BALTIMORE (Stockpickr) -- Investors in search of healthy gains in 2014 need look no further than health care stocks. As a sector, health care is outpacing the rest of the broad market this year, besting the S&P 500 by a full point year-to-date on average. But the average gains are just the tip of the iceberg. Hone in on strongest performers, and the numbers look far more impressive.
Health care stocks are home to some of the most exciting, fast-moving opportunities on the market. Yesterday's acquisition-driven 229% pop in shares of Idenix Pharmaceuticals (IDIX) is a perfect example of that. When is the last time you saw a buyout premium that big get dumped into a billion-dollar name?
Acquisitions are hard to get in front of, of course. But there are still some big trading opportunities popping up in a handful of health care stocks this week. To find them, we're turning to the technicals.
For the unfamiliar, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
Without further ado, let's take a look at five technical setups worth trading now.
First up is $7 billion specialty pharmaceutical company Salix Pharmaceuticals (SLXP) , a name that's been a strong performer in 2014. Since the calendar flipped to January, Salix is up nearly 25%. And after dragging along sideways since the start of March, Salix looks ready to launch on another leg higher. Here's how to trade it.
Salix is currently forming an ascending triangle pattern, a bullish price setup that's formed by a horizontal resistance level above shares at $117 and uptrending support to the downside. Basically, as SLXP bounces in between those two technically significant price levels, it's getting squeezed closer to a breakout above that $117 price ceiling. When that happens, we've got a buy signal in this drug maker.
Relative strength adds some extra confidence to an upside trade in SLXP. Since October, this stock's relative strength line has been holding an uptrend, an indication that Salix is outperforming the broad market in good times and in bad ones.
Wait for $117 to get taken out before putting money on this name.
We're seeing the exact same setup in shares of GlaxoSmithKline (GSK) - Get Report, the $130 billion big pharma name. Like Salix, GSK is forming an ascending triangle pattern, in this case with resistance at $55.50. A breakout above that $55.50 level is the buy signal for shares in June.
Why all the significance at $55.50? It all comes down to buyers and sellers. Price patterns are a good quick way to identify what's going on in the price action, but they're not the reason a stock is tradable. Instead, the "why" comes down to basic supply and demand for GSK's stock.
The $55.50 resistance level is a price where there has been an excess of supply of shares; in other words, it's a spot where sellers have previously been more eager to step in and take gains than buyers have been to buy. That's what makes a breakout above $55.50 so significant the move means that buyers are finally strong enough to absorb all of the excess supply above that price level.
Health benefits company Aetna (AET) is looking bullish this summer, and you don't need to be an expert technical analyst to see why. This stock's price action is about as simple as it gets. For the better part of the last year, AET has been bouncing higher in an uptrending channel, a pair of parallel trend lines that have given traders a very high probability range for shares to remain with.
Put another way, an ideal buying opportunity has come up for Aetna bulls every time this stock has bounced off of trend line support along the bottom of the channel. When it comes to trend channels, up is good and down is bad -- it's really as simple as that. So with Aetna's chart moving up and to the right, this is a "buy the dips" name.
That said, patience is a virtue in AET right now. Shares are currently pressing against the top of their channel, making a correction back down to trendline support look likely in the short-term. The best buying opportunity comes when Aetna comes back down to support.
HCA Holdings (HCA) - Get Report is another textbook uptrending channel. The big difference is that this hospital owner isn't quite as far extended as Aetna right now. Just like with AET, the best time to buy comes on near trend line support. That doesn't mean you should be a buyer on the way down, though; wait for a bounce off that big support line.
Waiting for a meaningful bounce off of support is crucial for two big reasons: it's the spot where shares have the furthest to move up before they hit resistance, and it's also the spot where the risk is the least (because shares have the least room to move lower before you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, you're ensuring HCA can actually still catch a bid along that line before you put your money on shares.
The 50-day moving average has been a good proxy for support for the last month; wait for shares of HCA to bounce off of that level before you buy.
Usana Health Sciences
Last up is nutritional and personal care product maker Usana Health Sciences (USNA) - Get Report, a name that's showing some bullish overtures after oscillating sideways for the better part of the last year. Since mid-October, USNA has been forming a classical breakout setup now, investors should be looking out for a move above $80.
USNA is currently forming an inverse head and shoulders pattern, a technical setup that indicates exhaustion among sellers. The pattern is formed by two swing lows that bottom out around the same level (the shoulders), separated by a bigger trough called the head; the buy signal comes on the breakout above the patterns neckline level, currently right at $80 resistance.
Momentum, measured by 14-day RSI, is the confirming indicator to look at in this stock. Our momentum gauge has been making higher lows, even while USNA has mostly traded flat. With RSI still in the neutral zone, there's a lot of room for USNA to move higher before this stock gets overbought.
To see this week's trades in action, check out the Technical Setups for the Week portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
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At the time of publication, author had no positions in stocks mentioned. Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation. Follow Jonas on Twitter @JonasElmerraji