A Big “Breakout” Traders Must Pay Attention To

Last week, we saw a development that all traders need to make special note of. It has the potential to make you a lot of money over the coming year…

The development comes down to what I call a “breakout.”

A breakout occurs when an asset reaches a new high for a given period of time. In our Penny Trends trading advisory, we monitor three-month breakouts. We believe it’s a good “middle of the road” timeframe that gets us into trends early enough for big gains… but not so early that we buy assets while they are stumbling near their lows.

On Thursday, both the health care sector and the biotech sector staged breakouts. Below is this bullish action in the major health care ETF:

Many investors think health care stocks are in for rough times. The White House has made clear that it wants to wring out some profits enjoyed by many companies. This is a negative for health care stock prices.

But there’s another belief out there… one that says the efforts of the White House will actually drive up health care spending. Governments can barely manage parking meters, so it wouldn’t surprise us to see their efforts producing more health care spending over the coming years.

More government oversight may lower profit margins a bit, but new “health care for everyone” programs could create more demand with government aid (which, of course, comes out of your wallet). This would send more money the way of many health care companies.

In Penny Trends, we don’t make predictions. Sure, we develop trading plans based on our analysis of fundamental market conditions, but they take a backseat to what the market tells us. The market is never wrong. The trend is never wrong… and a trader’s No. 1 job is to get on the right side of the trend.

The short-term trend is bullish for health care stocks (their close cousin biotech stocks are enjoying the same exact price action)… which means one has to be a buyer right now.

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