Seeking Health Care - Part I
Key Points
- The health care sector pulled back roughly 12% during the January-February sell-off before rebounding nicely in March
- Presently seasonality, sentiment, insider activity, and even breadth appear to be lining up on the favorable side of the ledger
- Ticker XLV allows traders to play the broader health care sector
Seasonality I
The chart below displays the annual seasonal trend for XLV (Health Care Select Sector SPDR ETF). A favorable seasonal period extends from Trading Day of the Year (TDY) #56 through TDY #80. For 2022, this period extends from 3/23 through 4/27.
We will use a health care sector daily data series for our next test that goes back to 1954. The index uses the Fama French data series from 1954 into 1990 and S&P 500 health care sector from there.
The chart below displays the growth of $1 invested in the health care sector data series described above ONLY during this favorable period since 1954.
The table below displays a summary of performance results.
Seasonality II
Using month-end closing price data, let's consider a larger seasonal perspective on the health care sector, going back to 1927.
The chart below displays the growth of $1 invested in our health care sector data series ONLY during March through August every year starting in 1927.
The chart below displays the same results on a logarithmic scale.
The table below displays a summary of performance.
Seasonality suggests a potentially favorable environment for the health care sector in the weeks and months ahead. However, Win Rates of 69% and 72% remind us that there are no "sure things" and that intelligent capital allocation and risk management remain equally important parts of the investing equation.
Now let's turn our attention to sentiment.
Sentiment
The chart below displays all days when the 10-day moving average for XLV Optix was below 20. You can run this test in the Backtest Engine.
The table below displays a summary of the results.
The table below displays the dates of the most recent signals and the results so far.
Sentiment also suggests a potentially favorable environment for the health care sector in the months ahead.
What the research tells us...
Both seasonality and sentiment presently appear to be favorable factors for the health care sector. In Part II, we will look at corporate insider buying and selling in the health care sector and sector breadth.