Big Pharma ETF Ready to Breakout

08/19/2020 6:00 am EST

Focus: STOCKS

Joe Duarte

Editor, Joe Duarte In the Money Options

Joe Duarte highlight the breakout potential of a key Pharmaceutical ETF.

Yesterday we noted that when looking to expand your analysis horizons, you have two choices: Look for sectors displaying exceptional strength, or laggards poised to turn up. Because many stocks in strong sectors can be overextended, I focus on areas that have been consolidating and are set to breakout to the upside.

We teased out the pharmaceutical exchange trade fund VanEck Vectors Pharmaceutical ETF (PPH). Our belief is that while many large drug companies are involved in Covid-19 vaccines, which is important work, Covid-19 vaccines may not be huge money makers for these companies beyond the grants and other funds, which they have received from government contracts. Indeed, as investors have recognized this fact these stocks have rolled over (see PPH chart below).

PPH

A closer and contrarian look at the PPH chart shows a strong setup as the ETF has the following characteristics:

  • The consolidation has been in place since April, which has shaken out many sellers
  • The ETF is trading in the bullish complexity zone (above the 50- and 200-day moving averages)
  • The Volume by Price indicator (VBP) shows excellent support at $61 and little resistance immediately above the $65-$66 area.
  • Accumulation Distribution (ADI) and On Balance Volume (OBV) are neutral

Still, this is not a perfect setup because of the neutral ADI and OBV. But it’s good enough to warrant a deeper look at its components. So now that we’ve spotted a potentially bullish setup the key is to find if there are good stocks in the sector, which I will describe tomorrow.

Joe Duarte is a former money manager, an active trader and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies. For a FREE trial to Joe Duarte in the Money Options.com, click here.

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