Have you ever watched a sector absolutely rip higher, week after week and started wondering when the music stops?
That’s exactly where I find myself with health care right now. The move has been gorgeous, textbook even, but the warning lights are flashing. And strangely enough, the clearest clue about what might come next isn’t coming from biotech earnings or drug pricing headlines. It’s coming from… gold miners.
Yeah, I know. Sounds crazy at first. But stick with me.
A Rally That Looks Too Good to Be True (Because It Might Be)
Let’s start with the obvious. The Health Care Select Sector SPDR Fund (XLV) has been on an absolute beast since its August low. We’re talking roughly 25% gains in less than four months. That puts it at the very top of the S&P 500 sector leaderboard over both one-month and three-month periods.
More importantly, the way it got here has been remarkably clean. No wild gaps, no sloppy distribution days, just steady digestion of gains inside tight ranges followed by convincing breakouts. In my fifteen years reading charts, I can count on one hand the number of moves this disciplined.
But perfection breeds complacency. And complacency is usually when the market reminds us who’s boss.
The Weekly Overbought Signal Nobody Wants to Talk About
Here’s the part that keeps me up at night. If this week closes where it’s trading right now, XLV will print its first weekly RSI above 70 since August 2024. That’s more than fifteen months ago.
Now flip through the weekly chart back to 2017. You’ll see this has only happened a handful of times while health care was in a long-term uptrend. And every single prior instance? The ETF eventually traded below the price it was at when that overbought reading first appeared.
“Overbought can stay overbought longer than most traders can stay solvent… but it never lasts forever.”
That’s not a death sentence for the trend. Far from it. It’s simply the market’s way of saying, “Hey, we need to let some air out of this balloon before we keep climbing.”
Enter GDX – The Unexpected Teacher
This is where things get fascinating. While everyone is busy cheering XLV’s flawless advance, I keep finding myself staring at the VanEck Gold Miners ETF (GDX). Not because I think gold miners and Eli Lilly have anything fundamental in common. They obviously don’t.
But from a price structure standpoint? The resemblance is uncanny.
Both spent most of spring drifting sideways in wide, sloppy ranges. Both found a bottom in the summer. Both staged explosive breakouts that turned parabolic into October-November. And both are now knocking on major psychological levels (GDX near 80, XLV near all-time highs).
The big difference? GDX already had its profit-taking moment. And the way it handled that correction is basically the cheat sheet I wish every XLV bull would study.
What a “Healthy” Pullback Actually Looks Like
When GDX topped in mid-October, the drop was sharp and scary. Down almost 20% in a matter of weeks. Headlines screamed about the gold trade being over. Yet something quiet and beautiful happened on the chart.
The selling stopped exactly where you’d hope it would:
- Right at the prior September breakout level (~68)
- Right at the 38.2% Fibonacci retracement of the entire 2025 rally
- Right on top of the rising 50-day moving average
Three different technical confluences lined up like planets. And buyers stepped in aggressively.
Since that low, GDX has:
- Printed a higher low
- Built a multi-week bull flag
- Broken out with expanding volume
- And is now testing the old highs with momentum diverging positively
In my experience, this is the gold standard (pun intended) for how a strong trend digests gains without breaking. The trend remained 100% intact. In fact, GDX is in better technical shape today near 80 than it was the first time it spiked there.
So What Should XLV Bulls Hope For?
If I’m right and health care is about to follow a similar script, here’s the ideal roadmap:
- A quick 8-12% pullback that looks terrifying on a daily chart but stays above the October breakout (~148-150 zone)
- Holding the 38.2% retracement of the August advance (roughly the same area)
- Forming a higher low and tight consolidation
- Then a high-volume breakout toward 175+ over the following quarters
That sequence would actually be incredibly bullish. It would shake out the weak hands, bring the weekly RSI back to neutral, and set the stage for the next leg toward new all-time highs with real conviction behind it.
The nightmare scenario, of course, is if XLV slices straight through those support zones and starts breaking lower highs. That would suggest something more sinister than simple profit-taking, perhaps rotation out of defensives altogether.
But given how methodical this advance has been, I’d put the odds heavily in favor of the constructive outcome, especially if we get that GDX-style washout.
Positioning and Patience
Personally, I’ve been trimming some health care exposure into strength the last couple weeks, not because I think the trend is over, but because I want dry powder for exactly that kind of dip.
There’s an old floor trader saying: “Never let a good trade turn into a bad investment.” When a sector goes from washed-out to overbought this fast, taking some off the table feels prudent.
At the same time, I’m not flipping bearish. If XLV can mirror even half of GDX’s resilience on a pullback, the next move higher could be substantial.
Sometimes the best trades aren’t about predicting the top or the bottom. They’re about recognizing when a chart is sending you a postcard from the future, and in this case, GDX just dropped one in the mailbox.
Health care bulls should hope the postman rings twice.
Disclosure: The author holds positions in various health care and precious metals ETFs but no individual stocks mentioned. All views expressed are purely technical and educational.
