This week, one of the surprise sectors for this earnings season is the health care stocks. Shares of AmerisourceBergen Corp. (NYSE:ABC), Baxter International Inc (NYSE:BAX) and Danaher Corporation (NYSE:DHR) are surging after earnings results sparked one-day rallies, the question we’ll ask today is “are these stocks ready to run higher?” Let’s take a look at the charts.
AmerisourceBergen Corp. (ABC)
AmerisourceBergen shares shot higher after their results beat analyst expectations. Expectations for the health care sector have been muted given the uncertainty around the regulatory environment for these stocks.
Regardless, the better-than-expected results broke ABC stock above its recent trading range and it looks to move even higher.
AmerisourceBergen has a confluence of technical trendlines that have been building into a bullish case for the stock. Currently, ABC’s trendlines are tangled-up at the $81-mark, but will quickly begin to accelerate into intermediate-term bullish patterns.
AmerisourceBergen broke above its top Bollinger Band on the earnings move, suggesting that we are likely to see some upside volatility move ABC stock quickly towards $92.
Baxter International Inc (BAX)
Baxter International shares join the health care stocks that outperformed on earnings this week. As a result, we’re seeing an opportunity for BAX stock to make a fast move higher to the $51-level and higher.
Baxter shares broke above their top Bollinger Band Tuesday, indicating that we’re going to see increased volume and higher prices as the traders begin to pile back into the name.
Analysts have been cool on the healthcare sector lately, as they expect the regulatory environment to become as clear as mud, but much of this sentiment has already been priced into these stocks as they have lagged the market for the last six months.
BAX shares have been a relative strength leader in the group, meaning that we should expect the “crowd” to take the latest earnings and price movement as a signal that the bullish train is ready to pull out of the station on some of these stocks. That will attract more interest and buyers to Baxter.
Short interest on BAX shares was on the decline, suggesting that the probability for a short covering has been removed from the situation, but as one of the few stocks in the sector making new highs, we expect the volatility rally to be fast and decisively bullish.
Danaher Corporation (DHR)
There’s one final health care company to attend to today with Danaher Corporation. DHR stock rallied almost 5% after its earnings report provided a positive surprise, but traders want to be careful in jumping on this stock thinking that a new trend is forming.
Our chart analysis of Danaher shows that the stock tends to spend more time in tight trading ranges because of lower volume trading on the name. Earnings moves on DHR tend to be the larger of the moves each quarter and rarely trigger a new bullish trend.
Yesterday, trading volume on Danaher was heavy because of the reaction to the earnings report; this sent the stock right into overbought territory.
The one-day 5% rally put DHR shares into new high territory, but today’s price reaction will be the one that traders want to make a move on.
A reversal from today’s highs to a close back below yesterday’s close will signal that the profit-takers are moving into Danaher to lock-in their profits and wait for the stock to settle back into its trading range (options premium sellers likely love this stock for that).
Based on these three charts, DHR is the stock that is most likely to pull itself back from its highs with our price target of $80.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
