The health care sector closed on Friday May 9, 2008 at $41.45.

The high over the last year was $50.62 on July 19, 2007 and the low was $34.43 reached on March 14, 2008. From the peak to the trough that represents a drop of –30.7% for the health care sector vs. the TSX which dropped –9.4% and the S&P 500, which dropped –17.1%. Since March 14th the TSX is up over 10% and the S&P is up about 8.8% while the health care sector is up over 20%. Is this a longer-term trend reversal with some sustainability?

The chart suggests that we could be seeing a shift in the trend from a negative downward channel to a positive upward channel. The current price crossed the 50-day moving average on March 18th with a significant spike in price and has managed to maintain it’s status above the 50-day moving average with a brief interlude below on April 15th. Since March we have seen the start of an upward channel forming represented by the lower trend line showing rising bottoms and the upper trend line showing rising tops.

Some of the Canadian Companies you may recognize in this sector are Biovail, Cardiome Pharma Care, CML Healthcare and MDS Inc. Cardiome is up about 55% and MDS Inc. is up 25% while CML Healthcare and Biovail are both down since March 14th.

Even though things look good from a technical standpoint, from a practical standpoint only a few companies have driven the recent rise in the health care sector. Given the nature of price movements in this sector, positive test results or approvals usually drive the price not the fundamentals of the stocks. The health care industry is very narrow in Canada so caution is warranted.