The iShares U.S. Pharmaceuticals ETF (IHE) is up 9% since July 2015, when it hit a fresh all-time high. That’s a 9% gain in nine years. The S & P 500 is up more than 155% over the same time period. Few people talk about IHE, especially with so many other popular growth ETFs doing so well. We can understand why: IHE actually first surpassed that 2015 high in early 2021, but a long and volatile trading range resulted, which the ETF just broke above earlier this year. Indeed, the recent four-month advance from the October 2023 low to the February 2024 high totaled 26%, which was among the best ETFs we track over that time. IHE has been working off extremely overbought readings since then. But with the last two breakouts through major high points leading to nothing but frustration, traders aren’t overly eager to deploy capital into the ETF right now. So, why are we writing a constructive piece on IHE? All of the back-and-forth movement since 2015 has produced what could be a monstrous bullish pattern. This is how it appears in log scale. Investors must recognize that this is a monthly chart, so the short, and sometimes fierce, swings aren’t as noticeable here as they are on the daily chart. But we’re trying to capture a major breakout from an area that’s done next to nothing in nearly a decade. And that kind of shift can only be seen properly by zooming way out. Two biggest holdings Eli Lilly (LLY) and Johnson & Johnson (JNJ) each have a 23% weight within IHE, thus, the two big stocks account for nearly half of the entire ETF. But their charts couldn’t be more different, especially over the last three years. LLY is trending higher. JNJ is trending lower. Needless to say, if LLY’s strong advance runs into trouble, IHE will suffer as a result. Conversely, if JNJ finally can turn a mean-reverting bounce into a substantial uptrend instead, IHE could finally extend beyond the long range it’s been pinned to for so long. Two constructive charts Overall, IHE is comprised of just 25 stocks, so even the smallest ones have at least a 3% weighting. Two names, in particular, have attractive charts that we should be paying attention to right now: Merck (MRK) and Innoviva (INVA) . MRK has been in an uptrend for many years, but along the way it tended to pause, form a constructive pattern and break out again. The stock is trying to break out from its latest digestive phase again now. If successful, the initial target would be near $143. INVA, on the other hand, bottomed in March 2023, and just recently broke out of a large inverse head & shoulders pattern. Over the last six months, it has been trying to construct a second bullish formation. If that can be completed, the upside objective would be near the 2022 highs around the $21-level. -Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
