Mega-sized mergers and corporate restructuring across the health care sector over the past several months have the big players jockeying for position in anticipation of the next major uptrend. While the focus for the underlying companies spans from over-the-counter drugs to specialized therapies for extremely rare conditions, there appears to be no shortage of ways for interested investors to gain exposure.
In this article, we'll take a look at several charts from across the health care sector and try to determine how followers of technical analysis will be looking to position themselves to take advantage of the next multi-year move higher.
Vanguard Health Care ETF (VHT)
Retail and professional investors often turn to exchange-traded funds such as the Vanguard Health Care ETF (VHT) when looking to gain broad exposure to an underlying segment of the market. With 387 holdings from across segments such as biotechnology, health care equipment, life sciences tools and services, pharmaceuticals, and managed health care, the fund offers a diversified view of the overall macro trends driving the sector.
As you can see from the chart, the price has recently moved above the resistance of an influential trendline, and the move has triggered a bullish crossover between the 50-day and 200-day moving averages (shown by the blue circle). The common long-term buy signal is often used by followers of technical analysis to mark the beginning of a major uptrend. The current chart is of specific interest to active traders because the nearby support of the 50-day moving average and the dotted trendline identifies strategic levels to buy so that the risk-to-reward ratio is in clear favor of the bulls. Stop-loss orders will likely be placed below $167.69 in order to protect against a sudden shift in market sentiment or unforeseen announcement.
UnitedHealth Group Incorporated (UNH)
One of the top holdings of the VHT ETF that may catch the attention of traders is UnitedHealth Group Incorporated (UNH). With a market capitalization of $242.3 billion, UnitedHealth is one of the most dominant players in the U.S. health care market.
As you can see from the chart below, the price recently surpassed the resistance of the 200-day moving average in zealous fashion, but it has recently pulled back to retest the newly formed support. The pullback toward a major support level is common behavior, and the price action over the past several sessions suggests that the bulls are gaining confidence in a move higher. The lucrative risk/reward suggests that orders will be placed as close to current levels as possible and protected by stop-loss orders placed below $250.
Gilead Sciences, Inc. (GILD)
Gilead Sciences, Inc. (GILD) is a major drug manufacturer that seeks to commercialize medicines in the areas of unmet medical needs. The company's impressive track record and recent period of consolidation is providing long-term traders with an interesting opportunity to enter.
As you can see from the chart below, the price has trended relatively sideways for most of 2019, but the recent close above the 200-day moving average suggests that the story is about to change. The bullish crossover between the 50-day and 200-day moving averages (shown by the blue circle) is sign that the next leg of a major uptrend is just getting started, and the lucrative/risk reward suggests that now could be a good time to buy.
The Bottom Line
The health care sector is changing as companies seek to position themselves for the next leg of a major move higher. As discussed above, bullish price action over the past several trading sessions combined with long-term buy signals are suggesting that now could be a good time to buy. From a risk management perspective, traders will also likely use nearby levels of support as protection in case of a sudden shift in fundamentals.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.