Former highfliers Dexcom (DXCM) and Tandem Diabetes (TNDM) are among seven health care stocks breaking down right now, according to MarketSmith.com.
XAll seven stocks have crashed below their 50-day moving average and continued downhill, MarketSmith.com shows. That triggered a sell rule despite strong first-quarter sales growth for nearly all of them.
The 50-day moving average is a widely respected technical indicator. When a stock cuts above it and manages to stay there, it's a signal of strength. But diving below is considered a sign of weakness.
Health care stocks like Dexcom and Tandem now belong to that category. The list also includes genomics-centric companies like Illumina (ILMN), Invitae (NVTA), NeoGenomics (NEO) and 10x Genomics (TXG). It also includes generic drugs company Aclaris Therapeutics (ACRS).
Health Care Stocks: Watching This Line
Dexcom and Tandem stocks fell below their 50-day line on May 4 and May 6, respectively. The companies make complementary products to monitor patients with diabetes. Dexcom's devices keep tabs on blood sugar. Tandem makes insulin pumps.
Although Dexcom beat first-quarter expectations — and reported double-digit sales growth — the company announced price cuts in Europe, CFRA analyst Kevin Huang said in a recent report to clients. He suggested Dexcom is feeling pressure from rival Abbott Laboratories (ABT).
Meanwhile, Tandem also delivered a beat-and-raise, but was conservative in its second-quarter commentary due to the continuing pandemic, UBS analyst Matthew Taylor said in a report. He kept his buy rating on the health care stock.
Since then, both health care stocks have remained below their 50-day moving averages. This is a bearish signal.
Dexcom stock is consolidating with a buy point at 456.33. But in order to achieve a breakout, it would need to retake that key line. This will undoubtedly be an uphill battle as many stocks face resistance at their 50-day moving average.
Genomics Stocks Under Fire
Illumina is a good example of this phenomenon. The health care stock reported strong growth in the first quarter with adjusted profit rising 15% and sales jumping 27%. But shares met a ceiling at the 50-day line where they've mostly traded amid a battle to acquire spinoff Grail.
Health care stocks 10x Genomics and NeoGenomics also plunged earlier this month following their first-quarter reports. Meanwhile, Invitae has mostly trended below its 50-day line since February. Both 10x and Invitae belong to Cathie Wood's ARK Genomic Revolution (ARKG) exchange-traded fund. The ETF tracking health care stocks is now about 37% off its February highs.
Rounding out the list, Aclaris has treaded slowly below its 50-day line this month. But shares of the health care stock are actually highly rated, per IBD Digital. It has a perfect Relative Strength Rating of 99, putting its performance in the top 1% of all stocks over the past 12 months. This reflects Aclaris' strength heading into its downfall this month. But the company remains mired in losses and minuscule — though growing — sales.
The health care stock belongs to the Medical-Generic Drugs industry group, which itself is lowly ranked — 187 out of the 197 industry groups Investor's Business Daily tracks.
On the stock market today, Dexcom stock fell 2.9% to 323.96 and Tandem stock tumbled 3.4% to 77. NeoGenomics shares also lost 3.3% to 36.62. Invitae stock closed down 2.5% at 25.09 and Aclaris stock toppled 2.4% to 21.24.
But Illumina shares edged up a fraction to 373.45 and 10x stock rose 1.8% to 136.61. Both stayed under their 50-day lines, however.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
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