Health-Care Stocks Poised for More Gains

Sept. 11, 2017 2:38 p.m. ET

Health-care stocks no longer dominate the spotlight given to them by the clashes over the Affordable Care Act, but that hardly means investors should ignore them. Last week, for the third time this year alone, the Health Care Select Sector SPDR exchange-traded fund scored a technical breakout to the upside (see Chart 1).

Buying these breakouts worked well earlier this year, but this time the ETF (ticker: XLV) also confirmed a longer-term move that puts the wind squarely at its back for further gains.

In technical lingo, the August dip “tested” the June breakout. Buyers rushed in to scoop up shares at the “old” breakout price, demand swelled, and the market powered higher on real buying interest. This is important because it tells us that it was not just momentum and the excitement a rising trend generates that created the latest breakout.

If we look under the surface, we see that the advance is fairly broad, with many different health-care subgroups sporting good charts—not just the biotechnology group, which I looked at last week.

The medical-supplies subgroup rocketed higher over the past few days to end its summer correction. For example,


Baxter International



BAX 1.4380530973451326%



Baxter International Inc.


U.S.: NYSE


USD64.19


0.91
1.4380530973451326%



/Date(1505159922686-0500)/


Volume (Delayed 15m)
:
1286558




P/E Ratio
38.985419198055894

Market Cap
34479434422.7649


Dividend Yield
0.9973507869721053%

Rev. per Employee
214229









More quote details and news »


(BAX), which sells a wide variety of renal and hospital products, scored a breakout to fresh all-time highs (see Chart 2). There was no particular news that day other than elevated trading volume and a continued inflow of money to the stock, which has been relentless all year.


Henry Schein



HSIC 1.2661115546937378%



Henry Schein Inc.


U.S.: Nasdaq


USD177.56


2.22
1.2661115546937378%



/Date(1505159920713-0500)/


Volume (Delayed 15m)
:
266521




P/E Ratio
26.012445095168374

Market Cap
13861678707.6807


Dividend Yield
N/A

Rev. per Employee
569928









More quote details and news »


(HSIC), a provider of health-care products and services to office-based dental, animal-health, and medical practitioners, started its pullback in July. Despite releasing a better-than-expected second-quarter earnings and revenues report in early August, it fell sharply on big volume (see Chart 3). That seemed to be a technical washout event that scared weak hands out of the stock, which allowed it to stabilize at chart support and its 200-day moving average.

So far, September has been fairly good to the stock, which is moving above its major moving averages with an eye to getting back to its recent highs.

From the medical-equipment group, ResMed (RMD) also moved through resistance to new all-time highs (see Chart 4). This maker of diagnostic and treatment devices and cloud-based software applications fell sharply Aug. 2, even though it beat its fiscal fourth-quarter earnings numbers. Despite a number of analyst downgrades, the stock shrugged off the news and started to climb back, eventually erasing its entire slide.

This is bullish, and the trend, while arguably overextended in the short term, remains to the upside.

Finally, big pharmaceutical stocks look ready to join the rally after a long period of unimpressive performance. While there are a few, such as Abbot Laboratories (ABT), that have short-term breakouts similar to those seen in the medical stocks, the story here seems to be more of a longer-term pattern development and upside breakout.

A good example is


Bristol-Myers Squibb

(BMY), which recently moved through the top of a one-year range and a long-term chart resistance level (see Chart 5). While it has gained about 5% since the actual breakout move, the long-term chart shows plenty of upside room over the next few months.

The biggest stocks in the bunch by market capitalization—


Johnson & Johnson



JNJ 1.7713391357459154%



Johnson & Johnson


U.S.: NYSE


USD133.3001


2.3201
1.7713391357459154%



/Date(1505159931142-0500)/


Volume (Delayed 15m)
:
3179925




P/E Ratio
22.513513513513512

Market Cap
351550308532.715


Dividend Yield
2.5210084033613445%

Rev. per Employee
574335









More quote details and news »


(JNJ),


Pfizer



PFE 0.5425219941348973%



Pfizer Inc.


U.S.: NYSE


USD34.285


0.185
0.5425219941348973%



/Date(1505159935048-0500)/


Volume (Delayed 15m)
:
9145475




P/E Ratio
25.106227106227106

Market Cap
203503496069.573


Dividend Yield
3.7350452290633207%

Rev. per Employee
542456









More quote details and news »


(PFE), and Merck (MRK)—all seem to be on the cusp of technical breakouts of their own. They are not quite there, although Merck made a big splash Monday with a jump higher following findings from a Phase 3 study of its cancer treatment Keytruda.

With participation from its many subgroups, the health-care sector is now poised to continue higher. Making it an even more attractive group to investigate is that it is traditionally a defensive area of the market. That gives investors a bit more peace of mind as we enter the time of year where the market tends to struggle and often sees some of its larger corrections.

Getting Technical Mailbag: Send your questions on technical analysis to us at online.editors@barrons.com. We’ll cover as many as we can, but please remember that we cannot give investment advice.

Michael Kahn, a longtime columnist for Barrons.com, comments on technical analysis at www.twitter.com/mnkahn. A former Chief Technical Analyst for BridgeNews and former director for the Market Technicians Association, Kahn has written three books about technical analysis.

Comments? E-mail us at online.editors@barrons.com

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