L.A.'s article appeared on the video section of TheStreet.com on 03/04/2010. Here is the accompanying video.

The healthcare sector continues to draw considerable press given the insatiable appetite for President Obama’s push for healthcare “reform”. During this ongoing debate, healthcare stocks, as viewed through the Healthcare Select Sector SPDR Fund ETF (XLV), have steadily risen higher and higher. So as the debate nears an end, where might the healthcare stocks head – for the hills or higher still?

Starting with the long term view, we can see the current trend is confirmed sideways. It is confirmed sideways because, at this late date, we have yet to cross and hold the swing point high from the middle of July ’08. We have attacked it with volume, but it has yet to be captured. 

XLV Monthly

Charts by ProphetNet.net

The good news is volume was left at that high which means that, at some point in the future, prices will make their way back to those highs. In the meantime, more work has to be done. That work has already began with prices retracing about 10% in February. The support zone looks to be reasonably solid on this long term view with the $29 to $30 range providing a solid looking base.

On the topside, the initial target will once again be the recent highs. With all the volume that is now posted at those highs, XLV could be a range trade for a few months as strength builds to get over those highs but that still leaves trades within.

Turning to the weekly chart, we can see the high volume high and high volume low that was left on the chart during the January gallop and February fall. The uptrend line underscores the idea that the trend on this timeframe is bullish.

XLV Weekly

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It’s the daily chart that provides the parameters for this trade. The hammer reversal off the February lows left a long tail with volume on the weekly timeframe. You have to respect the fact that the lows could be tested and that if they are, nothing wrong would exist with this ETF unless volume expanded heavily into those lows. With that in mind, on this timeframe, we have a confirmed trend change from suspect bullish to confirmed sideways. It almost turned confirmed bearish which would make me much more cautious on the long term trade, but so far, the test of the swing lows did hold on price.

XLV Daily

Charts by ProphetNet.net

As a trader, you want to buy the lows given the intermediate and long term trends. For my thoughts about the price points regarding where I would want to purchase XLV, take a look at the accompanying video. And, as always, keep trading the charts!

Originally published on TheStreet.com
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