Consumer Staples and Healthcare Stocks to Watch

By Cory Mitchell | November 04, 2013 AAA

The S&P 500 SPDR (ARCA:SPY) broke above a rising wedge formation last week, but encountered resistance at $177.51. Resistance based on a Fibonacci Extension is at $178.50, indicating that this region may be difficult for the market to get through in the short-term. Therefore, while the overall trend is up, there is a sideways or downward bias this week as a correction is likely after a strong run higher over the last two weeks. Last week Consumer Staples and Healthcare were the strongest sectors. Below is the technical outlook for these sectors, and a stock to watch in each of them. On the other hand, if it's a strong week for equities, the Consumer Discretionary SPDR (ARCA:XLY) and Industrials SPDR (ARCA:XLI) are likely to outperform.

Consumer Staples Select Sector SPDR (ARCA:XLP) Consumer Staples is a more conservative sector, so during pullbacks the sector should outperform. After failing to make upward progress since May, the end of October witnessed a sharp move higher. Short-term support is now at $42 to $41.75, representing a buying region with a tight stop. If the price falls much below $41.50 the ETF will be back in its old range and a move down toward $40 is likely. The upside target is conservative, at $43 to $43.50, as this has not been a strong sector overall this year.

Walgreen (NYSE:WA) continues to trend strongly. A rise above $60.82 breaks the lateral consolidation the stock has been in, indicating another thrust higher. Short-term traders can use $58.70 as a stop on long positions, while longer-term traders will want to wait for a pullback to the $57 to $56 region for an entry. A stop loss in this case is just below $54. If the stock continues higher from the November 1 close at $60.52. the target is $62.75. The longer-term target, following a likely pullback (and assuming support holds), is $64 to $64.50.

Health Care Select Sector SPDR (ARCA:XLV) has been a consistently good performer throughout the year. Like many other sectors, and the S&P 500 SPDR, the Health Care Sector SPDR is moving within a wedge formation, and currently near the upper band. A push above $53.50 signals a short-term push above that wedge, and a possible advance to $55. If the price creeps much below $52, better to hold off and buy near the lower band of the wedge at $51 to $50.50. Place a stop at $49.50 and use the upper wedge band as the target at $54.

Acadia Healthcare (Nasdaq:ACHC) has nearly doubled this year, mostly moving within a well contained trend channel. A surge from below $40 to a high of $43.71 last week brought the stock to the top of that trend channel. The price may continue to move along the top of the channel toward $44 and potentially $45, yet buying near the bottom of the trend channel at $40 to $39.50 is a higher probability trade. Buying near the lower band, a stop is placed at $38 and the target is the upper band at $44 to $44.50.

The Bottom Line

With the S&P 500 at a resistance area a more lateral to downside week is a high probability. The overall trend is still up though, so pullbacks this week may set up long position entries to capitalize on overall market strength. While the overall bias this week is toward lateral or downside movement, there is not any signal to go short just yet in these stocks or ETFs. Until the market gives a more clear sign of selling pressure, trading long, with stop losses, is still the highest probability strategy.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

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