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Healthy Rotation

01/17/02 02:05:46 PM
by Austin Passamonte

The health care sector has amassed some positive gains of late. Which stocks are leading the way?

Security:   HMO, OHP, UNH
Position:   N/A

Old habits die hard, some harder than others. Chasing tech stocks in early trend reversals has worked for the past several years and will likely continue to do so for at least a few more. However, we cannot expect the days of irrational valuations and stratospheric prices to keep tech sector prices rising to the sky. What happens when hot sectors reach the boiling point and new buyers balk at entering this overheated fray?

You must look for other places to play.

Figure 1: Daily chart: HMO
Graphic provided by:
Graphic provided by: QCharts.
Even as major indices bled last week when the recent rally failed, health care sectors found healthy buying across the board. Morgan Stanley Health Care index has been forming a bullish triangle since late September lows and looks to have successfully broken out last week. A fine entry point came when the recent bull-pennant (light blue) broke to the upside and cleared resistance above. Buying the open on Thursday as price action continued above support proved very prudent indeed!

Figure 2: Daily Chart: OHP

OHP was a big contributor to health care's upward move as it soared above resistance on a breakaway gap and hasn't looked back since. Entering the weekend after posting +12.5% gains in three sessions, there is likely to be more where that came from.

Figure 3: Daily Chart: UNH

But buying a stock that recently tacked on such impressive gains after several sessions straight up may leave us holding at the top as action may pause here momentarily. How do we play this sector when one of the big components recently left a vapor trail? Why not scan the other symbols and see if any others seem lined up on the launching pad?

United Health had also coiled itself into a very nice wedge as stochastic values turned bullish to prove strength in underlying price action. UNH made a nice breakout move on Friday and suggests it will follow suit as the sector gains money flow should techs and other sectors weaken. This might be one place for us to watch as the next issue to solidly perform straight ahead.

Playing the sector rotation game is simple: learn which sectors are most aggressive all the way to most defensive and scan these sector charts to monitor inevitable progression of hot money turning cold as inevitable cycles in the flow continue their trek long after we retire from this profession ourselves!

Austin Passamonte

Austin is a private trader who trades emini stock index futures intraday. He currently trades various futures markets from home in addition to managing a trader's educational forum

Title: Individual Trader
Address: PO Box 633
Naples, NY 14512
E-mail address:

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Date: 01/19/02Rank: 5Comment: know anything about PSSI?
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