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Medical Appliance Stocks Perking Up
Posted: Jun 10, 2009 11:16 AM
by
Joey Fundora
Often when a stock experiences a sharp move in response to a favorable news event, there will be a spillover to other members of the stock's sector. Whether there was a takeover of a stock, a favorable earnings report that cited increased demand, or an upbeat forecast, investors will often bid up other companies in the sector in sympathy. Oftentimes, even a company-specific event will act as a shot in the arm for the sector, simply by calling attention to the group and forcing investors to take notice or dig deeper.
Palomar Medical Technologies (Nasdaq:PMTI) may be in the process of sparking a renewed interest in the medical appliances and equipment sector. Last week, the company received FDA approval for an anti-wrinkle device that caused shares in PMTI to soar over 50%. In looking at the chart, PMTI was able to hurdle formidable resistance easily, and it cleared a several-month base. PMTI is now in the process of consolidating the breakout, but the volume and magnitude of the move imply that an important bottom has been set. (For further reading on breakouts, check out The Anatomy Of Trading Breakouts.)
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| Source: StockCharts.com |
Intuitive Surgical (Nasdaq:ISRG) is often regarded as the leader for this sector as makers of the da Vinci surgical system. ISRG began trading in July of 2000 at approximately $18 and ran to over $350 by the end of 2007. It then corrected over 75% in the current bear market, finding support just under $100 a share. This is a consolidation area from the preceding bull market and it appears that it was confirmed as a primary support level. ISRG broke out of a consolidation from this area and has been in the process of forming a new consolidation near $150 a share. The pattern is taking on the shape of an symmetrical triangle, and these patterns usually result in a continuation of the move immediately preceding the consolidation. If ISRG can clear this pattern, it may provide a boost to the entire sector. (Read Triangles: A Short Study In Continuation Patterns to learn more about this useful chart pattern.)
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| Source: StockCharts.com |
American Medical Systems Holdings (Nasdaq:AMMD) is a smaller company in this group, but it has been outperforming its peers in 2009. It is currently up approximately 100% in 2009 and is still acting bullish. It cleared a base in May on a huge high-volume gap higher. It has not attempted to seriously fill the gap, which shows very strong demand for the stock on any dip. While it may be extended in the near term - and is currently close to resistance - it has been a leader in this group and is still showing strength.
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| Source: StockCharts.com |
St. Jude Medical (NYSE:STJ) is another company in the medical appliances and equipment sector that is looking interesting. It recently cleared a base it had been forming since February, and is currently testing the breakout area. If STJ can hold this area as support, it will more than likely clear the recent high and confirm the breakout.
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| Source: StockCharts.com |
The Bottom Line
Often when trading individual stocks, it is easy to lose sight of the larger picture. Traders should always be aware of how the general markets are trading, as well as specific sectors. Institutions will typically trade in baskets of stocks and if the action in one member of a sector is painting a rosy picture, it will usually benefit its peers.
Do you think this group will see a rotation of money into its stocks, or is it close to resuming the weakness shown over the past year? Let us know by participating in the Investopedia Community.
At the time of writing Joey Fundora did not own shares in any of the companies mentioned in this article.
By
Joey Fundora
Joey Fundora is an independent trader located in South Florida. Joey focuses on using technical analysis techniques to uncover supply and demand imbalances in equities. To see more of his work, visit his site on Stock Chart Analysis.
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