Charts are bullish for health care: Technician

The health care sector may be down 1% over the past 30 days but the chart of the sector’s ETF (trading under the symbol XLV) looks promising, according to one technical analyst.

The ETF traded above its 200-day moving average from 2013 until the summer of 2015. It subsequently gave back some of those gains but Newton sees the sector as going back on track.

“If you look at what has happened just in the last few weeks, the XLV or health care, has gotten back over its longer-term downtrend line,” said Mark Newton of Newton Advisors. He sees this as an encouraging move.

“It means that this sector likely is going to start to outperform and really show greater relative strength than the market in the weeks and months ahead,” he said. “Health care actually has shown very good signs of momentum.”

Newton sees the cancellation of the Pfizer (PFE)/Allergan (AGN) inversion deal as the surprising catalyst for the sector’s upturn. “A lot of the biotech started to strengthen,” said Newton. “Lately, HMOs and the medical device stocks have started to move sharply higher.”

He remains bullish on health care. “This is a sector definitely you want to highlight and favor for outperformance in the weeks and months ahead,” Newton said. “That's something that investors should give a much stronger look toward in thinking that health care really is back from the dead.”