Schwab Live: Midweek Market Trend for June 21, 2017

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Both the Dow Jones Industrials and the S&P 500 hit new highs on June 19th.  New highs mean we are in an uptrend by definition.  Interestingly, the market was able to make these highs without the heavily weighted tech sector making new highs as both the semiconductors (Figure 1) and the internet stocks (Figure 2) are below their June peaks.

Figure 1: 

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Figure 2: 

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So what has been causing the broader market strength?  One reason is the positive action in healthcare.   It has been the strongest sector over the last month (Figure 3) as well as over  the last week (Figure 4), and just today(June 20th) has broken to an all-time high (Figure 5.)

Figure 3:

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Figure 4:

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Figure 5:

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Looking within the sector, there is some interesting industry action.  There has been consistent strength in the medical device stocks, with the group clearly outperforming the market since last fall (Figure 6)(A).  

Figure 6:

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What has really drawn my attention, however, is the biotech industry.  Just today it has broken out of an eighteen month trading range (Figure 7)(A) and might have some room to run.  The first potential target might be the late 2015 highs (B).  To set the next target after that we might use the measured move technique.  When a stock or index breaks out of a horizontal trading range, many technical analysts would take the height of the range, in this case 2254 points (11982-9728), and add this amount to the top of the range to generate the target of 14236 (2254 + 11982) (C).  Keep in mind, though, that the “target” is based on historical performance, and should therefore not be considered a certainty.

Figure 7: 

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The pharmaceutical group is also interesting.  Over the last few days, the industry has managed to break through a multi-year downtrend line (figure 8)(A).

Figure 8: 

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On a shorter term basis, it is threatening to break out of a four month horizontal trading range (Figure 9.)  Using the measured move technique outlined earlier, a potential first target could be around 6142 (A).

Figure 9: 

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Next Steps

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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. Examples are not intended to be reflective of results you can expect to achieve.

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