After a rough start to 2018, defensive sectors are finally finding their footing. Utilities, consumer staples and healthcare stocks all suffered under the onslaught of higher interest rates. Fortunately, the pressure finally eased in May when the 10-year yield peaked at 3.11%. Since then, bond yields have stumbled, and money has come flooding back into all three of these sectors.
Of the trio, Healthcare is the closest to reclaiming its prior peak. In fact, at $90, the Healthcare Sector SPDR Fund (NYSEARCA:XLV) is less than 2% away from record highs. It’s also now rising at a faster clip than the S&P 500 which shows some impressive relative strength.
Throw it all together, and this makes healthcare stocks a logical target this week for bullish trade ideas. I’ve scoured the sector over the weekend and here are three of the best selections.
3 Healthcare Stocks to Buy: Amgen (AMGN)
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Amgen (NASDAQ:AMGN) shares have mounted a robust recovery and are now poised to attack the January peak of $201.23. The rise has lifted AMGN stock back above the 200-day, 50-day, and 20-day moving averages. I particularly like how the post-earnings sell-off in late-July was insufficient in breaking support.
That test shows buyers’ resolve and the sturdiness of the overall uptrend. With implied volatility in the dumps, I think long call spreads are a smart way to position yourself for continued upside.
Buy the Oct $200/$205 bull call spread for $3.15. The max loss is limited to the $3.15, and the max gain is $2.85. Consider taking profits on a move to $205.
3 Healthcare Stocks to Buy: UnitedHealth Group (UNH)
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The uptrend in UnitedHealth Group (NYSE:UNH) over our multi-year bull market has been a force to be reckoned with. During the 2008 crisis, UNH stock descended as low as $14.51. Now she’s flirting with $260. We’re talking about relative strength of the highest order here. Two things caught my eye over the weekend.
First, UNH has already reclaimed its January high. That means it’s a sector leader. Second, the past two months an ascending triangle pattern has formed providing a clean breakout entry for its next advance. The series of higher pivot lows shows continued buying aggression, but the triple top near $258 shows sellers aren’t going down easy.
Once the stock can clear $258, we should see upside followthrough. To position for such an eventuality, buy the Dec $260/$270 bull call spread for $4.15.
3 Healthcare Stocks to Buy: Merck (MRK)
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Merck (NYSE:MRK) rounds out today’s top stock picks. It’s major moving averages are stacked atop each other in bullish fashion. I particularly like the speed with which it recovered from the recent earnings down gap. Buyers gobbled up the discount quickly driving prices up to a new 2018 high. Like UNH, MRK has also vaulted past its January high even though the entire sector hasn’t.
What gives me pause on Merck is the significant overhead resistance at $66.50. This marked the top last year despite numerous attempts to get above it. I suggest letting waiting to pull the trigger on bullish trades until the stock has proven it can finally jump above this ceiling.
Once it does, you’ve got a green light for bullish plays.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
