Health Care – Cause For Pause

Health Care stocks experienced heavy selling pressure yesterday (4/17/19), with XLV (Health Care Select Sector SPDR) shedding 2.88%. What jumped out at us was the large number of stocks making UI sells in the sector. This was an extreme day to say the least. We looked back at prior days with this level of selling or more to see how the sector performed afterwards. Based on the findings, there is cause for pause.

Wednesday’s data showed that over 28% of our Health Care universe returned a UI sell signal. To put this rare event into perspective:

  1. YTD, excluding Wednesday, the daily average % of Health Care stocks showing UI sell signals is 1.52%
  2. Going back to 2013, including Wednesday, there have been only 14 trading days where +25% of our Health Care universe has showed UI selling

Below is a look at all days since 2013 with extreme selling in Health Care stocks. We define extreme as days where +25% of our Health Care universe returned a UI sell signal. At first glance, there tends to be additional days of extreme selling post the first day of large selling. This could indicate that the sector will likely see choppy waters ahead.

BOTTOM LINE: Days with extreme selling are rare. The average forward return for the Health Care sector after these instances is lackluster at best.