Medical devices is another industry that Jim Cramer believes will hold up better in this current environment of volatile energy prices and interest rates. Read Part 1 of "Stocks That Do Well in a Declining Rate Environment Are Back" here and Part 2 here.
Let's take a look at five companies in this space, Baxter International Inc. (BAX) , Becton, Dickinson & Co. (BDX) , Boston Scientific Corp. (BSX) , Abbott Laboratories (ABT) and Edwards Lifesciences Corp. (EW) . There are other companies in this space, but this is a good representative mix.
The chart and indicators of Baxter International show underlying strength and could outperform the averages in the days and weeks ahead. In the daily bar chart of BAX, below, we can see an uptrend over the past 12 months. Prices are above the rising 50-day moving average line and the bullish 200-day line. The 200-day average was successfully tested in late March and early April so we know that traders are paying attention to this longer-term indicator.
The daily On-Balance-Volume (OBV) line has a positive slope the past year and has made new highs to confirm the price gains this year. I also want to point out that the OBV line hardly dips in February and March as prices corrected. Traders and investors did not for the most part liquidate positions.
The trend-following Moving Average Convergence Divergence (MACD) oscillator is well above the zero line and could generate a take profits signal if prices weaken further. BAX could correct some of its April-May gains but I suspect any pullback or correction will be relatively shallow and prices can eventually move still higher.
Becton Dickinson is another stock in an uptrend but sellers of the stock have more aggressive in recent months. In this daily bar chart of BDX, below, we can see that prices are below the flat 50-day moving average line. In the past four months BDX has spent more time below the 50-day average than above it. The 200-day line is rising and while it was successfully tested in late March and early April, the current move lower could generate a break of this longer-term indicator.
The daily OBV line shows a peak in late January with prices and has generally worked lower the past four months. The February/March weakness in the OBV line looks to be significant. The MACD oscillator on BDX is moving below the zero line for an outright sell signal. If BDX closes below $210 it will have broken the 200-day line and nearby support. A break of $210 could mean a deeper decline lies ahead.
Boston Scientific shows a chart pattern (chart below) that is stronger in some way than BDX and BAX.
BSX made a peak in late October and corrected in November and December. As BSX moved into the new year it began to recover its losses and climbed to new highs this month. BSX is above the rising 50-day average line and the positive 200-day average. In late April the 50-day line crossed above the 200-day average for a bullish golden cross. Typically, this signal is late but in trending markets it can be effective.
The OBV line followed prices lower in November but bottomed starting in early December. Last month the OBV strengthened, signaling more aggressive buying of shares. The MACD oscillator has rolled over this month for a take profits signal. The pullback in March was relatively sharp so I would expect the next correction in BSX to be shallow (applying the idea of alternation from the Elliott Wave Principal). I would look for new highs in BSX after this anticipated correction.
Abbott Laboratories has been trading sideways since January but the underlying strength in the OBV line is suggesting that investors have been accumulating shares consistently for the past 12 months. Prices stopped short of retesting the $64 area (the high of January and March) but notice how the OBV line has made a new high this month even as prices did not?
The MACD oscillator is in a bullish configuration above the zero line. Prices might retest the flat 50-day moving average line but a bullish OBV line is probably foreshadowing higher prices for ABT in the months ahead.
Edwards Lifesciences is looking toppy and traders and investors should be prepared for some price weakness in the near term. EW shows a high in March and then a dip followed by a rebound this month. The recovery rally this month looks like it has just about run its course and prices have slipped back below the declining 50-day moving average line.
EW is above the rising 200-day line but this indicator could be tested again like it was back in late October and early November. The OBV line peaked in March and signals a shift to more aggressive selling. The MACD oscillator is rolling over for another test of the zero line. All in all, EW looks vulnerable to further weakness in the weeks ahead.
Bottom line: When technical analysts look for the next market leaders they often go to the stocks that have held up the best during corrections. Medical device equipment companies are one group of stocks worth checking on for market leadership.