Despite the major domestic indicators having rebounded last week, we are still in a bear market with our Trend Tracking Indexes (TTIs) being stuck below the trend line, as I pointed out last Friday.
However, some sectors are bucking the trend and are breaking out to the upside. VHT is one example and a reader had this to say:
Can you please tell us your thoughts on Vanguard Health care ETF with the symbol VHT?The price has just moved above the 200 day MA?
Should we buy this? Also, does the slope of the 200 day MA line make a difference? Positive slope versus flat versus negative slope?
Thanks for your time.
Let’s take a look at a 1-year chart:
The price in fact broke above its long-term trend line. To be more specific, and to use my 39-week average, it has broken above it by +3.05% as of last Friday. The momentum figures are positive with YTD being the only one still in negative territory.
I have found that the slope of the trend line has over time no effect on the outcome of taking a position. If you’re into sectors, this one would constitute a buy; however, you need to protect yourself against a reversal via my recommended sell stop discipline along with only a small portfolio allocation of some 5% to 10%.
This is important since this sector can be volatile. Back in March, it dropped over 17% off its high before finding a bottom.
I currently have no positions in VHT.