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As we've seen, one of the most powerful advantages of my proprietary "Best in Breed" system is that it not only finds hard-charging companies, but entire "under-loved" sectors on the verge of explosive gains as well.
The BiB screen flashed healthcare for yesterday, and I sent everyone a note to let them know to dive in.
But the BiB's not done - not by a long shot.
There's still lots of upside opportunity here, in these two specific buys...
These Companies Are Leading the Sector Much Higher
Lilly made the newswires this morning, announcing that it was scrapping late-stage trials of an experimental Alzheimer's drug they were co-developing with AstraZeneca Plc. because it wasn't meeting treatment goals.
Yet the stock has hardly suffered, trading near breakeven in early afternoon trading.
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Since dipping to a three-year low on Feb. 9, Lilly has gained an impressive 16%, while the XLV has managed a 7% advance. The move has the stock trading above its 50-day and 200-day moving averages, which are both pointed higher.
What's more, these trendlines are poised to form a bullish "golden cross" in which the 50-day moves above the 200-day. The last time that happened was in February 2017, in the middle of a monster 35% rally that spanned five months.
While on the low side, short interest increased 20% last month, indicating that there could be more potential for a short squeeze should the current rally continue.
Taking a longer-term view, the stock has gained ground for four straight months after bouncing off its 50-month moving average, which provided perfect support in late 2016. The last time Lilly closed a month below this trendline was in late 2011.
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With all signals pointing toward more upside, I'm targeting a move to $90, just above the October/December highs. Such a move could yield a double by playing the Aug. 17, 2018, $85 call.
Next on our Best in Breed healthcare list is Express Scripts Holding Co. (Nasdaq: ESRX), a St. Louis-based pharmacy-benefits management company. Express Scripts comprises 1.4% of XLV.
Like Lilly, Express Scripts has more than doubled the performance of XLV off the February bottom, rising around 15%. More recently, the stock has advanced 18% in the past five weeks, using the 200-day moving average for support.
Note in the chart that the 50-day is now riding higher after a two-month slide. The last time the 50-day turned higher was in December, as Express Scripts was in the beginning stages of a two-month rally that covered more than 35%.
As with Lilly, Express Scripts short interest is on the low side. But the number of shorted shares spiked 24% in the latest reporting period after a yearlong decline.
Finally, analysts are cool toward Express Scripts despite its recent chart success. Just seven of 20 covering analysts rate Express Scripts a "Buy," a configuration that should yield upgrades as the stock continues its advance.
My intermediate-term target for Express Scripts is the two-year high at $85, reached in March. You can leverage this expected move with the Aug. 17, 2018, $80 call.
Best in Breed has identified other under-the-radar sectors that you should have on your watch list. Stay tuned for more.
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About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader and Penny Hawk. He also contributes to Money Morning as the Quant Analysis Specialist.