To The Moon

Stocks have rebounded sharply in the last weeks in 2023 as investors expect a new round of Federal Reserve rate cuts. Investors kicked off 2024 by holding onto expectations for up to seven quarter-point rate cuts from the Federal Reserve in 2024, which is more than twice as much as what Fed policymakers have suggested.

I would think investors would have these expectations adjusted when we get the result of the minutes from the Fed's 12-13 Dec meeting on 03 Jan at 2pm Eastern Time. So the big question is how to profit off it. Investors can outperform during the 12 months after the first rate cut if the Fed take steps to extend the length of the 10-year bull market.

In this article, I would like to share on one sector plays, which is the health care. Looking at particular the health care ETF, $iShares Global Healthcare ETF(IXJ)$

What it Means for Investors

Investor anticipation of lower rates has been fueled by signs of a slowing economy, including weakness in manufacturing and jobs data last week, with futures markets now pricing in the 90% likelihood of a Fed rate cut before the year is out.

On 02 Jan (Tuesday), fed funds futures traders factored in a 90.3% likelihood of five to seven quarter-point cuts by year-end, but pulled back slightly on expectations for the first cut to arrive by March.

Technical Indicator - Simple Moving Average (SMA) - 200-day MA period

As mentioned in above section, I am expecting IXJ to outperform in 12 months from the first rate cut, which would mean, we need to look at 200-day MA period.

As we can see that IXJ is currently trading above the 200-day MA period, we might need to wait for a short pullback before we enter, but we can start to monitor now.

Technical Indicator - Average Directional Index (ADX)

If I were to look back at how IXJ has performed during the rate cut happen in 2019, the ADX actually went up from below 20 before 2019 to above 30, and we can see that +DI is above -DI suggest a bullish upside.

Currently, IXJ ADX is below 20 and +DI is above -DI, which suggest that there might be potential of a bullish upside. But is it a good time to start buying?

Technical Indicator - Relative Strength Index (RSI)

RSI is showing to be entering overbought region, this could indicate that traders and investors are thinking of LONG position and buying, but is it a good time for us to buy now?

I personally think that I would be monitoring and start buying when close to March 2024.

At Least 3 Rate Cuts In 2024 Expected To Start In March

From the Fed's last gathering in December, market has felt that there is a need to escalate its rate-cut expectations further and increase the number to seven from five. But when will be the onset?

June 2024 to begin first rate cut seems reasonable, but there is risk to start earlier, if start early, would mean more cuts.

Summary

Based on what I have gathered, I would feel that in order to prepare myself to play the health care sector if rate cuts happen, I would think the time to really push for a higher trade would be somewhere near March.

This would give us some time to monitor the Fed’s meeting and comment, in case of still elevated inflation. If the rate cuts urgency is removed, then we might see fewer and lesser rate cuts.

Appreciate if you could share your thoughts in the comment section whether you think IXJ would be a good health care sector play if Fed rate cut happen?

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.