As the JPMorgan Healthcare Conference rolls on this week, it is clear there will be volatility in the sector, although we seemed to kick it off a bit early with news hitting as early as Sunday night. As far as coverage goes, I highly recommend following TheStreet's Adam Feuerstein.
I normally don't play this sector, but thanks to a ping from a friend north of the border, the Allscripts Healthcare Solutions (MDRX) chart is really one to look at. There's been some bullish option activity on the call side around this one, but I'm looking at the price action as well. Not what has happened, but what didn't happen.
Yesterday, the stock had all the looks of breaking down. The price was under support, the Relative Strength Index (RSI) was pressing against 50, the Vortex Indicator crossed bearish and the stochastics had a bearish look to them as well. By all accounts, this thing should have died. Heck, even the five-day moving average was under the 13-day moving average after a recent bearish cross. The thing is, it didn't. The stock reversed off the breakdown levels and pushed back into the moving averages.
Now, we jump into today and see the stock green. Of course, the strong broader market is some help, but I'm beginning to think the breakdown yesterday was a fake. While we still see some bearish indicators, the RSI bouncing off of 50 rather than falling through it speaks volumes. Add in the fact that the price is trying to get above short-term moving averages today, and we just might be set up for a nice little push higher.
The price trigger is the multiple resistance lines, both short term and long term, which coincide at $13. The short-term resistance only goes back a few weeks, while longer term, we are talking about way back to August. I could almost argue for a two-headed inverse head-and-shoulders pattern here if such a thing existed, but it might be simpler to call it a curvy "W." The price target is $15, ultimately, with some resistance expected around $14, so I would use that as a level to take some profits.
There are two approaches to a stop. The first is the conservative approach of using any close under $12.50. Given our fakeout yesterday, I'd prefer to give it some more room and use $12 as the stop area. The idea of using puts on a break below $12.50 could also work here. Ideally, we'll see the price push over $13 and the Vortex Indicator or stochastics turn higher, but I like my risk-reward as I see this as risking $1 to make $2 with solid odds once we push over $13. I'm not quite there yet, but I will set a buy-stop on this one a few pennies over $13.