David Lin on $XLV (Nov 9, 2026)
XLV is extremely stretched—about three standard deviations vs the S&P 500 over 100 days and near a record—after a defensive rotation since June accelerated with rising earnings projections. The speaker is short since October, but the trade has gone against him and needs reassessment, as stretched assets can keep stretching.
Jump to any passage
You know, we saw a huge rotation into healthcare XLV. Correlations got you know, in healthcare just fell to real crazy lows that we haven't seen in 30 or 40 years. So, that what's what's healthcare started pulling trading away differently from how the rest of the broader market was trading, you could tell that the rotation had started and it followed in the financials after after healthcare.
But and healthcare also had they've been raising earnings expect earnings projections on top of that. So, you know, healthcare is typically a defensive sector. So, when you know, the the high beta stuff gets whacked you start seeing the the defensive sectors like healthcare start catching a bid.
That's exactly what happened. It's been happening since June and it accelerated.
I think it's actually a little over the top. XLV is now I believe three standard deviations relative to the S&P 500 over the last 100 days. So, you know, it looks attractive. You know, just as it stretches I mean, it can't get more stretched, but it's it's it's stretched and that's been the predominant sucker of capital for the past you know, three to four months is healthcare.
But to your point, the XLV is now near all-time high still. Is this an opportunity to maybe do with the reverse of that pair trade? Maybe start shorting what's been going up and start buying what's been coming down?
So, the answer is I've tried that and it's not hasn't worked out. Again, things that are stretched and get more stretched and actually I'm short XLV. I've been short since I believe uh uh October.
Um and um you know, that hasn't worked out. It's gone against me. So, you know, hopefully any day now, but um I that trade needs to be reassessed because again, what is stretched and get more stretched.
So, you know, just because something is, you know, stretched in the near term doesn't mean it can't it can't keep going.