Tuesday’s ETF Chart To Watch: Health Care Select Sector SPDR (XLV)

by on November 1, 2011 | ETFs Mentioned:

Despite starting off the week in hole, domestic equity indexes have turned in a monster performance for the month, with the S&P 500 clinching a stellar 11% gain in October. Profit taking swept across virtually every corner of the market on Monday after investors were a bit rattled by the Japanese bank intervening in the currency market and MF Global filing for bankruptcy. Gold futures tumbled lower and prices for the precious yellow metal settled near $1,720 an ounce as the trading day drew to a close. This week has several key events which are likely to be pivotal days for the markets, including an FOMC meeting as well as an interest rate decision from the European Central Bank.

Pharmaceutical bellwether Pfizer is expected to report earnings results later today and analysts are expecting for the company to rake in $16.42 billion in revenues and generate a profit of $0.55 a share. Pfizer is the second largest holding in the Health Care Select Sector SPDR (XLV), which is makes this our ETF to watch for today.

Chart Analysis

XLV has staged a considerable comeback since hitting a recent low of $29.64 a share on 8/9/2011. In fact, this ETF has formed a double bottom at the $30 level, as it held support right above this mark on 10/4/2011 as well [see New ETF Scorecards, In-Depth Analysis, and Rankings Of Every ETF] . Notice the relatively high volume trading that occurred when XLV was testing support at the $30 level back in August then October. The fact that XLV held support above $30 a share on high volume trading twice is solid evidence that this ETF has in fact bottomed out and is working its way to resume the ongoing, longer-term uptrend.

Click to Enlarge

This ETF had an impressive run-up last week, gaining upwards of 3%, and closing above its 200-day moving average (yellow line) for two consecutive days in a row. XLV dipped lower yesterday alongside slumping equity indexes, although it remains quite resilient as shares held up above the 200-day moving average [see SICK vs. CURE: Directions Rolls Out Leveraged Health Care ETFs].

Outlook

Better-than-expected earnings from Pfizer may spark a rally in the health care sector, in which case XLV could climb to the next resistance level at $35 a share. Likewise, if the pharma-giant misses analyst expectations, XLV could face some headwinds and potentially slip lower to $33 a share, or perhaps even lower. Although this ETF is trading above its 200-day moving average, we advise conservative investors to hold off from jumping in until XLV holds support above $33 a share for a week [see Beyond XLV: Five Alternative Health Care ETFs]. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

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Disclosure: No positions at time of writing.