This Out-of-Favor Sector Is Reaching the Value Zone By Lucas Downey, Contributing Editor, TradeSmith Daily You can hear the Wall Street cheerleaders everywhere you turn. Tech, large caps, and other hot trades of 2024 are all running full steam ahead into year-end. Sounds like the perfect setup, right? Not so fast… The reality is, plenty of stocks aren’t participating in this rally. Get this… On a two-month basis, the S&P 500 has gained a healthy 4%. However, when you review the S&P 500 sector performance over the same period, you’ll learn that 6 out of 11 sectors are negative. Health Care fared the worst, with a -8.57% return. Below is a snapshot of all S&P 500 sector returns from Oct. 13 through Dec. 13: 
This market has a bad case of halitosis… or what most folks would call “bad breadth.” And it reveals two split paths unfolding… Trading 101 taught us to never catch a falling knife. However, there are setups when groups and sectors reach extreme pain points… and turn into a solid buying opportunity. At least, they seem that way. Spotting these setups is half the battle. You also need cutting-edge data to spotlight these situations and see what potential they hold. Fortunately for us, TradeSmith has a war chest of evidence-rich analysis. And right now, our data says it’s a great time to make a healthy wager on the Health Care sector. Let me show you the proof… Health Care Stocks Are the Worst-Performing Sector in 2024 If your portfolio is chock-full of health care stocks, odds are it looks sick. As of this writing, the group has lagged the S&P 500 badly, with just a 3.2% gain compared to the S&P 500’s 26.7% rise. One overhang on Big Pharma in particular surrounds Robert F. Kennedy Jr.’s nomination as the top health official. Anytime there are potential changes around the corner, fast money traders will sell first and ask questions later. One look at the Health Care Select SPDR Fund (XLV) reveals just how drastic the downdraft has been lately. This basket, including Big Pharma, health insurers, and medical instruments companies has fallen over 10% since the recent peak in late August: 
But what’s hidden in plain sight is the swiftness and severity of the pullback. And this is where being armed with data comes in handy. Here’s the signal… Over the past two months (42 trading days), the XLV ETF has fallen 8.8%. Turns out that since 1998, we found 271 instances where the health care basket fell 8.8% or more in the same time period. That’s an average of just over 10 times a year – uncommon enough to both matter and to have a load of evidence behind it. When the XLV ETF drops 8.8% or more in two months: - Two weeks later, the sector pops 2.8%
- One month later, the fund rises 5%
- Two months after, XLV jumps 7.1%
Have a look: 
Even more exciting is the high win rate attached to the signal. The two-month return profile sports an awe-inspiring 86%. Will the trade be a winner? Only time will tell. But by using an evidence-based approach and stacking the odds in your favor, your portfolio will eventually come out ahead. And there’s an even bigger opportunity ahead… XLV is a basket of stocks. That means there are leading names that will bounce violently once this out-of-favor group turns around. TradeSmith’s software can help you ride that wave. A great example of an all-star health care name bucking the trend is robotics player Intuitive Surgical (ISRG). It dominates the robotic surgery market. The stock has been climbing nonstop all year: 
That’s a powerful uptrend! ISRG is 3.7% of the XLV basket… and clearly an outlier. It’s also a holding in our TradeSmith Investment Report newsletter… and has been since it traded at $392.43 back in March. How did we spot this outlier health care name, up almost 65% this year while the sector is flat? It’s all about the Quantum Score. This is our quantitative measure of two key stock Power Factors – fundamental business growth and impressive price momentum. It helps you instantly size up a company’s technical and fundamental picture. Ratings of 70 and above make the buy zone. And Intuitive Surgical sports a 77.6 rating… a very healthy reading: 
Keep in mind, ISRG is now well above our recommended buy-up-to price. But if you’re looking to screen for other top-tier health care names on sale, give Quantum Edge Pro a try. Subscribers get unlimited access to the Quantum Edge tool – a powerful piece of software to have in your corner no matter what kind of market we’re in. 2025 is around the corner. Here’s to your wealth… and health! Regards, Lucas Downey
Contributing Editor, TradeSmith Daily P.S. As excited as we are to buy top-tier stocks for 2025, there’s also the risk of “flash crashes” and other moments of pure chaos in the market. With that in mind, my friend and colleague Luke Lango has this advice: “Embrace the boom” while you also “beware the bust.” But how do we do that, exactly? To make the right moves – at the right time – Luke and his team have created a new type of stock picking tool they’ve dubbed “Auspex.” Like our tools at TradeSmith, Luke’s Auspex model analyzes thousands of stocks to find those with a strong fundamental, technical, and sentimental basis. Not many screening systems do all three at once… and narrow the field to around 10 per month. Most importantly, Auspex lets you know if any stocks fall OUT of the top 10 each month – then gets you into the next fast-moving stocks instead. It’s a five-minute process – and in return, those following the Auspex model portfolio have beaten the market’s returns in all five months since its live implementation in July. In backtesting, the model was phenomenal long-term as well… outperforming the S&P 500 10-to-1 in a five-year and 20-year period! But the window to access this innovative tool ends soon. So, if you’re hoping to lock in stable profits despite an ever-changing market environment – click here to watch Luke’s recent broadcast about the Auspex strategy while it’s still available. | 
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