U.S. Healthcare Heroes

Thanks to the top notch homework regarding the healthcare, biotech and pharma space, led by the likes of Master Investor Jim Mellon, we were given decent notice that 2015 was likely to be the year for this particular area of the market.

Given the demographics of an ageing population, epidemics such as Ebola, and an acceleration in scientific expertise, it would appear that those backing biotech and associated sectors are in the place to be in terms of their investment holdings. The only disappointment for UK investors is that apart from a few notable exceptions such as Shire (SHP) or Hikma (HIK), most of the action exists Stateside. The following is a decent précis of the best of class in the area.

Abbvie (ABBV) was a relatively obscure company to UK investors, until it was knobbled by the U.S. authorities (the land of unfettered capitalism) into not carrying out a tax inversion purchase of Shire. Quite understandably, shares of Abbvie topped out rather painfully in the wake of this unfair fiasco, but it would appear that there has been an element of stabilisation since. The technical explanation is a dip towards the floor of a rising trend channel from August. Traders have the choice of buying Abbvie at the floor of the channel at $56, or a momentum trigger such as an end of day close back above the latest gap to the downside at $58.21. The target for Abbvie in the wake of a positive reversal would be a retest of the late 2014 resistance through $70 on a 3-4 month timeframe. At this stage only back below the February/March support zone sub $55 on a weekly close basis would really hint that further consolidation is required before the shares finally get back on their feet.

With Alexion Pharma (ALXN) we are in a similar bouncing along the bottom pattern to that of Abbvie, although the bias here does appear to be a little more positive. This is because we are trading in the aftermath of a one day bear trap rebound from below the 200 day moving average now at $175.74. This follows a similar bear trap manoeuvre last month, something which is unlikely to be needed again ahead of a new leg to the upside. The hope here is that while there is no end of day close back below the 200 day line we shall be treated to a fresh intermediate rally, one which could very well retest the best levels of December last year through $200 over the next 1-2 months. This would effectively mean risking around $5 to make $20 plus, a decent risk reward ratio.

The trio today is completed with Gilead Sciences (GILD), where it could be argued that we are looking at what is overall the most classically bullish stock chart of the three described here today. What helps us come to this conclusion is the way one can draw a rising trend channel from as long ago as April last year. The floor of the channel currently runs through the $99 level, just shy of where the 200 day moving average is standing. This would suggest that at least while there is no end of day close back below the near one year channel the upside for the stock could be towards the 2014 resistance projection at $130. The timeframe on such a move is seen as being the next 2-3 months.