The healthcare sector has emerged as a standout performer in the S&P 500 so far this year, demonstrating a robustness that has outpaced the overall index. As of now, healthcare stocks have grown approximately 6%, while the S&P 500 Index itself has lagged with a mere 2% increase. This performance is indicative not just of favorable short-term conditions, but also points to an encouraging intermediate-term outlook that could lead to sustained outperformance in the coming months.
Several factors are driving this momentum within the healthcare sector. Firstly, the recovery from the pandemic has prompted renewed investment in health-related industries, with increased spending on healthcare services and innovations. Moreover, the aging global population is amplifying demand for healthcare services, creating a favorable environment for healthcare stocks.
Another contributing factor is the shift towards technology-driven healthcare solutions. Companies focusing on telemedicine, biotechnology innovations, and healthcare IT systems have paved the way for significant advancements. Investors are increasingly recognizing these trends, pushing healthcare stocks upward amidst relatively muted performance in other sectors.
To better understand the dynamics at play, Relative Rotation Graphs (RRG) serve as a useful tool for visualizing sector rotations. In a recent 12-week RRG analysis of Sector SPDR ETFs compared to the S&P 500, healthcare (represented by the XLV ETF) has shown a definitive upward momentum. This is evidenced by its current position in the RRG, which indicates a strengthening performance compared to the broader market.
What’s noteworthy is the direction of the healthcare sector on the RRG, where it is turning to the right—a strong indication of possible outperformance in the near future. The inherent clockwise rotation in the RRG suggests that if current trends hold, healthcare could continue to lead the S&P 500 well into the upcoming quarters, demonstrating not just short-term gains, but a more solid foundation for future performance.
One of the significant players in the healthcare sector to watch is DaVita Inc. (DVA). The company recently experienced a breakout from a trading range, indicating a resumption of its long-term uptrend. Accompanying this breakout is a new weekly MACD ‘buy’ signal, which further supports the case for bullish momentum in DaVita’s stock price.
Upon reviewing the charts, an upside target can be identified using Fibonacci extension levels, which place the potential price objective around $193 per share. This target comes on the heels of significant former resistance that has now shifted to a support range around $166-$168. Such a transformation in support levels is critical: If DaVita’s stock were to reverse below this support, it would be prudent for investors to reevaluate or reduce new long positions in the stock.
For those maintaining long-term positions, a pivotal support level is the rising 200-day moving average, currently hovering near $149. This moving average serves not only as a benchmark for assessing momentum but also as a potential safety net for investors amid market volatility.
What’s more, DaVita’s performance in relation to the S&P 500 signals potential for long-term bullishness. The reversal of its downward trend last year, coupled with a breakout above a critical monthly resistance level, hints at significantly better prospects ahead for the company. This improvement in relative strength substantiates a case for DaVita being well-positioned to outperform the broader index in the long run.
Similar to its absolute price performance, DaVita’s trajectory versus the S&P 500 indicates an upward trend, reinforcing the premise of potential for sustained outperformance in both the near and intermediate-terms.
While the healthcare sector and DaVita exhibit promising signals for outperformance, investors should remain vigilant. Market fluctuations can present risks that may alter trajectories unexpectedly. Continued evaluation of market conditions, supportive technical indicators, and broader economic environments will be paramount for investors considering positions in this realm.
Understanding the intricate movements within the healthcare sector, particularly the ongoing momentum in DaVita, could provide investors with lucrative opportunities as we progress further into 2023. Nonetheless, it is essential for investors to combine technical analysis with a sound strategic approach, always poised to adapt to changing market conditions.