Three Buy Signals for Healthcare Stocks Right Now

Delray Beach, Florida – Despite heaps of volatility, the healthcare sector is on the rise.

And today, I’ll show you undeniable proof of it…

I recently argued there’s strong industry data that suggests the long-term prospects for the industry far outweigh any short-term volatility in the market.

But here’s what I didn’t show you last week… the technical signals that confirm that bullish thesis.

You see, fundamental analysis is the study of a company’s financial statements, sales and earnings forecasts, as well as other data that determines a stock’s intrinsic and future value.

It’s a crucial form of market analysis that we undertake every day here at the Club.

But it’s not the only type of analysis that’s needed for you to be a successful investor. We also recognize the importance of identifying the technical trends that reinforce our analyses.

Technical analysis is the study of market behavior through the analysis of a stock’s price and volume activity. While there are many forms of technical study out there, the most effective tools are often the simplest.

And there are three technical signals telling investors that right now is a good time to jump into healthcare stocks.

Healthcare Stocks: A Technical View

A proper technical study of any market requires the right chart.

I’ve chosen the Guggenheim S&P 500 Equal Weight Health Care ETF (NYSE: RYH)… and for one simple reason.

Most stock indexes are market cap weighted. That means their price movements reflect the shifts in the biggest companies more than those in the smaller ones.

Yet a more insightful way to look at the market is through equal-weighted indexes, such as the Guggenheim Health Care ETF.

They reflect broader trends within a sector or industry rather than overrepresenting the largest cap companies. The Guggenheim Health Care ETF represents 60 stocks across multiple healthcare industries, including biotech, pharmaceuticals, healthcare IT and other service providers.

Take a look at its performance over the past several years.

The red lines are called Fibonacci retracement levels. They reflect important price levels at which a stock or index is likely to see a price reversal.

There are three main retracement levels that many traders use: 38.2%, 50% and 61.8%. After a move up or down, the price will usually “retrace” from its highs and form support or bounce off its lows and form resistance levels near those Fibonacci points.

This can help you figure out the best point to buy or sell.

Each retracement level is based on Fibonacci ratios, which are mathematical proportions found in nature, art and the movement of market prices.

As you can see, the healthcare sector experienced a correction from mid-2015 to early 2016.

Then the price action for this ETF dropped down and touched the 23.6% retracement level.

That’s when something “magical” happened.

Prices reversed course and began an upward trend that persists even today.

Of course, it’s not magic at all. It reflects the mathematical nature of the market’s seemingly random price patterns.

These patterns recur in multiple sectors throughout history. They can help us identify key moments when a market shift may occur.

A price reversal on a Fibonacci retracement level is typically a strong sign of support or resistance at that price. In the case of the Guggenheim Health Care ETF, the reversal at the 23.6% level supports the case that the sector has put in a bottom at around $134.

But the story doesn’t stop there.

We’ve recently witnessed another bullish signal for healthcare stocks.

As you can see, the fund recently achieved an important breakout, surpassing its previous all-time high.

Remember, this ETF is equal-weighted. That means this breakout reflects broad-based momentum in the healthcare sector.

It’s a bullish signal that tells us investors are regaining confidence in healthcare stocks. And that’s in spite of the political disputes over healthcare reform in Washington.

But there’s one more confirmation signal that I’m especially excited about.

And it’s a signal that nobody in the financial media has noticed…

Follow the Money Flow

Most investors aren’t familiar with the Money Flow Index.

But they should be.

This indicator combines the stock’s price and volume activity to give us a clearer picture of the buying and selling pressure within a stock – or any other asset.

The Money Flow Index can be used in two ways.

The first is to identify “extreme” points in a stock’s price action that could trigger a trend reversal.

For example, when the Money Flow Index is below 20, this tells us that a stock is likely “oversold” and might see a short-term upswing. However, if the Money Flow Index is above 80, a stock is considered “overbought” and could swing to the downside.

We can also use this indicator to confirm bullish or bearish momentum in a stock.

When the Money Flow Index is above 50 (and below 80), there’s more buying pressure than selling pressure. That’s a bullish signal for the stock.

And when it’s below 50 (and above 20), there’s more selling pressure than buying pressure – a bearish signal.

Below is a chart of the 200-Day Money Flow Index for the Guggenheim Health Care ETF over the past year.

In the past few months, the Money Flow Index has turned bullish.

This means there is more buying pressure than selling pressure… a sign that prices are positioned to rise in the months ahead.

Put together, these technical signals confirm what we’ve already concluded…

The long-term case for investing in the healthcare sector is very strong. And if history is any indication of this sector’s potential, healthcare investors could see a big windfall in the years to come.

Good investing,

Anthony

P.S. I’ll be attending the MoneyShow conference in Las Vegas, Nevada, next week. Speaking at the conference are some of the brightest financial minds on and off Wall Street. I’m excited to attend and will report back with the best ideas and insights I come across.