Investor appreciation for the healthcare services sector has spiked in recent months and will likely continue to do so as underlying fundamentals continue to shift to adjust to the new reality. Based on the charts discussed below, niche segments such as makers of personal protective equipment and targeted diagnostic testing could likely be areas of specific interest to active traders over the coming months.
- Healthcare services stocks will likely continue to capture the attention of active traders in coming months.
- Niche segments such as makers of personal protective equipment and targeted diagnostic testing could be areas of specific interest.
- Nearby support levels on charts within the sector are creating interesting risk/reward setups.
SPDR S&P Health Care Services ETF (XHS)
Active traders who are interested in gaining exposure to niche subsectors such as healthcare services often turn to exchange-traded products such as the SPDR S&P Health Care Services ETF (XHS). As you can see from the chart below, the price bounced strongly from the March lows and regained the key resistance found at its 200-day moving average. As expected, the role of resistance by the 200-day moving average quickly reversed once the price was able to close back above that level in mid-May.
The subsequent bullish crossover between the 50-day and 200-day moving average was a clearly technical buy signal that could mark the beginning of a new long-term uptrend. At this stage, it wouldn't be surprising to see many active traders use the pullback and bounce in recent days as a sign that the uptrend is well in place and likely poised to move higher over the coming weeks or months.
Owens & Minor, Inc. (OMI)
As the top holding of the XHS ETF, Owens & Minor, Inc. (OMI) has experienced a dramatic shift in demand for its products and services over the past several months. Raised earnings guidance has caught the interest of active traders because the announcement triggered a strong move above August's swing high.
As you can see from the chart, there appears to be little resistance standing in the way of a continued move higher. From a risk management perspective, stop-loss orders will most likely be set below one of the dotted trendlines or the 50-day moving average, depending on risk tolerance and in case of a sudden shift in sentiment.
Guardant Health, Inc. (GH)
Another company in the healthcare services subsector and top holding of the XHS ETF that will likely grab the attention of traders over the weeks ahead is Guardant Health, Inc. (GH). As you can see from the chart below, the price has found support near the 200-day moving average on several occasions since it broke out above that level in early May.
The formation of an ascending triangle will likely also be of specific interest to technical traders because the close above the horizontal trendline and psychological $100 mark will most likely act as a catalyst for a move higher. Based on the pattern, traders will most likely set short-term target prices near $125, which is roughly equal to the entry point plus the height of the pattern.
Trendlines are easily recognizable lines that traders draw on charts to connect a series of prices together or show some data's best fit. The resulting line is then used to give the trader a good idea of the direction in which an investment's value might move.
The Bottom Line
The healthcare sector has risen in prominence in 2020, and it appears that the stock prices of companies that provide many of the products and services that help it run smoothly are poised to move higher. Based on the charts discussed above, nearby support levels are creating interesting risk/reward setups, which suggest that there is plenty of upside remaining for traders who have not bought in yet.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.