1/ Solid Continuation…but…
2/ Health Care (XLV) was Already Ugly
3/ High Yield Can Help with Context
Investopedia is partnering with CMT Association on this newsletter. The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice. The guest authors, which may sell research to investors, and may trade or hold positions in securities mentioned herein do not represent the views of CMT Association or Investopedia. Please consult a financial advisor for investment recommendations and services.
1/
Solid Continuation…but…
Tuesday turned out to be another solid day for the Tech-leaning sectors and the NASDAQ 100 index. Yesterday I showed a list of the 11 sectors of the S&P 500 and their headings on the RRG Graph, where the sectors with a “Northeast” heading were showing the most strength. As you may recall, those were: Consumer Discretionary (XLY), Technology (XLK), Industrials (XLI), Financials (XLF), and Communication (XLC).
Today, for a day that saw a positive move in the S&P 500, there were 5 sectors that closed lower – none of which were on the “Northeast” list from yesterday. Additionally, there are now two additions to the South-bound direction: Health Care (XLV) and Utilities (XLU).
Seeing the Health Care sector get hit today wasn’t too surprising with the news that there is a potential for drug prices to be capped. Top stocks in the XLV ETF are names like: Eli Lilly, Johnson & Johnson, Abbott Labs, Merck, etc.
2/
Health Care (XLV) was Already Ugly
But the Health Care (XLV) chart already looked ugly. If you got hit by that one today, you weren’t paying attention. The “don’t buy” signs have been present and plentiful.
The current price for XLV has been solidly under the 200-day simple moving average since mid-March. Directional Movement has shown Red over Blue since mid-March. Directional Movement has become one of my go-to indicators since going through the CMT program. And the RRG Trend bars have also shown orange or red since mid-March.
While there was a nice attempt at a break above the mid-April highs, that attempt promptly failed on the first of May. Seeing higher-highs and higher-lows tend to be a good sign, but that ultimately didn’t work out for XLV.
Going back to my comment from Monday regarding XLV on the RRG Chart: “Healthcare appears as if it will skip the Green box and go straight back to Red.” It is still holding onto its position in the Blue (Improving) box for now, but it won’t take much to get it back into the Red (Lagging) box. Another weak sign for this sector.
3/
High Yield Can Help with Context
An index that isn’t always easy to find, but that helps me stay on the right side of the market, is the ICE Bank of America US High Yield Master II Index (MLHY- in FastTrack). Yes, that’s the full name of it and you should know about it. And while it does, kind-of, act like the iShares High Yield Corporate Bond ETF (HYG), when using MLHY- with moving averages, it tends to have a smoother line with less whipsaws.
I got this one from Rob Bernstein of RGB Capital many years ago and it reminds me that you don’t have to take big risks to make decent “equity-like” returns. The high-yield market can be worth a look as an addition to an equity model as it can help you improve the risk-adjusted results of your portfolio. But, like any investment, it carries its own risks. So be sure to do your homework first.
The chart below is a one-year chart of the MLHY- with a 50-day moving average. Super simple. This lower volatility index suggests to me that market risk has greatly subsided and the market has resumed the up-trend that has been in place for quite some time now. Just another factor that helps keep me on the right side of the market. And at the end of the day, that’s all that matters.
—
Originally posted 14th May 2025
Disclosure: Investopedia
Investopedia.com: The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. This information is intended for US residents only.
Disclosure: Interactive Brokers Third Party
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Investopedia and is being posted with its permission. The views expressed in this material are solely those of the author and/or Investopedia and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: ETFs
Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Join The Conversation
For specific platform feedback and suggestions, please submit it directly to our team using these instructions.
If you have an account-specific question or concern, please reach out to Client Services.
We encourage you to look through our FAQs before posting. Your question may already be covered!