Wednesday, June 7, 2017

Healthcare Stocks Continue to Be a Good Bet

Whether you look sector performance over the last week, month or year, healthcare is near the top. The sector has provided some of the biggest returns in recent months, and even years, and continues to perform well even while the S&P 500 is just marginally higher on the year. Here are four stocks in the healthcare sector that have already put up big numbers, and could still go higher, if they breakout to the upside.
Anacor Pharmaceuticals, Inc. (ANAC) is up 362% year to date (YTD). Following a more than $60 surge in mid-July the stock is consolidating as August begins. The high and low of the consolidation are $156.93 and $140.55, with a push above the high suggesting another rally. The July 28 high of $153.30 can also be used as an entry point. The rally from July 13 to the July 21 high, added to the low of the consolidation, provides an approximate target of $180. A drop below $140.55 isn't a short sale signal (due to the strong uptrend), but it can be used as a sell signal because it indicates a deeper pullback. There is little support until $113 and then $85, so a deeper pullback could be significant.
Consolidation in Uptrend on ANAC Daily Chart
Radius Health, Inc. (RDUS) is up 101% YTD and just broke out of a pennant formation. A pennant is small triangle which forms after a strong price move. In mid-June the price accelerated higher from the $47 region to a high of $84.64 on July 15. The pullback that followed reached $70.27, but found support at $72 just days later. When the price broke above $75 on July 30 it penetrated the descending trendline of the pullback, signaling a likely move higher. Adding the $36 rally (approximate) since mid-June to the low of pennant formation gives a price target of $106. If the price falls back below $70.27 a deeper pullback is likely underway. Potential support is at $63, $55 and $51.75.
Pennant pattern on RDUS Daily Chart
ACADIA Pharmaceuticals Inc. (ACAD) is up more than 53% YTD. The price rallied from a March low of $29.45 to a July 15 high of $51.99, and is moving in a tight channel lower since. A tight channel like this, following a sharp rally, is called a flag formation. If the price breaks above $49.50 it breaks out of the flag and points to a further rally. Between July 9 and July 15 the price moved approximately $11 higher. Add this amount to the low of flag (currently $47.01) to get an approximate target of $58. The price could continue to move lower within this tight channel, which would drop the entry point and profit target over time. If the selling accelerates it nullifies the flag pattern, since the price much stay within the channel in order for it to be considered a flag.
Flag pattern on ACAD Daily Chart
INSYS Therapeutics, Inc. (INSY) in up 113% in 2015, and after a brief pullback on July 27 is already looking to break higher. The price reached a 52-week high on July 23 at $44.98, pulled back to $38.85 on July 27, then broke above the high again on July 31 setting an intraday high of $45.90. The stock closed the day at $44.92, below the former high, but momentum still favors the bulls. A continued push above $45, and then $45.90, gives a price target of $50 to $51. The target is the top of a trend channel in place since May. A drop below $42 warns of a deeper correction, while a drop below $39 is a warning the uptrend could be in trouble.
INSY Daily Chart Uptrend

The Bottom Line

These healthcare stocks have all performed and still have upside potential. Every trend does eventually end, but trend traders buy into trends until they reverse. These stocks haven't reversed yet, but a move below support indicates they could. Stocks with such big gains are volatile and highly speculative, which means large reversals can occur in very short periods of time. Using a stop loss is encouraged, but losses can still be larger than expected if the price gaps through the stop loss order. These stocks still offer upside potential, but not without risk.

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