-Day Moving Average

The stock could get an additional boost, too, should it receive more upbeat analyst attention, or if some of the weaker bearish hands capitulate to its upward momentum. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), ILMN's 50-day put/call volume ratio of 0.95 ranks in the 99th annual percentile. Simply stated, puts have been bought to open over calls with more rapidity just 1% of the time within the past year.

Echoing this put-skewed bias is the equity's Schaeffer's put/call open interest ratio (SOIR) of 2.36. Not only does this show that put open interest more than doubles call open interest among options set to expire in three months or less, but it ranks higher than 98% of similar readings taken in the past year. In other words, short-term speculators have rarely been as put-heavy toward Illumina, Inc. (NASDAQ:ILMN) as they are now.


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