The decision by Bristol-Myers Squibb (NYSE: BMY) to acquire Inhibitex (NASDAQ: INHX) has restored attention to a sector that has often benefitted from seasonal strength in the first half of the year. Shares of BMY have been pulling back from new, yearly highs, closing lower for five out of the past six trading days, including trading lower by nearly 1% on Monday, the day of the INHX announcement). BMY has finished lower for three out of the past four sessions.
What other stocks from the health care sector are selling-off and moving toward levels where buyers historically entered the market to take advantage of lower prices? Also trading just off 52-week highs are shares of Intuitive Surgical (NASDAQ: ISRG). ISRG pulled back by nearly 2% in Monday’s session and is trading just outside of technically oversold territory.
Merck & Company (NYSE: MRK) shares are also headed for their second consecutive lower close as traders trim gains from the stock’s recent, new high. Nearing its lowest close of the past week, MRK is still up 9% since its last significant, short-term pullback in mid-December. Shares of MRK are trading in neutral territory and will require significant additional selling before reaching oversold extremes.
Both ISRG and MRK have neutral ratings ahead of trading on Tuesday. But both stocks also earned ratings upgrades within that “neutral” category and, as such, may be worth watching. Additional weakness in the short-term likely will increase the edges in these stocks, boosting their ratings potentially from “neutral” to “consider buying” before the end of the week.
Traders and active investors looking to avoid single-stock risk may want to keep an eye on healthcare ETFs like the Health Care Select Sector SPDRS ETF (NYSE: XLV), which is trading in overbought territory ahead of Tuesday’s open. The ETF has been rangebound for the past five days, trading at its highest levels since July.
Another option for traders is the iShares S&P Global Healthcare Sector Index Fund ETF (NYSE: IXJ). IXJ has closed lower for three out of four days and finished just outside of oversold territory as of Monday’s finish.
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David Penn is Editor in Chief of TradingMarkets.com.