It appears that last week wasn’t a fluke.
For the second week running, health care was the best-performing sector among the 11 major industrial sectors that make up the S&P 500 Index. And technology – which has led the market higher for most of the year – was the worst laggard.
The State Street Health Care Select Sector ETF (XLV) was up a solid 5.2% following its blistering 8% run the previous week. And the State Street Technology Select Sector ETF (XLK) added to its losses, dropping another 2.2%.
We also had a bit of a surprise. Despite technology being the largest sector by a country mile, the S&P 500 managed to post a respectable 1.4% return, even with XLK acting as dead weight.
I’ve said all year that for the S&P 500 to sustain a rally, it’s crucial that technology stocks participate. Tech and tech-adjacent sectors now make up close to half the index. That means the S&P 500 is swimming upstream with tech stocks sagging.
But as we saw with last week’s action, exceptionally strong performance from non-tech sectors can still push the index higher, at least in the short term.
So, what’s next?
Can health care extend its leadership to a third week?
Are there any values to be found in the tech sell-off?
Let’s see what my system has to say.
Key Insights:
- Large-cap tech stocks continued to struggle.
- Health care had another market-leading week.
- The S&P 500 overcame tech weakness to post a gain.
Another Solid Performance for Health Care
Health care had another fantastic week. So, I ran my customary screen of the biggest movers in the sector that were still within 10% of their 52-week highs last week. The idea is to look for solid, market-leading stocks that are getting stronger.
Here’s what I came up with:
The standout last week was mRNA vaccine pioneer Moderna (MRNA), finishing the week 33.5% higher.
Most investors will recognize Moderna from its role in creating COVID-19 vaccines. But once the pandemic had run its course, the company slipped into obscurity.
That might be changing.
The COVID-19 vaccine wasn’t a one-off experiment. It was proof of concept for mRNA technology, which Moderna is now aggressively expanding. The stock soared last week, largely due to Moderna’s introduction of its CAR-T therapy for autoimmune diseases such as lupus.
Unlike conventional CAR-T therapies, which require removing and engineering a patient’s T cells outside the body, Moderna aims to reprogram immune cells directly inside the body, potentially dramatically lowering costs and simplifying treatment.
So, is Moderna a buy?
The stock currently rates as “Bearish” on my Green Zone Power Ratings system.
But I’ll be straight with you.
While my system does an excellent job of digesting a stock’s complex fundamentals and technicals and distilling them down into an actionable rating, it’s not a crystal ball. It doesn’t have the ability to look into the future and know with certainty whether an experimental medical treatment will work.
If the company’s mRNA therapies really do revolutionize medicine, the stock is clearly a buy. But my system indicates that the stock remains highly speculative. So, we should be cautious here. Any position in a stock like this should be small.
This is not to say there aren’t plenty of other opportunities in health care. DaVita (DVA), Elevance Health (ELV), Labcorp Holdings (LH) and Eli Lilly (LLY) all rate as “Bullish,” and Incyte Corp (INCY) rates as “Strong Bullish.”
My research has shown that “Bullish” rated stocks outperform the market by double on average, and “Strong Bullish” rated stocks by triple.
Value in the Rubble?
What about tech?
The sector is too big and too important to ignore. So, after last week’s thrashing, might there be some value in the wreckage?
I ran my customary screen of the sector’s biggest losers for the week that are still trading within 10% of their 52-week lows. The idea is to find beaten-down gems that look poised to recover.
After the massive rally this year, finding beaten-down tech stocks within 10% of their 52-week low was impossible, so I loosened that criteria. Here’s what I came up with:
We see several holdovers from last Monday’s list. QUALCOMM (QCOM), Analog Devices (ADI), NXP Semiconductors (NXPI), Oracle (ORCL) and Broadcom (AVGO) all counted among the biggest losers for the second week running.
And all but Oracle still remain far above their 52-week lows, showing just how extended many of these names were.
The pendulum has swung to the point that several of these stocks have gone from being wildly overbought to being oversold. But my Green Zone Power Rating system is telling me it’s still best to tread carefully here. Of the nine tech stocks that took the heaviest losses last week, not a single one rates as “Bullish.”
This is not to say that I’m avoiding tech altogether.
I’m simply approaching it with discipline and letting my system – not emotions – drive every decision. .
I remain long and strong tech stocks in my Infinite Momentum Tech Titans portfolio. But I also know exactly when I will sell each and every position. There is no handwringing… no agonizing decision about whether to hold a stock and hope it recovers or sell it and move on.
Every position is selected using my proprietary ranking model, which scores every stock in the Nasdaq 100. When a stock no longer ranks among the top 10, it’s sold and replaced.
There’s no second-guessing, no emotional attachment and no hoping a losing position turns around. Just a repeatable process that keeps the portfolio focused on the market’s strongest momentum leaders.
That’s why I can sleep well at night… even during a tech meltdown.
To good profits,
Adam O’Dell
Editor, What My System Says Today
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