Chart of the Day – Extended Defensives, $XLV, $XLP, $XLU

Share Button

It’s the 3 generals of this market – Health care, Staples, and Utilities.  The glamorous, exciting sectors of the new economy.  They are bid up day after day, and are leading the broader indices higher as well.  Even on a down day for the broader market like today, all 3 sector ETFs are trading around unchanged.

The slope of their ascent has changed dramatically, though, in 2013.  It is getting to the point where the word “unsustainable” comes to mind.  Here is the XLV weekly over the past 3 years:

3 year weekly chart of XLV, Courtesy of Bloomberg

3 year weekly chart of XLV, Courtesy of Bloomberg

Health care is by far the most extended ETF among the defensives, which is not surprising since it’s the best performing sector in the U.S. this year.  But the slope of that ascent is getting unhealthy, especially when we consider that the ETF has not really had a down week in 2013 (a 2 cent selloff in February notwithstanding).

Staples is a very similar chart overall, though it has not been quite as strong as health care:

XLP 3 year weekly chart, Courtesy of Bloomberg

XLP 3 year weekly chart, Courtesy of Bloomberg

Utilities was weaker than both health care and staples in prior years, but the 2013 ascent is almost identical:

3 year weekly chart of XLU, Courtesy of Bloomberg

3 year weekly chart of XLU, Courtesy of Bloomberg

XLU has gained almost the same in percentage terms in 2013 as it did in that 2.5 year period.

Putting the charts aside, I do actually think health care is one of the best sectors to own in this market from a fundamental valuation standpoint.  But these moves are becoming unhealthy, so any reasonable pullback would signal weakness for the broader market as well.  Look for these leaders to turn for any pullback to last more than a couple days.