Shares of healthcare stocks as represented by the S&P 500 healthcare sector has had a great run since July, up around 13%. While from a trend-following perspective this continues to be a good-looking move higher, in the near term I am increasingly seeing signs of exhaustion. In fact on Wednesday, shares of Pfizer (NYSE:PFE) finally gave us a bearish reversal. Active investors and traders could now look to play PFE stock from the short side with very well-defined risk parameters. Those are exactly the kinds of trades we like!
This is as good a spot as any for me to remind ye faithful that stocks as an asset class are highly correlated. This correlation among stocks is even higher within sectors and groups of stocks. To wit, the healthcare stocks rally from the past three months helped lift most stocks in this sector.
PFE Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Moving on to the charts and starting out with the multiyear weekly chart, we see that PFE stock saw a major breakout move take place this past July. Note how the stock at the time broke above the previous technical resistance band around the $37 area and accelerated hard. The rally since then and into this week’s highs measured just about 20%.
As a result of the steep and relentless rally, PFE stock’s weekly MACD momentum oscillator is wildly overbought (see bottom of chart). After another rally attempt earlier this week, the bulls simply didn’t have enough staying power, and that now leaves the weekly chart flashing an exhaustion candle, with two days to go until this trading week, month and quarter is over.
Moving averages legend: blue – 8 day, yellow – 21 day
On the daily chart, we see this a little more closely. Note how on Sept. 24, PFE stock had a failed rally attempt, and this was followed the next day by an outside bearish reversal day. This was further more followed on Sept. 26 with another failed intraday rally. To me this shows buyer exhaustion and PFE stock could now slip into another mean-reversion period back toward the $42.50 area as a first downside target.
Active investors and traders could look to play PFE stock to the short side, or buy puts or put spreads using options with two months left in expiration (as opposed to front month or weekly options).
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