AMN Healthcare in Poor Health

Health care staffing company AMN Healthcare Services(AHS Quote) has enjoyed price appreciation for the last few years, moving as high as $29 before falling sharply back to $21 in April.

Once the failure at $29 led to strong distribution pressure, the eager bulls began to step away from the stock on any perceived rally. The first move back to $25 was immediately pushed lower, down to the $21 support. The next reversal to $23.40 failed again, and the price has once again retreated to $21.

It appears that the stock price is forming a technically bearish pattern, known as a descending triangle.

Typically, when there is a descending triangle, the stock's support is tested several times. The distribution pressure eventually takes out the support and pushes the price lower as bulls once again concede defeat at this line in the sand.

If this happens, there is usually a liquidity pool of bulls who pull their orders and sell their positions. They eventually look to put bids into the stock again, but not until it is at lower levels. This helps distribution pressure even more as there are few bids that can support the stock.

This pattern is forming in this stock right now, and the ideal setup for this trade would be for the stock to close under $21. If this happens, the bulls should become less aggressive at bidding up the stock, and the price should fall further. If the stock can close under $21, look for an entry at $21.25, with a stop at $23.50.

The next support level should be watched near $19. This support should allow traders to partial out short exposure, while lowering their invalidation level to break-even. The final support level would be at the April 2006 lows of $17.50. The full position could be covered at that level.

AMN Healthcare Services (AHS) -- Weekly