Healthcare Stocks On The Move

By Cory Mitchell | December 11, 2011 AAA

A handful of large capitalization healthcare stocks have weathered the turbulent market very well this year. Overall, the healthcare sector is outperforming the broader market, providing greater potential for relative safety and superior gains. The Health Care SPDR (NYSE:XLV) ETF is up 5.14% year to date, compared to the S&P 500 SPDR (NYSE:SPY), which is still down 2.24%. Therefore, the healthcare sector has been one of the market leaders to the upside, and there are four stocks in the sector that have been performing especially well.

Abbott Labs (NYSE:ABT) is up 13.49% this year to $54.27, from $47.82. The stock has outperformed and continues to show strength. From August until now, the stock has risen steadily and created a higher low in October, while the broader market made a new low. The stock is consolidating under $55 for almost two months after hitting a 52-week high of $55.62 on October 19. A breakout above $55 is a strong signal, with a move above $55.61 confirming the uptrend is continuing. The initial upside target is $58.50 followed by $60. There is resistance at $56.50, so this area should be watched to see how the stock reacts. Primary support is at $52, and a drop below that level indicates at least short-term weakness.

Bristol-Meyers Squibb (NYSE:BMY) is having a good year so far, up 24.83% to $33.18, from $26.58. The stock has been in an uptrend all year, and recently made a new 52-week high at $33.72. The stock is pushing into overbought territory based on the RSI and may see a pullback, which should provide a buying opportunity between the 50-day moving average and $30. $30 is the primary support level, therefore a drop below is a warning signal. The current price level has not been seen since 2002, therefore there is little resistance overhead and $37 to $37.50 is the initial target.

Humana (NYSE:HUM) has been on fire, up 57.06% this year to $86.54 from $55.01. Despite being up so much already, the stock is still exhibiting strength, recently putting in a new 52-week high at $90.76. The stock been ranging over the last week between $87.50 and $85. This is a potential buying opportunity, with a stop below $85, or below $80 for longer-term traders. The November low is at $80.89 - a drop below is a warning signal. If the stock continues to make new highs, the next target is the psychologically important $100. One cause for concern is a diverging RSI indicator, it is not confirming the price moves higher. It does not mean the stock can't go higher (a divergence can last a long time) but it is something to be aware of. (For more, see An Introduction To The RSI.)

Alexion Pharmaceuticals (Nasdaq:ALXN) exploded higher in June and again in August and has not looked back since. It is up 60.11% year to date to $65.11 from $40.67. After a strong run up into October, the price has been moving sideways recently. The breakout of the range which is developing will ultimately tell if this stock still has room to the upside. A rise above $70.50 would break the range to the upside and could take the price to $80. On the other hand, there are two support levels on the downside: $62 and $59.42. If the stock breaks below $62 it is a warning signal, but a break below $59.42 is likely to bring in more aggressive selling. Like Humana, Alexion is also showing a divergence on the RSI. Price can still go higher, but it does indicate that a break to the downside is possible. (For more, see What does it mean to use technical divergence in trading?)

The Bottom Line
The healthcare sector has been doing well this year and certain stocks have provided great returns and are still showing potential. These stocks have been market leaders and are still showing price strength as the uptrends continue. That said, a break below the primary support levels mentioned are warning signals for a further correction. While there is an RSI divergence on two of the stocks, divergence is not a good timing indicator. Therefore, price is the ultimate indicator, and currently these stocks are strong until proven otherwise. (For more, see 3 Slow-And-Steady Healthcare Stocks)

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At the time of writing, Cory Mitchell did not own shares in any of the companies mentioned in this article.

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