Recent price action across the health care services and equipment subsectors has active traders looking for ways to profit from a long-term move higher. Specifically, the strong bounce from the March lows has sent prices above influential resistance levels, which in turn has triggered the crossover of long-term moving averages. In this article, we'll take a look in closer detail at several charts from across these niche market segments and try to determine how traders will be setting up their positions over the days and weeks ahead.
SPDR S&P Health Care Services ETF (XHS)
Active traders looking to gain exposure to niche market segments such as health care services often turn to exchange-traded products such as the SPDR S&P Health Care Services ETF (XHS). Taking a look at the chart below, you can see that the recent break above the 200-day moving average and subsequent retest has likely caught the attention of the bulls. Based on the tenets of technical analysis, the successful bounce off of $67 confirms that the bulls are in control of the momentum.
Active traders will also want to notice how the recent surge in buying interest has triggered a bullish crossover between the 50-day and 200-day moving averages, which is a popular long-term buy signal and often used to mark the beginning of a long-term uptrend. From a risk-management perspective, traders will most likely look to buy as close to current levels as possible and protect against a sudden shift in sentiment by placing stop-loss orders below $67 in an attempt to maximize the risk/reward of the current position.
SPDR S&P Health Care Equipment ETF (XHE)
Another niche market segment that could capture the attention of active traders over the weeks ahead comprises the companies that create the underlying equipment used to power the health care sector each and every day. As you can see from the chart of the SPDR S&P Health Care Equipment ETF (XHE), the price has recently broken above the resistance of its 200-day moving average and after a brief period of consolidation has started to make another move higher.
Active traders will likely want to note the crossover between the long-term moving averages (shown by the blue circle) and the crossover between the moving average convergence divergence (MACD) indicator and its signal line because these popular buy signs will likely act as confirmation that bulls are in control of the momentum. Based on the pattern, there are few levels of resistance remaining that will prevent a continued move higher, and many traders will likely remain bullish until the price falls below $82.78.
Silk Road Medical, Inc. (SILK)
Active traders looking for specific companies to add to their portfolios may be well served to analyze the hop holdings of ETFs such as those mentioned above. In the case of the XHE ETF, one of the top 10 holdings that could capture the attention of followers of technical analysis is Silk Road Medical, Inc. (SILK).
As you can see from the chart below, the dotted trendlines have outlined a short-term ascending triangle pattern near the support of the 200-day moving average. Traders will likely use the recent breakout (shown by the blue circle) in combination with the bullish crossover between the long-term moving averages as a sign that the stock price could be poised for a move higher. From a risk-management perspective, stop-loss orders will most likely be placed below $38.35 to protect against a surprise selloff or shift in underlying fundamentals.
The Bottom Line
Segments of the health care sector such as pharmaceuticals have captured most of investors' attention over the past several months. However, based on the chart patterns discussed above, it appears that it could prove prudent to take a closer look at subsectors such as health care services and equipment because they could just be in the early stages of a long-term uptrend.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.