Hologic (NASDAQ:HOLX) shares rallied nearly 7% on Tuesday to close at an all-time high. The Massachusetts-based medical device company manufactures Covid-19 diagnostic tests and has seen an increase in interest by traders looking for ways to capitalize on the global pandemic. With yesterday’s breakout, the technicals for Hologic stock look incredibly compelling.
The market backdrop for bullish trades has also improved this week, after bears scored a victory ahead of the weekend. Let’s start with a brief look at why the S&P 500 still supports buyers, then we’ll more closely analyze the price action in HOLX stock and show how you can profit from the imminent upside.
Market Uptrend is Still Intact
Think of the S&P 500 as the tide and individual stocks you trade as the boats. You can inspect every nook and cranny of each vessel to understand everything that drives it, but if you’re betting the craft will rise when the tide is falling, then you’re probably going to lose money.
Last week’s retreat in the broad market was a shot across the bow for the uptrend. It tested the resolve of dip buyers and resulted in the first support probe we’ve seen in weeks. Friday’s close was particularly ominous, with higher volume sending stocks down to close at their lows. More losses were held at bay only because they finally rang the closing bell.
Buyers had the weekend to stew over the deterioration, wondering if it was the beginning of a more dramatic downturn. But bulls returned in fine form, and the two-day rally we’ve seen so far, particularly in small-caps, suggests the uptrend is back on track and the weakness was a ruse.
If the overall health of the broad market wasn’t enough to encourage buying stocks, the healthcare sector is starting to outperform — at least mildly. On Tuesday, the Healthcare SPDR ETF (NYSEARCA:XLV) ran 1.71%, outpacing the S&P 500’s gain of 1.28% by a modest margin. It places XLV on the cusp of breaking back above its 20-day and 50-day moving averages. This type of sector strength should bode well for long trades in Hologic stock.
Hologic Stock Chart
The weekly time frame provides context for the longer-term trend that has been driving HOLX higher. Before March, Hologic shares were a consistent grower, with very few corrections in recent years. This crash corrected as quickly as it arrived, resulting in an epic “V”-shaped recovery that has been echoed elsewhere. The stock built a textbook base over the past two months that allowed overbought pressures to ease and a new breakout setup to form.
This week’s rally officially completed the consolidation pattern and signaled the next advance is here. As with all stocks basking at record highs, Hologic doesn’t have any old resistance zones to contend with. In projecting a target for breakouts like this, I suggest adding the height of the base ($6) to the breakout point ($55). That makes $61 a realistic number for swing traders to shoot for.
Buy Stock or Call Spreads
Equity traders could buy HOLX stock here with a stop below this week’s low of $53.
Those seeking an options trade could consider bull call spreads. If Hologic returns to the steady trend it was even before this year’s craziness, then I prefer a hedged bet over something aggressive like buying calls.
Buy the Sep $60/$65 bull call spread for $1.10.
The max loss is limited to the original cost of $1.10 and will be forfeited if the stock sits below $60 come September. The max gain is $3.90 but requires holding to expiration and having HOLX sit above $65. To increase your odds of success, consider taking profits once you double your money.
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