Healthcare companies have seen a surge in investor interest over the past year for obvious reasons. With 2021 off to a strong start, it’s clear that healthcare businesses and related assets are likely to remain front and center for the months to come. In this article, we will look at several charts from across the industry and attempt to determine how active traders will position themselves to take advantage of a potential upside move.
Key points to remember
- Healthcare stocks were top of mind in 2020. Based on price action so far in 2021, it looks like this group will continue to stay on traders’ radar in 2021.
- Main health assets exchange traded funds (ETFs) such as the Health Care Select Sector SPDR Fund (XLV) will likely be of particular interest to traders over the coming weeks and months.
- Support and resistance the levels on the health stock charts will likely be used by traders over the coming weeks to determine the placement of buy and stop orders.
SPDR Healthcare Sector Fund (XLV)
Active traders who monitor key financial market sectors often look to exchange traded products such as the SPDR healthcare sector fund. Basically, XLV comprises 63 holdings and manages $25.95 billion. Looking at the chart below, you can see that the price has been trading within a defined range since April 2020. The strong support offered by the 200-day moving average was of particular interest to followers of technical analysis as it confirmed that the trend was in fact under the control of the bulls.
The start of 2021 again shows encouraging signs for the bulls as the price of the fund has broken several consecutive closes above the upside trend line. Technical traders will most likely look to place buy orders as close to new found support as possible. From a risk management perspective, stop loss orders will likely be placed below the 50 or 200 day moving average, depending on risk tolerance and outlook, to protect against a sudden drop.
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Johnson & Johnson (JNJ)
Since it is one of the XLV ETF’s top holdings, active traders will likely be paying close attention to Johnson & Johnson over the coming days and weeks. As the hype around Johnson & Johnson’s COVID-19 vaccine continues to build, we expect investor interest to follow.
Traders will want to note the horizontal trendline near $155, which previously acted as a strong resistance level. With closes above this trendline in 2021, traders will now expect the trendline’s role as resistance to shift into support. Buy orders are likely to be placed as close to the dotted trendline as possible, while stop-loss orders are likely to be placed below $146.31 to protect against a sudden change in sentiment or fundamentals.
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Point
Individual pharmaceutical equity investors face a difficult analytical task due to the high level of technical expertise required to adequately assess the viability of potential new products, as well as the continued prospects for existing FDA-approved drugs. . The most stable stocks are those of large and mega-caps with multiple products and large R&D budgets.
Abbot Laboratories (ABT)
Abbot Laboratories (ABT). Looking at the chart below, you can see that the price has not yet broken through the resistance of a well-defined price. ascending triangle.
Based on the principles of technical analysis, a break above $115 could send Abbot shares towards short-term target prices near $145, which is equal to the entry point plus the height of the pattern. . Stop-loss orders will most likely be placed below the ascending trendline or the 200-day moving average depending on risk tolerance and outlook.
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The essential
Healthcare stocks have risen to prominence in 2020, and it looks like this theme will continue into 2021. Based on the charts discussed above, active traders will likely be looking to buy near current levels due to the close to major support levels. Stop-loss orders will likely be set near long-term moving averages or other notable resistance levels if there is a sudden change in market sentiment.
At the time of writing, Casey Murphy did not hold any positions in any of the assets mentioned.