Healthcare Stocks Aren’t Immune to Selloffs


Guardant Health, Inc. (NASDAQ:GH) is a healthcare stock, but it operates in the wrong segment.

Unlike companies like Emergent BioSolutions (NYSE:EBS) or Gilead Sciences, Inc. (NASDAQ:GILD), GH isn’t producing products for use in the treatment or prevention of COVID-19.

Those stocks are really the only healthcare stocks set up to benefit from this situation, and GILD still fell amid all the panic last week.

GH provides testing, data and analytics for people with cancer, and unfortunately, investors won’t buy just any healthcare stock.

Healthcare Stocks Are Following the Market

A lot happened over the weekend. The Federal Reserve has cut interest rates to zero, and it will launch a $700 billion quantitative easing program.

Despite the new action taken by the central bank, it looks like stocks will open lower.

Some might say that, since we are in the middle of an outbreak, health care stocks are set to benefit. However, it looks like investors are being more selective.

If you look at the chart below, you can see that the healthcare sector, as represented by the Health Care Select Sector SPDR Fund (NYSEARCA:XLV), is following the market closely.

Daily Chart of the Health Care Select Sector SPDR Fund (XLV) and the S&P 500 — Chart Source: TradingView

Not all healthcare stocks are equal when it comes to this virus outbreak, and GH is one of many stocks vulnerable to the bearishness.

GH’s Long-Term Support Heads Lower

Before this outbreak, GH had been pushing higher, but it stalled in late February. As the COVID-19 fear hit the rest of the market, the stock started falling, and if you look at the chart, you can see that its long-term support has been trending downward.

Daily Chart of Guardant Health, Inc. (GH) — Chart Source: TradingView

With stocks set to open lower this morning, it’s possible we could see GH push its long-term support even lower.

As I’ve said, GH is in a segment of the healthcare industry that isn’t going to benefit from this outbreak. If this situation continues to deteriorate, we could see the stock drop below its down-trending support at around $55.

With a put option, traders can add a little extra protection to their portfolios.

Buy to open the Guardant Health, Inc. (GH) April 17th $50 Puts (GH200417P00050000) at $1.90 or lower.

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