As the S&P 500 approaches it's former highs, the Nasdaq 100 has moved above former highs and is exhibiting a strong uptrend. Healthcare, propelled by the biotechnology industry, is one of the leading sectors in this overall uptrend, and has been for more than a year. These stocks continue show strength and have recently seen another surge to the upside. Price action and a couple indicators are looked at come up with scenarios of what's next for these four stocks on a tear.
Jazz Pharmaceuticals (Nasdaq:JAZZ) has tripled in price over the last year, and accelerated to the upside on February 18, jumping 7.38%. Price shows no signs of reversing yet, although indicators are flashing caution. RSI and MACD are both showing divergence; this does not mean a reversal is immanent though. The MCD is still making higher highs and is getting pinched between the two trend lines, which means it could break higher as well. Price drops to the trendline area still present buying opportunities, and it takes a drop below $140 to warn that price may be entering a deeper correction or reversal. Profit targets between $10 and $15 above a former high have worked well for swing trades over the last several months.
Illumina (Nasdaq:ILMN) is strong on all accounts--the price is moving strongly and the indicators are also near highs. As the trend has accelerated in 2014, short-term traders may be looking for an exit if the price drops below the short-term trendline at $160. If that occurs a deeper pullback is likely. The longer-term trend is still in effect though. $135 to $125 is an area of potential support, providing a buying area for medium-term traders. When the price makes a new high it has typically moved at least $5 beyond it (before pulling back again); this may aid in picking a target for futures trades. If the short-term trendline holds look for more of the quick pullbacks and snaps higher, similar to what's occurred over the last two months.
Valeant Pharmaceuticals (NYSE:VRX) recently made new highs, after breaking out of a small consolidation. $140--the high of the consolidation should provide support and a buying region on pullbacks. Upside target is $157.75 for the current wave. Longer-term targets can be moved up as long as the price is making higher highs and higher lows. A drop below $130 would signal a larger correction or reversal is underway. RSI and MACD are both showing a divergence; looking at the price we can see the current price wave higher is not as strong the strong price surge seen in early January. This is what causes the divergence and doesn't indicate the trend is over, just that is has slowed compared to the prior wave.
Biogen Idec (Nasdaq:BIIB) broke out of a meandering price channel in late 2013 and has been chopping it's way higher since. $20 pullbacks are quite common since the start of the year, followed by $30 to $40 moves higher. These pullbacks provide buying opportunities, and look like they could align with the trendline currently near $310. The recent price waves can be used establish a target should an entry develop; that target is likely to be in the $350 region. RSI and MACD are once again diverging with the price, making lower highs. This again shows the price is action is not as strong as it was back in late November when there saw a big gap higher, but the uptrend is still effect. It remains in effect until the price breaks below a former low. Currently that is $392.53.
The Bottom Line
These stocks are all showing strong price action with uptrends well underway. Price is what ultimately matters--as long as the price is creating higher swing highs and higher swing lows, the uptrend is in tact. Indicators can forewarn of potential reversals, yet the price would need to make a lower high or lower low to validate the signal. Divergence can occur simply because a current price run (wave) is not as strong as a prior run. In strong stocks this can often occur and doesn't necessarily mean an imminent reversal. That said, when there is a very strong run to the upside, at some point there will be profit taking which will result in a decline. Risk and position size should always be tailored to your personal risk tolerance and situation.
Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.