I want to start today’s issue off by looking at the relative performance charts of the market sectors because I think it shows a shift that is happening in the market as we are moving through earnings season.

The 1-month winners that helped lead the rally were Consumer Cyclical and Technology.  Within those, you had Travel/Entertainment stocks like MGM Resorts (MGM) and retail giants like Amazon (AMZN) help push the S&P 500 higher with positive earnings.  

Then you had Technology powerhouses like Microsoft (MSFT), Alphabet (GOOG/L), and others report better-than-expected earnings numbers.  The market took that as a sign that big companies weren’t as concerned about a recession or the slowing global growth.  

But now look at the 1-week and 1-day performance charts.  Tech has retreated and some of the defensive sectors are back into rotation.  

With the Consumer Price Index numbers coming out, we’ll have to see how the market responds, but there’s one sector that has a lower exposure to CPI fluctuations and that’s the sector I’m focusing on for the next few days to weeks.  I even have a couple of stocks for your consideration.

Healthcare is less impacted by CPI numbers and from the relative performance charts, it’s been a market laggard during this past market rally.  If we do continue to see sector rotation, I’m expecting to see Healthcare start to climb our list.

Let’s take a look at a few charts to show you where I’m coming from.

Here we have the QQQ (the technology ETF):

We hit resistance and we’ve started to come down.  If we break below $310, we could fall even lower to $295.  If the market reacts positively to various news about the U.S. investing in semiconductors and if companies like Nivida (NVDA) come back and beat earnings after they revised their projections lower, maybe we see QQQ bounce off of $310, but in the absence of a catalyst, I’m looking for tech to fall to the $295 – $310 range.   

Here’s the Dow 30:

The Dow 30 is hitting a previous area of resistance and needs some type of market catalyst to find a way above these levels. Otherwise, we could roll over and head down to $317 – $320.

Ok, one more before we move on.  Here’s the ETF for Consumer Discretionary:

Do you see a pattern forming from these major sector ETFs?  They’ve all enjoyed a nice run from mid-July, but now they need to return to their key moving averages. All three are rolling over right now.  

Ok, now let’s look at Healthcare using ticker, XLV.

From the chart, you can see why the sector has been lagging behind the others as it has gone sideways for the last couple of weeks.  Is now the time for it to break out of the wedge pattern?

If the breakout happens – we need to wait for confirmation – here are some healthcare stocks to add to your watchlist.

Molina Healthcare (MOH) could drop down to its 20-day moving average for a good entry.  That would be somewhere near $320.  

United Healthcare (UNH) is another to add to your list.  It’s in a tight trading range so I’d wait for it to head back down to $530 but if the entire Healthcare sector is about to break out, UNH could break through that upper resistance.

Ok, enough charts. What do you think? Do you think Healthcare has what it takes to break through its wedge pattern and head higher?

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Jeff