We've been extremely vocal about the medical devices space on the blog, and rightfully so, with the sector continuing its long-term trend of outperformance throughout 2018. The index has 57 components, but because the top 10 stocks make up roughly 60% of the index, opportunities in the smaller components tend to be overlooked by many market participants. In this post, I want to look at all of the components and highlight names for which our risk is well defined and the reward/risk is still skewed in our favor.
Let's start off with the sector exchange-trade fund (ETF), the iShares US Medical Devices ETF (IHI), on an absolute basis for context. Prices are just off all-time highs after successfully retesting their breakout area near $203.50. As long as prices are above that level, short- and intermediate-term momentum remains intact, and our next upside objective is up near $248 to $249.50. (See also: Investing in Medical Equipment Companies.)
On a relative basis, the sector continues to digest its strong year-to-date gains and work off a bearish momentum divergence by consolidating above our previous price objective at 0.734. As long as this ratio remains above that level, an upside resolution and continuation of this long-term uptrend is the most likely outcome.
An individual name in the sector breaking out is Masimo Corporation (MASI). It has been consolidating for the past 18 months, and this push to new all-time highs signals the resumption of its long-term uptrend. As long as prices are above $104.80, we want to be long with an upside target of $119.50.
CONMED Corporation (CNMD) is another name making fresh all-time highs after consolidating below our price target of $76.10 for the past six weeks. As long as prices are above that level, we want to be long and taking profits at $101.25. (For more, see: A Checklist for Medical Technology Investments.)
Medtronic PLC (MDT) is breaking out of a two-year base to new all-time highs. If prices are above $88.50, we want to be long and taking profits at $101.50.
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Thanks for reading, and let us know if you have any questions!