Since the previous edition of the Sterling Weekly, the Dow Jones Industrial Average gained 99.83 points or approximately 0.9%, to finish at 10,741.98 The overall market had strung together several days of upward movement prior to Friday's Quadruple Witching expiration of stock options, index futures, index options, and individual stock futures. This quarterly expiration can have a several day impact on the broad market and traders seek to unwind their positions ahead of expiration. It is also important to note that the following Monday's market can be rather unpredictable as trader's enter new positions. It is not uncommon for Monday's move to be the oppositve of the preceeding Friday's market movement. As a result I do not read too much into last Friday's market activity.
In this week's edition of the Sterling Weekly I wanted to take a look at the Morgan Stanley Healthcare Products Index 'RXP', which set a new yearly high this week, closing at 1,611.80 on Friday. The 'RXP' is an equal dollar weighted index designed to measure the performance of companies involved in the production of healthcare products, including pharmaceutical, biotechnology, and medical technology companies. The RXP Index was established with a base value of 200.00 on December 16, 1994. To ensure that each component stock continues to represent approximately equal weight in the index, adjustments are made annually, based on closing prices on the third Friday in December. I've inserted a chart of the 'RXP' below for you to review.
Last week the 'RXP' completed a cup pattern with a measured move to 1,710.31. In looking at a longer term chart, it apprears that if the 'RXP' reached the measured move to 1,710.31 from this cup pattern, then it will have completed a longer term, larger cup pattern with a measured move to 2,257.90.I've inserted a chart of the 'RXP' below showing this cup pattern. In reviewing a chart of the 'RXP' since inception, the all time of the 'RXP' is in the 1,660 level, and this move will obviously take the 'RXP' to new all time highs.
I found only two (2) ETF's that seem to track the MS. Healthcare Products Index 'RXP.' They were the Vanguard Health Care ETF 'VHT', and the Rydex S&P Equal Weight Health Care ETF 'RYH.' Both of these ETFs have very light trading volume, but I found the Vanguard Health Care ETF 'VHT' did a slightly better job of matching the chart pattern of the 'RXP' than the 'RYH' did. Plus it had slightly better trading volume.
While the chart pattern of the 'VHT' doesn't exactly match that of the 'RXP' it didn't set a new yearly high last week as the 'RXP' did. The 'VHT' closed Friday at $56.80 If I were looking to enter a trade based upon the expected upside movement of the 'RXP' then I would enter the 'VHT' at the open on Monday with a stop set @ $55.43/share, which is slightly below the dowside resistance point of $55.85/share. Once the 'VHT' has closed above $57.20, its yearly closing high, I would then adjust my stop upwards to $56.81/share. I would see to futher move my stops upwards based upon the profitability of the trade.
Of course the House vote on healthcare reform, or take over, may radically change this trade Monday morning. It may be best to wait for the open of the market and look to enter the trade shortly thereafter.