With all the focus on technology stocks like the Magnificent Seven and AI stars, it's easy to forget there's another potential crop of investments waiting for their chance to shine. Which is why it might be time to look at health care stocks again. Like last week's swing trading column on retail stocks, we can use a leveraged ETF, like Direxion Healthcare 3x Bull ETF to make a play on what may be a new area of strength.
Why Health Care Stocks Are Worth A Look
Why health care stocks? As Jay Woods, chief global strategist at Freedom Capital Markets noted on this past week's "Investing with IBD" podcast, our aging population is opening the door for more innovation and importance for this sector. For swing trading, having the story helps but ultimately our actions come down to the chart.
CURE had a 50% move from its bottom in October to the top of a right side of a cup (1). With just a quick dip below the 21-day moving average line (2), CURE carved out a handle and showed a breakout just a few weeks later (3).
After making a little over 5% progress from its buy zone (4), the health care stock ETF had another pullback. This time the 21-day line contained the move.
A few days later when it crossed the highs of the previous few days (5), CURE joined SwingTrader to give us some exposure to health care.
Taking Profits And Avoiding Pain
As we tend to do, we took our first third of profit the next day when we had a 2.5% gain (6). It's always nice to get the immediate feedback that a trade is working. But stocks have to continue proving themselves to make them stay as a part of our portfolio. That's where the health care stocks gave us some trouble.
Over the next couple of days, CURE went from a 3% gain to nearly a 2% loss (7). Sure, with a leveraged ETF you have to expect some swings, but the loss of momentum and the move below our entry had us looking for the exit.
Though our sell was below our entry, locking in the earlier profit left us basically flat on the trade. It was a tough call, since CURE was just touching its 10-day line but had room above its 21-day line. We just didn't think we could last all the way down to the 21-day line.
Sometimes you look back on your exit with relief. Sometimes with regret.
Health care stocks rallied after our exit and eventually topped out at a 6% gain from our original entry (8). But a few days later, CURE was right back to our exit price (9).
This time the pullback was more severe, but the 21-day line once again came in as a support level. There's no reason that the health care stock ETF can't be bought back with a bounce at that level. A good reminder that just because you exit, that doesn't mean you stop looking for opportunities down the road.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on X, formerly known as Twitter, at @IBD_JNielsen.
