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Buy More Stocks In A Top Sector

|Includes: ABC, AGN, HSP, SYK, Health Care Select Sect SPDR ETF (XLV), XRAY

Last week's upside breakout in the PowerShares QQQ Trust (QQQ) was impressive but the iShares Russell 2000 (IWM) just closed at marginal new highs. The Spyder Trust (SPY) also made a new marginal high but I doubt the breakout was strong enough to convince those who are bearish on the market.

The Greek debt talks apparently stalled Monday, but the way these things work, that is not surprising. The EuroZone markets are a bit lower early Tuesday, but the S&P futures are trying to buck the trend ahead of Tuesday's Empire State Manufacturing Index and the Housing Market Index.

I have often expressed the importance of the long-term charts and the S&P 500's completion of a major trading range in 2013 suggests that stocks could actually melt-up in early 2015.

One of the my favorite sectors for the past few years has been healthcare, which broke out of a twelve year trading range in 2012 (see chart), which looks very similar to the breakout in the S&P 500. Healthcare has consistently outperformed the S&P 500 for the past three years, and so far in 2015, it has gained almost 1.4% more than the S&P 500.

A look at the daily and weekly charts of the Sector Select Health Care (XLV) will explain why I have two new picks from this strong sector. The healthcare picks from last month are doing well and I will be looking to take more profits.

 

 

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Chart Analysis: The weekly chart of the Sector Select Health Care (XLV) shows that it has been locked in a tight trading range for the past ten weeks.

  • XLV closed higher last week as it has been holding well above the 20-week EMA at $68.05.
  • The quarterly pivot is at $66.18 with the weekly starc- band now at $65.97.
  • The previous high is at $71.36 with the starc+ band is at $74.47.
  • The quarterly projected pivot resistance at $78.35.
  • The weekly RS line did make a new high in January but has now dropped slightly below its WMA.
  • It is also now testing the support, line c, from the middle of 2014.
  • The weekly OBV has been stronger than prices as it moved strongly above resistance, line d, in the middle of January.

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The recent trading range (lines e and f) is more evident on the daily chart of the Sector Select Health Care (XLV).

  • A decisive daily close above $71.36 with the monthly projected pivot resistance at $73.15.
  • A completion of the flag formation projects a move to the $76-$77 area.
  • This does look like a typical continuation pattern with the 20-day EMA at $70.04 and stronger support at $69.44.
  • There is more important support at the 2015 low of $67.63.
  • The daily relative performance dropped below its WMA at the start of February and is still well below its WMA.
  • The volume action has been strong as the OBV has broken through the resistance, line g, that goes back to early December.
  • The OBV dropped below its WMA last week before reversing to the upside.

 

 

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Stryker Corp. (SYK) is a $35.8 billion medical technology company that has a yield of 1.50%.

  • The weekly chart shows a tight trading range over the past six weeks.
  • The quarterly pivot and 20-week EMA were tested two weeks ago with the low of $92.71.
  • The weekly starc+ band and trend line resistance, line a, are in the $100.31 area.
  • The quarterly projected pivot resistance is at $110.24.
  • The relative performance broke its downtrend, line b, in October after moving above its WMA.
  • The RS line did make a new high with prices and is now testing its WMA.
  • The weekly OBV closed back above its WMA at the end of November.
  • It is now in a short-term uptrend, line d, but well below its all time highs at line c.
  • The monthly OBV is positive.
  • The 20-day EMA is at $93 with further support in the $91.40-$92.00 area.

DENTSPLY International (XRAY) has a market cap of $7.46 billion. It is a developer and marketer of disposable dental products. They report earnings before the opening on Wednesday.

  • The weekly chart shows the very strong close last week as a HCD buy signal was triggered.
  • The weekly starc+ band was tested in November and early December.
  • XRAY made a high of $56.18 and closed last week 6.1% below its high.
  • There is next resistance at $54-$54.50.
  • The weekly relative performance surged strongly in late 2014 before it corrected.
  • The RS line is below its WMA but has tested its uptrend.
  • The weekly OBV has stayed strong through the correction, closing at a new high last week.
  • The 20-day EMA is trying to turn up and is now at $51.27 with stronger at the $49.40-$50 area.

What it Means: The technical outlook for most of the sector ETFs is positive (see table) with the recent rally, but all have the strong monthly readings of the health care and consumer discretionary sector that I focused on last week.

As I detail below, I have recommended five healthcare picks in 2015. One of them-Hospira Inc. (HSP)-is the subject of a buyout and we recommended taking our profits. Another-Amgen, Inc. (AMGN)-was stopped out as it corrected more than expected. I am adjusting the stops in two other recommendations from early January.

How to Profit: For Stryker Corp. (SYK) go 50% long at $93.88 and 50% at $92.76 with a stop at $89.33 (risk of approx. 4.3%).

For DENTSPLY International (XRAY) go 50% long at $51.32 and 50% at $50.46 with a stop at $49.22 (risk of approx. 3.3%).

Portfolio Update: For Actavis, Inc. (ACT) should be 50% long at $268.34 and 50% at $263.04 as the early February low was $262. It closed Friday at $285.37.
Raise the stop from $252.39 to $260.77 and sell half at $298.30 or better.

For AmerisourceBergen Corp. (ABC) should be 50% long at $92.44 and 50% at $91.24. Raise the stop from $88.16 to $92.19. Sell 50% at 103.67 or better.

For Eli Lilly & Co (LLY) should be 50% long at $70.68 or better and 50% at $69.77 with a stop now at $67.43.

For Hospira Inc. (HSP) went 50% long at $63.22 or better and 50% at $62.42 sold at $87.30.

For Amgen, Inc. (AMGN) went 50% long at $156.34 or better and 50% at $153.66 both stopped out at $149.17.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.