The following is an excerpt from the November 8, 2013 blog for Decision Point subscribers.
One might think that all the turmoil surrounding Obamacare would be having a negative effect the Health Care Sector, but in so thinking, one would be wrong.
Even though Obamacare was signed into law in early-2010, there was a strong possibility that it would never actually take effect — it could have been repealed by Republicans taking the White House in 2012, and then by the U.S. Supreme Court striking it down. While neither of those things happened, there was a long period of uncertainty during which it was impossible for virtually anyone to make plans on how to implement (or not implement) the new health care system. Currently the turbulence of the Obamacare launch — website not working, millions of people receiving policy cancellations, etc. — health care uncertainty remains a constant theme . . . well, except for Health Care Sector stocks.
Since the passage of Obamacare, the Health Care Sector SPDR has advanced by +104%, and, other than the short correction in 2012, the advance has been very steady, certainly not reflecting any of the uncertainty surrounding the industry. We can only conclude that the Sector has always interpreted the passage of Obamacare as being a good thing for the industry, in spite of how some might think that the opposite is true. This is a lesson in how price cuts through all the speculation and truly tells the tale.
While the Health Care Sector picture is currently very positive, there is one problem visible on the chart — the advance from the 2009 low has turned parabolic, and that is not a healthy pattern. In my opinion this particular pattern is not really severe at this point, and a correction could obviate the issue; however, it is something we should watch. Parabolics typically move into a vertical ascent, then collapse, ultimately returning to the basing pattern that existed before prices took off. Currently, the belief appears to be that companies in this sector can make a lot of money no matter what happens. Eventually this will change, as all things do.
Technical analysis is a windsock, not a crystal ball.
