Technical Update On HQH: Presenting An Opportunity
- Tekla is a top fund manager in the healthcare space.
- They offer a phenomenal dividend. The distribution is 2% of NAV.
- HQH offers high-yielding diversified exposure to healthcare with concentration in biotech and pharmaceuticals.
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Produced by Jason Appel of Stock Waves, along with Rida Morwa of High Dividend Opportunities
This series of articles is intended to provide Elliott Wave and Fibonacci Pinball Analysis as accompaniment to Rida Morwa’s High Dividend Opportunities (HDO) Service. Our goal is to provide greater context as to where price is within the trend for the opportunities being presented by Morwa’s group. This will include support regions for potential entries and target regions for the bigger trend.
In February, we shared our first technical update in NYSE:HQH (Tekla Healthcare Investors) and noted a buying opportunity coming via the pullback from the February highs with support in the high $21s to mid $23s. From our February article: “Standard support for wave 2 of (3) is between $23.46 down to $21.83. A move into this region should set the stage for the breakout in the heart of the 3rd wave.”
Buyers who participated in that zone saw gains in share prices in excess of 20% from the March 2021 low into the August high!
Now, price has entered support for a secondary buying opportunity
In Rida Morwa’s recent article from Oct. 3, “Yes, You Can Retire On Dividends: 2 Soaring Dividends To Buy Today,” he continued to make his case for investment in Tekla Healthcare Investors, HQH.
“Tekla is the best fund manager in the healthcare space, with a history of providing great results for investors.
If there's one thing that COVID brought into focus, it's the importance of healthcare. HQH is one of the rare CEFs that has really "gone the distance." Since 1987, HQH has been rewarding shareholders and has outperformed the S&P 500.”
HQH, while primarily invested in Biotech and Pharmaceutical companies, is diversified throughout the healthcare space.
Rida also cites HQH’s “generous” distribution policy, paying shareholders 2% of NAV every quarter. As of writing this article, 10/04, HQH is trading at .56% discount to NAV.
From a technical perspective: HQH is trending very bullishly. Let’s examine what’s occurred since the March 2020 low from two perspectives.
The “primary” path that we have been tracking for price since the March 2020 lows entails what’s referred to as a (1)-(2), 1-2 setup. Waves (1) and 1 are referred to as “motive” waves in that they advance price in the direction of the trend. Additionally, these moves are composed of 5 subwaves which is significant in Elliott Wave theory. Waves (2) and 2 are corrective in that they oppose the prevailing trend and regarding Elliott Wave theory, these moves count better as 3 wave moves meeting the defining characteristics of “corrective” waves.
Though not the most ideal structure, price has formed another potential 5 wave advance from the March 2021 low into the August high. This move was forecasted in the February article. In this perspective, price has now formed a (1)-(2), 1-2, i-ii which portends a massive breakout to the upside. In this structure, the next rally would be wave iii of 3 of (3), generally regarded as the strongest portion of the move to the upside. Price would target the $32.50-$34 region and following a small pullback in wave iv, HQH can get one more wave up in the wave 3 rally taking price north of $36. Based on this count, the entire move for wave 3, i.e. a rally north of $36, a gain of over 40% from current levels could occur inside of 2022.
A bullish perspective with tempered expectations:
Given the awkward rally of the March 2021 low, I wanted to provide an alternative perspective for this structure. Keep in mind while this structure is considered an alternative path, it's still quite bullish. Rather than price having built a massive base with a (1)-(2),1-2, i-ii setting up a huge breakout and many degrees of waves to complete the move off the March 2020 low, it’s possible that price is further along in a diagonal structure off the March 2020 low.
Note that while the uber-bullish perspective is valid, it’s not ideal for price to have gotten such a large pullback after the (1)-(2), 1-2 without a breakout.
In this diagonal count, we're considering the initial rally, wave (1), to be composed of a three wave move, labeled A-B-C. From there, it follows the corrective pullback into the November low completing wave (2). In this structure, our expectations are for wave (3) to be composed as well of 3 waves. The A wave of (3) is generally expected to reach the .764 extension, and after a pullback in B of (3), the C of (3) is expected to reach the 1.236 extension.
As you can see, the rally from the November 2020 low into the February 2021 high topped just shy of the .764 extension before pulling back correctively. In Elliott Wave theory, C waves are always 5 wave moves and as mentioned regarding the impulsive count, the rally from the March 2021 low into the August 2021 high is not ideal as a 5 wave structure. In this count, we are considering that price has completed the first 3 waves of the C wave, and that one more high--possibly extending as high as the 1.236 Fibonacci extension--at $30.29 can complete all of 5 waves of the C of (3) before pulling back correctively once again.
The dividing line between these two counts will be $28.05, coinciding with the August 2021 high. That is to say that while both perspectives favor a rally to exceed $28, in the first uber-bullish count, price should maintain above $28 ideally for the duration of the count. Alternatively, in the second, less bullish diagonal count, a move over $28 is not expected to sustain.
In both perspectives, price is within support and should ideally remain above $24, as a sustained break below would potentially compromise both perspectives. Considering that even in the less bullish perspective the next move up is still expected to deliver north of 20% while collecting a dividend, the current region offers a favorable risk-to-reward buying opportunity.
Primary: Uber-Bullish perspective
Alternative: Bullish diagonal
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Analyst’s Disclosure: I/we have a beneficial long position in the shares of HQH either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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