This gold miner ETF can give a blueprint on whether the health care rally can go on. Here’s why
It’s no secret that the health care sector has been on fire recently. The XLV ETF is now up approximately 25% from its August low and is the leading sector within the S & P 500 over both the one-month and three-month periods. The percent move alone is impressive, but from our perspective, it’s far more important to examine how it’s gotten here — and from a chart standpoint, it has been textbook. We first highlighted this back in May , noting that XLV had just underperformed the S & P 500 on a one-month basis by the most in its history. That made the setup extremely rare and suggested the sector was potentially washed out. The next step was to look for evidence of buying and then see if that could evolve into a bullish pattern. It took longer than expected, but by late September XLV had formed a clear bottoming formation and soon after staged an exceptionally strong breakout. As we often say, follow-through is the most important part of any breakout — and XLV has delivered. The ETF has treated each breakout and subsequent advance constructively, digesting gains within well-defined consolidation boxes before breaking out again. In short, this has been as clean and compelling a run as we could ask for. The question now is how much longer a move like this can continue. Turning to the weekly chart, we can see just how strong this move has been. XLV could finish with its first weekly overbought reading since August 2024. Looking back to 2017, this only has happened a handful of times. And importantly, XLV has been in a steady uptrend for eight years (until the 2024-25 pull back), so seeing this type of strength again shouldn’t really be a surprise — it simply has resumed an uptrend that had taken a long pause. What is notable, however, is what tends to happen right after XLV has hit a weekly overbought reading for the first time in a while. As indicated by the red lines, each prior instance eventually saw XLV undercut the price level where it was trading at the moment it first entered overbought territory. In other words, even if the ETF continued higher from here, historical tendencies suggest there may be lower prices ahead at some point in the near term. This makes sense — overbought conditions, whether on a daily or weekly timeframe, can only persist for so long. It’s not a matter of if a pullback comes, but when, and more importantly, how the ETF behaves during that pullback. The key question is whether XLV can digest that weakness constructively enough to prevent the pullback from becoming materially damaging to the broader trend. One recent example worth examining is GDX, the gold miners ETF — which, of course, has no correlation or connection to XLV or healthcare. However, the charts share similar characteristics. Both moved sideways through the spring before beginning to rally in the summer. GDX accelerated earlier, quickly turning parabolic before topping in October. XLV’s path off the August low was initially more jagged, but over the last few weeks it, too, has gone near-parabolic, as well. As we all know, GDX experienced intense profit-taking right that last spike. But importantly, that selling did not break the uptrend. GDX has since recovered and is now working its way back toward its former highs. To better understand the most constructive path forward for XLV, it’s useful to study GDX more closely. While the two ETFs are unrelated fundamentally, their price structures and behavior have been strikingly similar. Understanding how GDX handled its pullback — and what allowed its trend to remain intact — can provide valuable perspective on what XLV may face next. When GDX began to pull back, the hope was that it would find support before any deep downside pressure developed— and that’s exactly what happened. The ETF held near the 68 level, which marked the September low and also aligned with the 38.2% Fibonacci retracement of the entire 2025 advance (not shown). That confluence of support allowed GDX to stabilize and rally. The steps in re-establishing an uptrend typically look like this: Hold or establish support Produce an upside follow-through move Form a higher low Build a bullish pattern, and Break out, ultimately moving toward an upside target. GDX has been progressing cleanly along this pathway. It is in technically better shape now near the 80 level than it was when it first spiked to that area in early October. It simply needed time to digest gains and test whether real buyers and sustainable demand were present. At this point, we have that answer — and it has set the stage for further upside. As indicated on the chart, this pattern projects an upside target near 102. XLV, by contrast, has yet to pull back, but it will eventually face profit-taking, too. And following the GDX blueprint would obviously be the best-case scenario — especially as XLV is knocking on the door of new all-time highs. — Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. 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