AMEX:XLU has long been considered a safe sector for fixed income. Increasing cost of debt and regulatory restrictions on revenue with continued rising rates eventually pushed the largest growth opportunities in the sector out of favor and put downward pressure on the entire sector. Before the market came to appreciate this fundamental shift we can observe a diamond top formation.
Diamond tops are bearish and a break below them experiences an average 20% decline. We can also take potential ranges from the measured height of the pattern and from 50% of the height of the pattern.
We can see a diamond top formation with XLV. I'm uncertain of what catalysts could pressure the healthcare sector at this time or when we would potentially see them. However, understanding the potential market reaction let's us prepare to protect positions or to capitalize on lows for long term opportunities.