As geopolitical tensions continue to dominate media headlines, many investors are finding that they are contemplating their portfolio's overall exposure more often than usual. As sectors that are traditionally considered risky continue to be plagued with heightened volatility, the healthcare sector as a group has managed to continue its trend higher. In this article, we'll analyze several charts from across the healthcare sector and try to pinpoint how traders will look to position themselves over the weeks to come. (For related reading, check out: 3 Charts Suggesting Traders Are Bullish on Healthcare.)
Based on the number of trading opportunities that have started to pop up on common technical scans, it appears as though the healthcare sector is proportionately outperforming the other sectors. Taking a look at the Health Care Select Sector SPDR Fund, you can see that it has been trading along a major ascending trendline since early 2017. Notice how the bulls recently managed to send the closing price above the 2018 high of $91.13, which was set back in January. This technical break will likely be looked to by active traders as a catalyst for a continued move higher. Stop-loss orders will likely be placed below the horizontal trendline, the 50-/200-day moving averages or the ascending trendline, depending on risk tolerance and investment horizon. (See also: Investors Get Defensive With Shift to Healthcare.)
Investors interested in healthcare may want to take a closer look at Johnson & Johnson, which is the top holding of the XLV fund, because it has recently closed above a major level of technical support. Taking a look at the chart below, you can see that the $132.50 level has consistently acted as a guide for traders to determine a strategic entry for their buy and stop orders. Based on this chart pattern, we'd expect traders to hold a bullish outlook on Johnson & Johnson shares, and most will likely place stops below $129.73 in case of a sudden shift in fundamentals. Active traders will also look at the upward-trending 50-day moving average because a cross above the 200-day moving average would mark the official beginning of the next leg of the long-term uptrend. (For related reading, see: Why Healthcare Stocks Are Outshining the Techs.)
Another healthcare stock that is trading within an impressive uptrend is UnitedHealth Group. As you can see from the chart, the stock traded alongside a major uptrend, which active traders have been able to use consistently to place their orders since the early days of 2016. The recent close above the swing high (shown by the blue circle) is a technical breakout to all-time highs, and there are no major levels of resistance standing in the way of a continued move higher. Active traders will likely maintain their bullish outlook until the price closes below the support of $255.87 or $235.42, depending on risk tolerance. (For more, see: Investing in the Healthcare Sector.)
The Bottom Line
While investors from across the globe contemplate the allocation of their portfolios, one sector that looks poised for continued growth is healthcare. Strong uptrends combined with nearby support and clearly identified entry and exit points are combining to make for some of the best opportunities in the market. (For more, see: Healthcare Sector: Industries Snapshot.)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.