Healthcare companies have experienced a strong surge in investor interest over the past year for obvious reasons. With the strong start to 2021, it is apparent that healthcare companies and related assets are likely to remain in focus for months to come. In this article, we will look at several charts from across the sector and try to determine how active traders will be positioning themselves to profit from a potential move higher.

Key Takeaways

  • Healthcare stocks were a main focus in 2020. Based on price action so far in 2021, it looks like this group will continue to remain on the radar of traders in 2021.
  • Key holdings of healthcare exchange-traded funds (ETFs) such as the Health Care Select Sector SPDR Fund (XLV) will likely be of specific interest to traders over the weeks and months ahead.
  • Support and resistance levels on the charts of healthcare stocks will likely be used by traders over the weeks ahead to determine the placement of buy and stop orders.

Health Care Select Sector SPDR Fund (XLV)

Active traders who monitor key sectors of the financial markets often look to popular exchange-traded products such as the Health Care Select Sector SPDR Fund. Fundamentally, XLV comprises 63 holdings and has $25.95 billion under management. Looking at the chart below, you can see that the price has been trading within a defined range since the April 2020. The strong support offered by the 200-day moving average was of specific interest to followers of technical analysis because it was confirmation that the trend was in fact under the control of the bulls.

The start of 2021 is again showing encouraging signs to the bulls because the price of the fund has notched several consecutive closes above the ascending trendline. Technical traders will most likely look to place buy orders as close to the new-found support as possible. From a risk-management perspective, stop-loss orders will likely be placed below the 50-day or 200-day moving average, depending on risk tolerance and outlook, to protect against a sudden move lower.

Chart showing the share price performance of the Health Care Select Sector SPDR Fund (XLV)

StockCharts.com

Johnson & Johnson (JNJ)

Since it is one of the top holdings of the XLV ETF, active traders will likely pay close attention to Johnson & Johnson over the days and weeks ahead. As hype around Johnson & Johnson's COVID-19 vaccine continues to build, we would expect that investor interest will follow.

Traders will want to make note of the horizontal trendline near $155, which previously acted as a strong level of resistance. With the closes above this trendline in 2021, traders will now expect the trendline's role as resistance to switch to one of support. Buy orders will likely be placed as close to the dotted trendline as possible, while stop-loss orders will likely be placed below $146.31 to protect against a sudden shift in sentiment or fundamentals.

 Chart showing the share price performance of Johnson & Johnson (JNJ)

StockCharts.com

Tip

Individual pharma stock investors face a difficult task in analysis due to the high level of technical expertise required to adequately evaluate the viability of potential new products, as well as the continued prospects for existing FDA-approved drugs. The most stable stocks are those of large- and mega-cap companies with multiple products and large R&D budgets. 

Abbot Laboratories (ABT)

Another top holding of the XLV ETF that will likely capture the attention of traders over the days ahead is Abbot Laboratories (ABT). Looking at the chart below, you can see that the price has yet to break beyond the resistance of a well-defined ascending triangle.

Based on tenets of technical analysis, a break beyond $115 could send Abbot shares toward short-term target prices near $145, which is equal to the entry point plus the height of the pattern. Stop-loss orders will most likely be placed below the ascending trendline or the 200-day moving average depending on risk tolerance and outlook.

Chart showing the share price performance of Abbot Laboratories (ABT)

StockCharts.com

The Bottom Line

Healthcare stocks jumped into prominence in 2020, and it looks like this theme will continue for 2021. Based on the charts discussed above, active traders will likely be looking to buy near current levels due to the proximity to major support levels. Stop-loss orders will likely be set nearby below long-term moving averages or other notable levels of resistance in case of a sudden shift in market sentiment.

At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.