Despite the market strength that has persisted the past few days, many stocks remain technically damaged. Some stocks are starting to show positive signs as they attempt to recover from the sharp decline that affected the markets this summer, but there is still much work ahead of them before they can confirm that the worst is behind them. However, there are some pockets of strength that are starting to emerge as some sectors begin to shape up. If the markets are truly putting in a bottom, then these groups are where traders should be focusing their attention, as they may possibly emerge as leaders.

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One group that is starting to see some strengthening in some of its individual names is the medical appliances sector. For instance, while MAKO Surgical Corp. (Nasdaq:MAKO) pulled back from its recent highs, it has remained above its prior base and its rising 50-day moving average. It has been forming a flag type pattern as it consolidates its August breakout. While MAKO did slip under its breakout area near $35 in October, it quickly reversed as buyers rushed in. It is now pressing against the top of its flag and could be close to making a run at new highs. It is worth noting that MAKO is just off its all time highs as well.


Wright Medical Group, Inc.
(Nasdaq:WMGI ) is another medical appliance stock currently consolidating in a flag type pattern. It is consolidating after breaking out of a channel it was following for several months. It cleared this channel in mid September on huge volume and has left two bullish gaps behind. It is impressive that WMGI has not even approached these gaps during a weak period for the markets. Traders should keep a close eye on the top of the flag as any strength that carries above $18.50 could lead to a resumption of the breakout.

The Spectranetics Corporation (Nasdaq:SPNC ) is another stock in the medical appliance sector that bears watching. It actually looked like it was in a topping pattern in early September as it fell towards the $5.50 level. A breakdown at that level would have confirmed a head and shoulders topping pattern. However, SPNC found buyers and surged for the next few weeks ending up at new 52 week highs. While it backed off these highs, it is still consolidating near the top of its recent range and just under its highs. Any strength that carries it above $7.50 may lead to a continuation move higher.


Synergetics USA, Inc.
(Nasdaq:SURG ) is a very thin stock in this group that is experiencing a powerful breakout. Because it trades such a light average volume, traders need to be cognizant of the enhanced risk of participating, but the pattern is quite strong. SURG had been consolidating in a channel since April after rising for the better part of two years. It started to emerge above the channel in late September and traded in a very tight range for a few days. It surged above the entire base on good volume this week on the heels of a positive earnings report and could be ready to emerge from its lengthy base.

The Bottom Line
It is still too early to know whether the markets have put the worst behind them. We could simply be experiencing a relief rally from deeply oversold levels, but there is also a chance that the markets are changing character. Some patterns are starting to emerge and traders should be on the look out for where institutional money may be flowing. While much of the medical appliance sector remains damaged, some stocks in the group are starting to reveal strength. If the markets have better days ahead, then these stocks may emerge as leaders and are certainly worth tracking. (For more, see Technical Analysis: Introduction)
Charts courtesy of stockcharts.com.

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

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