While the healthcare sector lost traction over the last month as the broader market consolidates, the last week has seen health care once again become a market leader as the S&P 500 moves back toward all time highs. The Health Care Select Sector SPDR (ARCA:XLV) is up 2.79% over the last week, with a large push coming from the biotechnology industry, up 6.12% over the same period. The health care sector has been very strong over the last six months, so with the recent pullback and renewed signs of strength, especially in biotech, there are a number of great opportunities to keep an eye on.
AbbVie (NYSE:ABBV) is forming a potential range, having respected a support area between $46.50 and $45.50 twice in 2014. The first bounce off the area produced a rally to $54.73. The bounce in November could produce a similar result, so the target area for long trades is between $54 and $55. A strong break above $55 is a longer-term bullish signal, while a strong drop below $45 is longer-term bearish. Any pullbacks that stay stay above $45.50, followed by push higher are buying opportunities, with stop loss below $45.50.
Biogen Idec (Nasdaq:BIIB) gave up all its 2014 gains in March and early April, but the price found strong support at the January low and has risen substantially off of it. The price bounced off support between $272 to $270 in April signaling the longer-term uptrend could still be in tact. The break above a short-term downward channel also indicates short to medium term pressure is up, as the price attempts to reclaim the $350+ region. Stops on longs can be placed below $270, and then trailed up as new swing lows form. Initial targets are between $350 and $355, as there is likely to significant resistance in that area. A strong break above $360 keeps the long-term uptrend alive.
Illumina (Nasdaq:ILMN) also gave back most of its 2014 gains in March and early April, but found support at a former gap from January. After closing most of the gap, the price has rallied $20, and is close to breaking a short-term trend line. If the price moves above $150, then the recent low ($127.69) is likely to hold, so any pullbacks that stay above that level are buying opportunities. Place a stop below $127.69. The target is between $178 and $179. A strong rally beyond $183.30 keeps the longer-term uptrend in tack, while a drop below $127 indicates another down wave is underway.
Vertex Pharmaceuticals (Nasdaq:VRTX) has respected support between $60 and $58 for a second time. The price bounced aggressively off the area back in November, and then proceeded to run to resistance between $85.50 and $87.75. With the bounce off the same area in April the stock may be forming a large channel, providing a target in the $85 region with a stop below $60. A significant break above $90 provides a long-term bullish signal, while a drop below $58 is longer-term bearish. The potential range is the play right now. A rise above $70.25 followed by a pullback that stays above $60 indicates a range low is likely in place, and the price will continue back toward the $85 area.
The Bottom Line
Health care is moving well again, and the biotech space has a lot to do with that. These biotech stocks have all seen big pullbacks recently, but given strong bounces off support, those pullbacks may present good buying opportunities. Utilize stops and targets to control risk and capitalize on current price structures. Whether the longer-term uptrends will continue in these stocks is unknown, therefore taking profits near former resistance could prove wise. Hold a portion of the position to lock in more profit if you believe the price will break to new highs. Biotechnology can be a volatile industry, therefore only trade if you are comfortable with uncertain risk (due to gapping prices). Keep position size(s) small relative to account size, so that a single loss doesn't significantly draw down your capital.