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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (43187)	3/10/2006 3:39:45 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 69207

Technical Thursday: Healthcare Thursday, March 9, 2006 By George Leong Note: Conflicts and Disclosure Policy- StockHouse Editorial writers may own, buy, or sell shares in public companies mentioned in their articles. Please be advised that a conflict may exist and that any investment decisions you make are your own responsibility. You should not make any kind of investment decision in relation to these articles without first obtaining independent investment advice from an authorized investment advisor. Complete Conflicts and Disclosure Policy. George Leong Visit the George Leong Bullboard here. Note: A visitor to my BullBoard posed a question regarding the healthcare sector from a technical point of view. I welcome questions and will try my best to review them but I cannot provide personal advice on buying specific stocks or sectors. So what is going on in the healthcare sector? Over the past few years, I have had the opportunity to look at and examine this sector from both a fundamental and technical perspective. From my research over the past few years, I can say that the real money was not made in the large-cap dividend paying healthcare stocks that trade on the S&P 500 and Dow. In fact, if you own large-cap healthcare stocks such as Pfizer Inc. (NYSE: PFE, BullBoards), Merck & Co. Inc. (NYSE: MRK, BullBoards) and Bristol-Myers Squibb Co. (NYSE: BMY, BullBoards) to name but a few, you are probably not happy as the stocks remain well below their values of five years ago. Just take a look at the price charts of the aforementioned stocks and you will probably want to run for cover. Now I'm not saying they are bad companies, but many healthcare stocks are clearly in a funk. As an industry, they face patent expiration, high R&D costs, legal issues and safety concerns that may impact blockbuster or high potential drugs. But I'm not going to discuss the fundamentals of the healthcare sector at this time. From a purely technical perspective, the healthcare sector has underperformed the S&P 500 over the past few years when using the Health Care Select Sector SPDR (AMEX: XLV, BullBoards) as the comparative benchmark. The longer-term chart going back to 1999 (not shown) shows the Health Care Select Sector SPDR primarily in a consolidation channel at between 25 and 30 with little enthusiasm. Putting it another way, it was quite difficult to make any serious money during this time period. But beginning in late 2001, the Health Care Select Sector SPDR chart showed a bullish ascending triangle pattern with an upside break at above 30 in 2005. The breakout was accompanied by rising Relative Strength, a positive MACD and increased volume. The initial break above the 50-day and 20-day moving averages was encouraging but now we are witnessing some technical barriers that may drive the index back down. The failure to break a prior pivot point at 33.11 was bearish as the index reversed course after hitting 33.03. The index has since declined to just below its 20-day moving average of 32.43 and is testing minor support at the 50-day moving average of 32.28. If you take a close look at the chart, you will notice a bearish double top formation at just above 33. The Relative Strength is also declining and is presently below neutral while the MACD is also flashing a sell signal. Here is what I think. The index is in an uptrend but it needs to display some technical strength and break higher above 33 with authority. Failure to do so and a retrenchment below the 50-day moving average could see a move to the 200-day moving average at around $31.41, below some previous pivot points at 31.67, 31.64 and 31.51. This would be negative and could see the index reverse course and potentially reclaim its spot within the previous long-term sideways trading channel. As I said earlier, if you are going to play the healthcare sector and wouldn't mind the added risk-to-reward, small-cap stocks are probably where you want to be. At the same time, you must be extra careful as smaller healthcare stocks entail higher risk and are vulnerable to a market shock. And if you trade emerging biotech stocks, you better make sure the drug pipeline has realistic potential, albeit often it is difficult to determine this when a drug is in early clinical testing. In the following paragraphs, I have presented two small-cap healthcare stocks that may be worth a closer look. Ventiv Health Inc. (NASDAQ: VTIV, BullBoards) (market-cap $781 million) displays a beautiful long-term chart. The upward trend is steady with a rising 20-day and 50-day moving average. Rising Relative Strength and a positive MACD also accompanied each wave up on the chart. The short-term chart shows the recent upside break at above a previous pivot point at $27.95. The near-term technical picture is bullish with a recent upside crossover of the 50-day moving average by the 20-day moving average. Both the major and intermediate trend is bullish. For Ventiv to trend higher it will need to hold at its 50-day moving average; otherwise, the stock could retrench to the 200-day moving average at $23.93. The upside technical targets are the 52-week high at $28.58, $29.65 and $33. The Point and Figure chart is bullish and gives an optimistic price target of $42.50. Keep in mind that there is no guarantee the stock will reach these levels, as they represent only technical estimates. A small-cap contrarian play is HealthTronics Inc. (NASDAQ: HTRN, BullBoards) (market-cap $258 million). The chart is not something I would consider a valid buying opportunity but the stock appears to have found some decent downside support at between $6.50 and $7. After trading as high as $14.32 in July 2005, HealthTronics rapidly fell to $6.27 in late 2005 prior to staging the recent rebound. The stock saw a downside crossover of its 20-day moving average below its 50-day moving average, a bearish sign. HealthTronics has since shown some encouraging signs but it needs to see a rise in its Relative Strength to back above neutral. The MACD may be set to turn positive. A break above the 20-day and 50-day moving average would be bullish but we need to see higher volume on the rebound. The chart is showing a Rectangle pattern at $7-$8.50. If HealthTronics can hold at $7 and see renewed buying at $8.50, it could stage a breakout to $9.21 and the 200-day moving average at $9.95. Again, everything has to fit in place for this to happen. Happy trading and see you next time! -------------------------------------------------------------------------------- George Leong is the founder of Investornomics.com (http://www.investornomics.com) - a provider of independent stock and option trading commentary. He has a degree in finance/economics and offers over 15 years of research experience in investing and trading. -------------------------------------------------------------------------------- Stockhouse Letter to the Editor What do you think? We encourage your comments. If you have an insight, opinion or complaint you want to share with StockHouse or its readers this is your chance. Click here to see other comments. The Editor of StockHouse welcomes letters on any subject but reserves the right to condense and edit them. Letters expressing a solid and thoughtful analysis will be considered. All letters must include the full name and email of the writer.. 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