Last Updated on June 13, 2019 by Sultan Beardsley
What do dads, grads and medical equipment stocks have in common? This is the time of year when all shine. Over the past 20 years the medical equipment space has risen ~2% from the 3rd week of June through the end of July. Is this by itself a reason to rush into medical equipment stocks? Of course not, but seasonality can push the probabilities on your side as medical equipment stocks rose 12 of 19 times in every July since 2000. But when seasonality arrives with a hot chart, then the stars are aligning for a nice swing trade.
The Dow Jones US Medical Equipment Index ($DJUSAM)
The Dow Jones US Medical Equipment Index ($DJUSAM) has been in a Wyckoff trading range (blue zone) since Oct 2018. A false breakout in March was accompanied by a negative PPO divergence leading to a 9% correction. The industry then consolidated in a triangle pattern from Apr 17 – Jun 4. During this period the industry began to outperform the S&P 500 ($DJUSAM:$SPX) and eventually broke out of both the triangle and the Wyckoff trading range to hit new all time highs today.
So what stocks in this industry look good?
If you’re conservative and wish to avoid single company risk you can buy the industry ETF IHI. It’s chart (not shown) closely follows the $DJUSAM. A number of stocks have already broken out considerably including MTD and BSX. Both beat earnings and revenue projections in their last report and look good going forward. While these stocks are hot I’d be careful of chasing them. Better entries may be available after a brief pull-back and/or re-test of the breakout level.
NVCR, CSII and WMGI
NVCR, CSII and WMGI (in order of PPO or relative momentum) look poised for big breakouts. Although these stocks have not broken out yet, they have all have outperformed the $DJUSAM since February. The one exception is WMGI which began outperforming in April. My favorite among these three is NVCR. This stock beat earnings and revenue estimates in its last report and is forming a cup and handle pattern (pink) predicting a 35% gain from current levels. WMGI is also forming a cup and handle and predicting an 8% move. Note that CSII trades at low volume so you may want to consider this when considering allocation size.
TNDM, FLDM and TCMD
Other charts of interest include TNDM and FLDM which have recently pulled-back after testing break-out levels. TNDM beat on revenue and raised its guidance. As of this writing TNDM has pulled back to its MA50 (currently 64.3) and is printing a reversal candle. If this level holds this could be an excellent entry for this fast moving but highly volatile stock. FLDM is similarly positioned having just tested it’s MA20 and MA50 and is coming off an earnings and revenue beat.
The last stock I’m highlighting is TCMD. Although this chart is weaker than the others I’ve listed, it is flashing signs of a potentially big move. TCMD beat on earnings and revenue but followed with a drop in price that may be leading to a double bottom. Importantly, this price drop occurred with a positive PPO divergence followed by a break above the Mar – Jun downward trend line. A continued upward move of ~8% will complete the double bottom, which if executed predicts another ~20% move to ~$70. TCMD also trades at low volume.
Note: I have recently entered long positions in NVCR, CSII, TNDM and TCMD. I am considering long entries in WMGI and FLDM. I was not compensated for this article. Charts prepared June 10 during market hours.
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