Health Care ETFs Perk Up

As the last week of August is typically one of the slowest weeks of the year, ETF price action in recent days has been quite lackadaisical. An overwhelming majority of ETFs have chart patterns that place their current prices in "no man's land," just like the daily charts of the major indices.

Nevertheless, the various health care ETFs, including the iShares Medical Devices ETF (IHI - commentary - Cramer's Take), iShares Healthchare ETF (IYH - commentary - Cramer's Take), iShares Biotech ETF (IBB - commentary - Cramer's Take), Biotech SPDR (XBI - commentary - Cramer's Take) and the Biotech HOLDRs (BBH - commentary - Cramer's Take), continue to show the most relative strength of all industries.

Though they have retraced from their recent highs, most are holding in a tight range of support, at or near their 20-day exponential moving averages (EMAs). I am still long the IYH from our original Aug. 5 entry, but its current pullback to the 200-day moving average (MA) provides for an ideal entry point if you have not already bought in.

iShares Healthcare ETF

Click here for larger image.

Source: TradeStation

Another healthcare ETF that has perfectly pulled back for a low-risk buy entry is iShares Medical Devices. This ETF is actually stronger than IYH because it is perfectly holding support of its 20-day EMA, and is well above its 50- and 200-day MAs. Buying leading sector ETFs on pullbacks to their 20-day EMAs is a consistently profitable play that yields a positive reward/risk ratio.

A buy entry into IHI anywhere in the $61.50 to $63 range is ideal. However, all bets are off if it closes firmly below the $61 level, as such a break of support could lead to a correction down to the 50-day MA, presently at $59.45.

iShares Medical Devices ETF

Click here for larger image.

Source: TradeStation

In last week's column, I brought to your attention the breakouts in two solar-energy ETFs, Market Vectors Solar Energy (KWT - commentary - Cramer's Take) and Claymore Global Solar Energy (TAN - commentary - Cramer's Take).

I mentioned a potential low-risk buy entry, and that buying opportunity came this past week, when TAN retraced to a low of $25 on Aug. 26. I subsequently bought TAN at market the following morning, at a price of $25.30. From here, I expect the newfound relative strength in the solar-energy sector to carry TAN much higher in the intermediate-term. This "textbook" pullback in TAN is shown on the daily chart below.

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At the time of publication, Wagner was long Claymore Global Solar Energy.

Deron Wagner is the founder and head trader of Morpheus Trading Group. His daily focus is managing and trading the Morpheus Capital Hedge Fund, which he founded in April of 2004. He also teaches his trading methodology with The Wagner Daily, The MTG Stalk Sheet, and The Wagner Weekly newsletters.