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Report Card Time: Health Care & Energy Sector at Trader’s Narrative

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Report card time! I usually try to revisit a call, whether good or bad, to see if there is something I can learn from it for the next trade.

At the start of the year I wrote that the health care sector faced strong headwinds. You’ll recall this was during a very heated political debate about health care reform with many pointing out that HMO stocks were hitting new highs.

Based on that sentiment high and reading the tea leaves through technical analysis my suggestion was that the good times for this sector were over:

healthcare sector report card chart

For a few days that call was really bad. The sector, as measured by the S&P Healthcare Index spiked higher to 385. It also didn’t hurt that the market as a whole was strong. But the general market was also close to a short term top. The sector displayed a surprising amount of relative strength because it didn’t really fall very much into the February 2010 correction.

Below the 370 level, I was a genius. Above it, a dunce. So over all, a C+. Is that fair?

Now, let’s take a look at the bullish call for the energy sector at support in early February 2010. You can check out the previous link for my rationale. Here’s a chart of how things developed in the AMEX Oil index:

AMEX oil index XOI Mar 2010

As with the health care call, the general market was helpful. In early February most stocks firmed up and started to rise again. As they say, the tide lifts all boats.

The bull trap just under the 200 day moving average combined with the very long tailed hammer candlestick worked their magic as shorts scrambled to cover and fueled the rally. As I mentioned, the Oil Services Index (OSX) was acting much stronger and I expected it to do better. While the AMEX Oil Index rose 10% (to date) my hunch about the relative strength of OSX was spot on as it has risen 13% so far.

The energy sector did present a good opportunity but it is not among the strongest sectors (like retail for example). Naturally, we would prefer to get the most bang for our buck. Nevertheless, this was a pretty good setup so let’s give it an A-.

As always, let me know if you have any questions or comments.

And Happy St. Patrick’s Day to my Irish readers (as well as those obtaining temporary Irish citizenship for the day).

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One Response to “Report Card Time: Health Care & Energy Sector”  

  1. 1 Declan Fallon

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    A fun day had by all!


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