This Sector's Been Outperforming the S&P 500 for the Past Four Months

Last week I told you how my Best in Breed (BIB) model identified the transportation sector as a major outperformer of the past couple of months, yet no one seemed to notice.

Here's another sector that's actually done better than the transports so far in the second half of 2018, although it also tends to get more press.

I'm talking about the healthcare sector, as represented by the Select Sector SPDR Healthcare ETF (NYSEArca: XLV), which has been outperforming the S&P 500 for the past four months.

sector

Since the end of June, XLV has been on a straight line higher, gaining more than 12% along the flawless support of its 20-day moving average. And it's been setting record highs on a regular basis, the latest coming on Tuesday.

Healthcare sector

Using my BIB analysis, let's look at a couple of XLV's component stocks to see where this strength is coming from.

[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]

This Stock's Been on a Monster Run Since August

First up is CVS Health Corp. (NYSE: CVS), which has been on a monster run since the beginning of August.

In fact, the stock is up 24% in seven weeks, a period during which it dropped just eight times in 33 trading days. The run-up has been well supported by the 20-day moving average and was confirmed by a bullish cross of the 50-day and the 200-day moving averages.

CRITICAL: New Law Expected to Mint the Next Generation of Millionaires - Learn More

S&P 500

Despite the stock's renewed strength, short interest has been on a consistent run higher, pushing the short ratio above seven. That leaves the shares vulnerable to a covering rally, especially if the stock breaks above the $80 level.

That should provide a catalyst to power the shares above their 2018 high just below $84. I just recommended CVS to my Seismic Profits Alert subscribers, along with an optimal option play to leverage the expected move higher, so I can't provide that recommendation here.

Nevertheless, keep CVS in mind if you're looking for a bullish play for the rest of the year.

Another "Best of the Best" in This Sector

A second winner in the healthcare space is Becton Dickinson and Co. (NYSE: BDX), a supplier of medical devices and diagnostic products. The stock is up around 20% off its late-May low, using the tandem support of its 20-day and 50-day moving averages.

The shares pulled back from a record high set earlier this month, but the 20-day kicked in as support to keep the uptrend intact.

Special Rebroadcast: Money Morning's Executive Publisher Interviews Cannabis Investing Expert - Click Here to Watch

sector

Even though Becton has been in an overall uptrend throughout 2018, the short-interest ratio has risen as well. With the ratio now just below seven, I'm looking at the shorts being squeezed once the stock takes out its record high above $263.

That should provide the buying pressure needed to sustain the rally that has lasted more than six years. Consider the Jan. 18, 2019 $260 call to leverage Becton's strength.

This Trader Is Betting It All He Can Show You How to Turn $5,000 into AT LEAST $174,500

Chris Johnson is on pace to see 3,390% total winning gains this year.

And now, he's guaranteeing his recommendations will give you the chance to do the same.

If not, he's working for free.

So mark your calendar for one year from today...

Set a reminder on your phone...

And click here to learn how to join right now.

Follow Money Morning on Facebook, Twitter, and LinkedIn.

About the Author

Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.

Read full bio