Heathcare and Technology Lead the Way

By: Jim Farrish

Solid bounce and recovery for the broad market . The S&P 500 index gained 5% for the week ending on the hope of a comprehensive bank plan and $800 billion stimulus package from Washington. Oh yes, solid fundamentals from which we can build a lasting rally - government help. I don't mean to be sarcastic about this topic, actually I do, the fact we are going to put this much money to work in areas that don't create lasting jobs and meaningful technology is crazy. We may very well rally further this week on the news of pushing $1-3 trillion more at this problem; however the question on my mind is what are we doing to make the economy better long term? We could all debate this topic forever and we will, so for now let's look at what we can do to benefit from the current situation.
Last week I wrote concerning the negative sentiment in the market having successfully pushed 8 of 10 sectors to the brink of breaking support. The good news is they held last week and built positive momentum on the government aid programs. The turnaround went from 8 of 10 sectors in negative territory to 10 of 10 sectors in positive territory. The change in sentiment last week was nothing short of hope about throwing money at the economic and financial problems would be the solution.
Healthcare continued its push higher breaking through resistance at 274 on the Dow Jones US Healthcare index. The leadership of this sector has been important to the broad market holding support. The broad sector gained 4.5% last week on good news from the HMOs. The index broke back above the 1008 resistance level and closed at 1132 or a gain of 12.3% on the week. Solid earnings from the HMOs drove the sector higher. (NYSE:IHF), iShares DJ US Healthcare Providers ETF is the way to capture the sector in a fund.
Technology gained 8.7% as the sector finally followed through on building momentum. The Dow Jones US Technology index has been in trading range of 340-380 since early December. The close above the top of the range on Friday will be a key point to watch this week. A follow through would be bullish for the sector, but also provide needed leadership to the broad market. Semiconductors, computer hardware and internet were the leaders gaining 11% in each of the subsectors. All three have provided strength in the technology sector. (NYSE:IYW), iShares Dow Jones Technology fund and (NYSE:IGW), ishares Dow Jones Semiconductor fund are two ways to capture the move in this sector.
Financials finally found buyers on the announcement the Treasury Department would unveil a comprehensive plan for the banks and the debt market. This will be the hinge on which the market swings this week. It of course will be subject to interpretation and implementation by analyst and investors. The sector gained 5.9% for the week as banks

gained 13% on Friday to erase a 10% deficit from the first four days of the week. I still consider this sector a toxic waste dump. It should only be played by wearing the appropriate equipment to survive.
Energy was put on the back burner and still managed to gain 5.4%. The news in the other sectors gained the headlines while oil continued lower. Closing the week at $40.17, crude is trading lower on each piece of economic data which concludes no improvement on the short term horizon. The supply/demand issue remains the driving factor and any piece of data showing weak demand potential sends prices lower. It is important to note last week crude moved lower and energy stocks move higher. One key note to make in the sector is natural gas. (NYSE:UNG), United States Natural Gas ETF broke above resistance at $19.10 and closed above the 20 day moving average gaining 9.6% for the week. The fund is on my watch list this week for a continuation of the move higher.
This will be an important week for the broad markets and the sectors covered above. Leadership remains the area of concern from my view. With healthcare and technology building momentum it could result in a solid move higher. The key will be to stabilize the financial sector. The Treasury announcement on Monday will be the deciding factor and could stabilize the sector. If the stimulus package is passed look for additional momentum regardless of what everyone thinks short term. As they say, the proof is in the pudding to the overall effectiveness. Take what the market gives, keep your stops firmly in place and remember we are still in long term downtrend. Any movement to the upside has a long way to go to break the trend, therefore manage the risk.

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