Is The Bear Making You Sick? Time To Get Right With Healthcare!

30 giu 2022

Bear markets, economic slow downs, recessions, inflation, the Fed, Jerome Powel, etc... It's enough to make anyone feel sick. Well, step right into the Doctors office because I have the cure for what is making you ill. But before I start writing prescriptions, we need to apply a diagnosis. First let us review the causes:

Soaring Commodities.
Crashing Growth.
Incoming Recession.

As this bug works its way through your system its going to manifest itself with several symptoms. Currently you're experiencing the following:

Inflation.
Bear Market.
Rising Rates.

As your natural immune system fights this off, you're going to experience the following side effects:

Deflation.
Decreased Earnings.
Falling Rates.

None of this is going to make you feel any better however. That's where the Doctor comes in. Allow me to explain. As the economy slows down we're going to experience cyclicals such as Semi's continuing their weakness and the Commodities will be rolling over. But the rising rates will crimp economic growth which will weaken earnings and put pressure on valuations. Eventually the FED will be forced to slow or stop their rate raising program as the economy grinds to a halt. This will hurt investors looking for yield. Not a great scenario for stocks. What's a sick investor to do?

You need alpha, yield, and protection from an economic slowdown. There's only one sector that can offer all three and that is Healthcare.

Healthcare is relatively resistant to any slow down in the economy, offers some yield in XLV and some alpha in XBI.

Both charts are ratio charts comparing the relative strength of Healthcare vs Semi's and Commodities.

The top chart is a monthly candle chart of XLV the S&P Healthcare SPDR ETF vs DBC The Broad Commodity ETF. The ratio rises when XLV is out performing and falls when its under performing. As you can see the ratio is sitting right on an area of support and a hammer candle has formed after a protracted period of under performance. Implications are for a reversal that favors XLV.

The bottom chart is a weekly line chart of XBI the S&P Biotech ETF vs SOXX the Philly Semiconductor ETF. Just like the above chart, the ratio rises as XBI out performs and falls when it under performs. Just recently XBI has reversed the trend of under performance and broke out through the downward trend line. The trend favors further out performance from XBI.

I hereby prescribe to you the following pairs trades:

Long XLV and Short DBC.
Long XBI and Short SOXX.

Please start the prescription as soon as you can have it filled and keep the trade on for the rest of the year until January 1st 2023. Come back to see me for a follow up visit. Please make your appointment ahead of time as I book up fast.

I hope you feel better soon.
Sincerely, your Doctor.