Topping Formations in Three Large Healthcare Stocks

11/10/2014 10:15 am EST


Thomas Aspray

, Professional Trader & Analyst

There were three large healthcare stocks that formed dojis last week, so MoneyShow’s Tom Aspray studies the charts of the healthcare sector and these stocks to see where this market leading industry is heading next.

Stocks surged in the late trading Friday to close near the day’s highs, though the Spyder Trust (SPY) did form a doji in Friday’s session. The market internals were positive on Friday as the S&P 500 and Nasdaq 100 A/D lines have made new highs.

As I discussed in detail in Friday’s Three Reasons Not to Jump into Stocks Now, there are a number of concerns that I have about the stock market at current levels, including the failure of the weekly OBV to confirm high prices and the very low level of bearish sentiment from individual investors.

The utilities led the market higher gaining 1.64% followed by the 1.42% gain in consumer goods and 1.32% in the industrial stocks. The late week rebound pushed the oil and gas stocks into slightly positive territory, while healthcare lost 0.70%.

In running my weekly scan, there were three large healthcare stocks that formed dojis last week, which is a sign of decision and suggests a potential loss of upside momentum. Let’s look at the charts of the healthcare sector and these stocks to see where this market leading sector is heading next.

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Chart Analysis: The Sector Select SPDR Health Care (XLV) was lower last week, losing 0.35%. It is still up over 22% YTD versus the 11.6% gain in the Spyder Trust (SPY).

  • The weekly chart shows the sharp surge two weeks ago as XLV closed above its trading channel, lines a and b.
  • The quarterly projected pivot resistance is at $68.72, which is very close to the weekly starc+ band at $68.62.
  • The slightly rising 20-day EMA is at $65.54 with the initial weekly support at $64.99.
  • The quarterly pivot is at $62.94.
  • The weekly relative performance started a new uptrend mid-year signaling that XLV was a market leader.
  • The RS line did make a new high with prices two weeks ago and is well above its rising WMA.
  • The OBV peaked in July and has now formed a longer-term negative divergence.
  • Two weeks ago, the OBV rallied up to its declining WMA but turned down this week, triggering an AOT sell signal.

Biogen Idec, Inc. (BIIB) has formed dojis for the past two weeks and last week’s range narrowed further.

  • BIIB has failed, so far, to close above the quarterly pivot at $326.04.
  • The quarterly projected pivot support is at $303.08 as BIIB had a low of $290.85 in October.
  • A drop below this low could signal a test of the weekly starc- band at $281.93.
  • The weekly RS line peaked in August when BIIB had a high of $349.
  • It has since formed a downtrend, line f, and key support (line g) was broken last week.
  • The weekly on-balance volume (OBV) peaked in February and dropped below its WMA in March.
  • The OBV dropped below more important support (line i) last month after testing its declining WMA.
  • It is now in a clear downtrend (line h).
  • There is near term resistance for BIIB now in the $330-$331 area.

NEXT PAGE: Two More Healthcare Stocks to Watch


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Medtronic, Inc. (MDT) shows a well established trading channel, lines a and b, as it is up 20.2% YTD.

  • Last week’s high reached the resistance at line a, and the high at $69.10 was very close to the quarterly pivot resistance at $69.34.
  • A doji was formed last week, which is a sign of indecision.
  • A close this week below the doji low at $67.29 will trigger a LCD sell signal.
  • The relative performance did confirm the new price highs, which indicates that MDT is a market leader.
  • The RS line is well above its WMA and support at line c.
  • The weekly OBV peaked in early October and formed a negative divergence, line d, at the recent highs.
  • The close on Friday was below Wednesday’s doji low so a daily low close doji sell signal was triggered.
  • The rising 20-day EMA is at $66.51 with the monthly pivot at $65.47.

Pfizer, Inc. (PFE) has just reached the downtrend, line f, from the early 2014 highs. PFE also formed a doji last week with a low of $29.76.

  • There is resistance now at $30.84 with the quarterly projected pivot resistance at $31.12.
  • The relative performance peaked in April as key support was broken (see arrow).
  • The RS line has been in a trading range recently with key resistance at line g.
  • The drop below its WMA suggests that the RS analysis may lead prices lower.
  • The uptrend in the weekly OBV, line h, was broken in early October.
  • The rebound to the declining WMA suggests that the OBV has topped out.
  • The 20-week EMA is at $29.44 with the quarterly pivot at $29.47.
  • The October low was $27.51 with the weekly starc- band now at $27.11.

What it Means: The negative weekly OBV formations in these three healthcare stocks suggest that the sector could be under selling pressure this week.

The monthly OBV analysis of the Sector Select SPDR Health Care (XLV) is still positive, but that does not rule out a 4-6% pullback that could take XLV back to the $63-$64.50 area.

How to Profit: No new recommendation.

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