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How to Profit From The Upside Or Downside

XLV appears to be in a bearish consolidation pattern between $21.60 and $27.50. The 38% Fibonacci retracement level, from the October 2007 high to the March 2008 lows, also comes in around the top of the pattern at $27.84.

That makes the $28 area the “line in the sand.”

Over the next few weeks, XLV could test either side of the $28 area, assuming the overall market remains reasonably positive. But if that occurs on lower than normal volume, it would be a low risk area to short the stock, or buy put options.

However, if the health insurance lobby can get the concessions it wants, or if a reform bill fails, healthcare stocks will probably rally sharply.

The 50% retracement level (not shown) comes in at $29.76 and with the $30 area providing solid support from January 2008 to September 2008, a couple of weekly closes above $30 should be bullish for XLV over the intermediate-term.

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