Traders are returning from the weekend with high hopes. Friday’s recovery is encouraging bottom fishers, and many participants are betting bulls will be able to pull beaten-down stocks back up from the depths.
My weekend scanning revealed relative strength emanating from healthcare stocks. Many were able to survive last week with uptrends intact.
My watchlist is now war-torn and battle-scarred.
With broken uptrends commonplace and weakness pervasive, the sidelines are looking increasingly attractive.
For the brave souls who want to continue playing, I suggest looking for relative strength to buy.
Stocks that were able to stay afloat amid the selling pressure are likely to lead the way higher once the bears finally depart.
I’ve scoured the healthcare sector and identified some of the best muscle flexers.
Pfizer (NYSE:PFE) boasts one of the best uptrends on the Street. The momentum really kicked off following its July earnings report. Before last week’s beatdown, PFE stock had reached levels not seen since the heyday of the dot-com era in 2001. Despite the two-day drubbing, PFE bulls sallied forth and defended the rising 50-day moving average on Friday.
The willingness of dip buyers to emerge and defend a key support level is a good omen. Provided PFE stock remains above last week’s lows ($44.48), bulls still deserved the benefit of the doubt. I think a good trigger point for new bullish trades is Friday’s high of $43.96. A break above that would negate [Monday] morning’s weakness and suggest more upside is in the offing.
Last week’s pullback in Cigna (NYSE:CI) was much needed. CI stock was scorching and in need of a cooldown to provide a better entry point for smart traders unwilling to chase. I particularly like how little volume there was during the downturn. Rather than signaling a mass exodus, the pullback looks like a garden-variety bout of profit-taking.
The fact that we didn’t even break below the 20-day moving average is also telling. Compared to the rest of the market, Cigna is holding up like a champ. Wait for a breach of a prior day’s high before pulling the trigger. The stock may need to settle a bit more before the next advance begins.
The first upside target is $216.
Eli Lilly (LLY)
Ely Lilly (NYSE:LLY) rounds out today’s selections with yet another resilient uptrend. The stock scored a high-volume breakout earlier in the month to all-time highs. With LLY so high, it had plenty of room to retreat without breaking any key support levels. LLY stock is one of the few companies that remains above its rising 20-day moving average.
And that makes it a definitive relative strength candidate.
I suggest using a break of Friday’s high as your trigger for bullish trades. The previous peak at $116.61 is the first potential target.
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Source: Investor Place