Conclusion, Investment Implications, Strategy

The SPDR S&P Health Care Equipment ETF (XHE) is in the early stages of a major bullish trend change amid relative outperformance versus the S&P 500 (SPY) and expanding investor assets.  As long as these factors remain intact, XHE is likely to conitnue rising in the weeks and potentially months head.

Current Sector & Industry Group Ideas

Table 1 below is an updated version of Table 2 that appears in our weekly Keys To This Week: Sector & Industry Groups report, published on Monday mornings and includes XHE.

Table 1

Analysis and Rationale

In seeking to track the performance of the S&P Health Care Equipment Select Industry Index (the “index”), the fund employs a sampling strategy. It generally invests substantially all, but at least 80%, of its total assets in the securities comprising the index. The index represents the health care equipment segment of the S&P Total Market Index (“S&P TMI”).

The upper panel of Chart 1 below plots the SPDR S&P Health Care Equipment ETF (XHE) daily since October along with its 50- and 200-day moving averages, widely-watched minor and major trend proxies.  The lower panel plots the corresponding daily relative performance of XHE versus the SPDR S&P 500 ETF Trust (SPY) along with its 63-day moving average, which we use to identify the Strategic (quarterly) trend of relative performance versus the broad market.

Chart 1

The upper panel shows that XHE rose above its 200-day MA on Jan 12th to indicate an emerging major bullish trend change.  It will remain valid as long as the moving average, currently at 91.37, loosely contains price as underlying support.  The lower panel shows that XHE has been outperforming SPY on a Strategic quarterly basis since Dec 13th, and that this trend has significantly accelerated since mid-December.  

The lower panel of Chart 2 below plots the daily total net assets invested in XHE since October along with their 21-day moving average which we use to identify the monthly trend of expansion or contraction.  The green arrow points out that these assets have been in monthly expansion since Jan 13th.  Expanding assets are the fuel that drives a positive price trend.

Chart 2

As long as these positive factors — trend, relative performance, and asset flows — remain intact, XHE is likely to continue rising in the weeks and potentially months ahead.