Healthcare stocks have been performing quite nicely over the past few weeks. Looking at the Biotech Index, it appears more bullishness is on the way for this sub-sector. After a nasty 20% selloff from March through May, biotechs stabilized during the summer months before beginning an uptrend that netted over 160 index points in a three month span beginning in August. The continuation pattern that formed over the past two months is the cup and handle pattern. On the chart below, I've highlighted the cup formation. Just to the right of the cup, you'll see the sideways consolidation, or handle. As its name implies, a continuation pattern is one in which the prior trend resumes after a brief consolidation, or basing period, is completed.
Watch for a breakout above the handle that is forming. Though the biotechs appear poised for yet another move higher, keep in mind this group carries with it a tremendous amount of risk. You should consult your financial advisor before considering a position in this volatile sector.
