It’s no secret that the healthcare sector has been under fire lately. The XLV ETF is currently up about 25% from its August lows and is a major sector of the S&P 500 for both one-month and three-month periods. The percentage movement alone is impressive, but from our perspective it’s much more important to examine how it got here, and from a chart perspective, this is textbook stuff. We first highlighted this in May, noting that XLV had just underperformed the S&P 500 on a one-month basis by the largest amount in history. This suggested that this setup would be very rare and the sector could potentially be washed out. The next step was to look for evidence of buying and see if it could develop into a bullish pattern. It took longer than expected, but by late September, XLV had formed a clear bottoming formation, followed by a very strong breakout soon after. As we often say, follow-through is the most important part of a breakout, and XLV delivered just that. ETFs have handled each breakout and subsequent rally constructively, digesting profits within well-defined consolidation boxes before breaking out again. In short, this was as clean and convincing an execution as we could hope for. The question is how long these movements will continue. A look at the weekly chart shows how powerful this move is. XLV could end with an overbought weekly reading for the first time since August 2024. Looking back at 2017, this only happened a few times. And importantly, XLV was in a steady uptrend for eight years (until it pulled back in 2024-2025), so it’s not all that surprising to see this kind of strength again – it’s simply a resumption of an uptrend after a long hiatus. But what’s worth noting is what tends to happen right after XLV hits weekly overbought numbers for the first time in a while. As shown by the red line, each previous instance saw XLV eventually fall below the price level it was trading at the moment it first entered overbought territory. In other words, even if the ETF continues to rise from here, past trends suggest the price could fall at some point in the near future. This is not surprising. Overbought conditions do not last long, whether on a daily or weekly basis. The question is not if a pullback will occur, but when, and more importantly, how the ETF will perform during that pullback. The key question is whether XLV can constructively digest its weaknesses and prevent the pullback from doing significant damage to the broader trend. One recent example worth considering is GDX, the gold miners ETF. Of course, it has no correlation or relationship with XLV or healthcare. However, the chart has similar characteristics. Both levels leveled off through the spring and began to rise again in the summer. GDX accelerated earlier and quickly turned parabolic, hitting its all-time high in October. XLV’s trajectory from the August lows was initially more jagged, but in recent weeks it has become nearly parabolic as well. As everyone knows, GDX experienced intense profit-taking during the last rally. But importantly, the selloff did not break the uptrend. GDX has since recovered and is now heading back toward its previous highs. To better understand the most constructive path towards XLV, it is helpful to study GDX more closely. Although the two ETFs are essentially unrelated, their price structures and behavior are surprisingly similar. Understanding how GDX dealt with its backlash and why it was able to maintain its trend can provide valuable perspective on what XLV may face next. When GDX started to pull back, I was hopeful that it would find support before significant downside pressure occurred, and that’s exactly what happened. The ETF held near the 68 level, which marked the September low and also coincided with the 38.2% Fibonacci retracement across 2025 forwards (not shown). This confluence of support allowed GDX to stabilize and recover. The steps to reestablish an uptrend typically look like this: Establish a hold or support Create an upward follow-through move Form a higher low Build a bullish pattern, breakout, and ultimately move toward an upward target. GDX has made good progress along this path. It is now technically in better shape around the 80 level than when it first spiked into that area in early October. It just needed time to digest the profits and test whether there was real buyers and sustainable demand. We now have the answer. And it is poised for further rise. As shown on the chart, this pattern predicts an upside target near 102. In contrast, XLV has not exited yet, but will eventually also face profit taking. And it’s clear that following GDX’s blueprint is the best-case scenario, especially now that XLV is knocking on the door of new all-time highs. — Frank Cappelleri Founder: https://cappthesis.com Disclosure: None. All opinions expressed by CNBC Pro contributors are solely their own and do not reflect the opinions of CNBC, NBC UNIVERSAL, its parent or affiliate companies, and may have been previously disseminated on television, radio, the Internet, or another medium. The above is subject to our Terms of Use and Privacy Policy. This content is provided for informational purposes only and does not constitute financial, investment, tax, or legal advice or a recommendation to purchase any securities or other financial assets. The content is general in nature and does not reflect your unique personal circumstances. The above may not be appropriate for your particular situation. 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