The stock price of Walgreen (WAG) — the operator of drug and general good stores — is higher by roughly 20% year-to-date, and WAG stock continues to exhibit impressive relative strength.
While the broader stock market, in the fifth year of the latest cyclical bull market, is starting to show signs of exhaustion, stocks showing relative strength still are worth buying or trading for the more nimble and active investors.
As the market environment has shifted over the past few months, many market participants have been led down the path of maximum frustration as high-beta stocks got clobbered and defensive sectors rose … all while the broader market didn’t move a whole lot.
Thus, the newest batch of investors — those just joining the business over the past few years — are, for the first time in their “careers,” facing a market that doesn’t just rise with the tide, but one where patience and skill are required. At some point, once the large-cap stocks are ready to roll over too, this market also will take down stocks with relative strength, but until then, those looking for long-side opportunities can roll this way.
WAG Stock Charts
While Walgreen is officially labeled a “consumer staples” stock, the company with its in-store pharmacies and healthcare clinics has many characteristics of a healthcare stock. In fact, when you overlay the WAG stock chart (orange) with the chart of the S&P 500 healthcare sector (blue), the similarities are striking.
With the changes in the healthcare industry (Obamacare and more) in recent years, WAG stock at first found it difficult to rally along with the healthcare sector, which in part likely was due to the uncertainties around the new laws, but eventually in late 2012 began a significant rise. In September of last year, WAG stock managed to break past a long-term resistance area dating back to 2006, and soared to fresh all-time highs.
On the daily chart, WAG stock continues to move higher in a constructive stair-step approach, meaning that each rally is followed by healthy consolidation. The stock’s most recent consolidation phase, which has been taking place since early to mid-February, nicely rejected its lows in late March/early April.
Over the past three weeks, Walgreen stock has formed an even tighter range near the top end of the consolidation phase, which is the type of action conducive to an eventual break to higher highs.
Upon a break past the $70 mark on a daily closing basis, WAG stock should have room into the mid-$70s.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.