How to Trade 5 Health Insurance Companies
It's been more than six years since the Affordable Care Act became the law of the land. With a new president in November, the law could change a little or a lot. So how can investors trade this sector now?
Aetna (AET) , Anthem (ANTM) - Get Report , Cigna (CI) - Get Report and Centene (CNC) - Get Report have similar chart patterns setting all-time highs between June 22, 2015, and July 2, 2015, during a period of merger activity and at the height of the Obamacare hype. Presented today are the Fibonacci Retracements from these highs to the 2016 lows.
UnitedHealth (UNH) - Get Report set its 2015 high on Aug. 18; then the component of the Dow Jones Industrial AverageI:DJI survived the volatility of the flash crash of Aug. 24. This stock set its all-time high on April 20, following news that it would suspend most of its participation on HealthCare.gov in 2017.
Among the first four above there were three mega-mergers that have produced questionable results. The deals merged Anthem and Cigna, which both still trade independently; Centene and HealthNet; and Aetna and Humana, which also trade separately.
Aetna reported quarterly results on April 28 and beat earnings estimates. The stock stayed above its 50-day and 200-day simple moving averages of $111.48 and $110.10, respectively.
Anthem reported quarterly results on April 27 and beat earnings estimates. The stock stayed above its 50-day and 200-day simple moving averages of $140.21 and $139.87, respectively.
Cigna reports quarterly results before the opening bell on May 6. Analysts expect the company to earn $2.17 a share. The stock is currently trading just below its 50-day and 200-day simple moving averages of $138.72 and $138.75, respectively.
Centene reported quarterly results on April 26 and matched earnings estimates. The stock tested and held its 200-day simple moving average of $61.24 on April 29.
UnitedHealth reported quarterly results on April 19 and beat earnings estimates. The stock responded by setting its all-time high of $135.11 on April 20.
Here's a scorecard for the five health care stocks, followed by their weekly charts and key trading levels.
Here's the weekly chart for Aetna.
Courtesy of MetaStock Xenith
The weekly charts show a red line through the price bars, marking the key weekly moving average (a five-week modified moving average). The green line is the 200-week simple moving average, the "reversion to the mean." The study in red along the bottom of the chart is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicate overbought and readings below 20.00 indicate oversold. A negative weekly chart shows the stock below its key weekly moving average, with weekly momentum declining below 80.00 in a trend toward 20.00.
The weekly chart for Aetna ($114.07 close on Tuesday) is positive but overbought, with the stock above its key weekly moving average of $111.67 and well above its 200-week simple moving average of $79.45. The weekly momentum reading is projected to rise to 85.58 this week, up from 83.41 on April 29, moving further above the overbought threshold of 80.00.
The horizontal lines in the upper right of the chart are the Fibonacci Retracement levels of the decline from the all-time high of $134.40, set on June 26, and the 2016 low of $92.42, set on Feb. 9. The stock is trading between its 38.2% retracement of $108.41 and its 61.8% retracement of $118.27, and is just above its 50% retracement of $113.34.
Investors looking to buy Aetna should consider doing so on weakness to $103.80, which is a key level on technical charts until the end of May.
Investors looking to reduce holdings should consider doing so on strength to $116.81, which is a key levels on technical charts until the end of June.
Here's the weekly chart for Anthem.
Courtesy of MetaStock Xenith
The weekly chart for Anthem ($141.42 close on Tuesday) is positive but overbought, with the stock above its key weekly moving average of $141.11, and well above its 200-week simple moving average of $107.05. The weekly momentum reading is projected to be stable at an overbought reading of 85.5.
The horizontal lines in the upper right of the chart are the Fibonacci Retracement levels of the decline from the all-time high of $173.59, set on June 22, 2015, and the 2016 low of $115.63 set on Feb. 8. The stock is trading between its 38.2% retracement of $137.78 and its 61.8% retracement of $151.54, and is below its 50% retracement of $144.66.
Investors looking to buy Anthem should consider doing so on weakness to $132.43, which is key level on technical charts until the end of May.
Investors looking to reduce holdings should consider doing so on strength to $148.29, which is a key level on technical charts until the end of June.
Here's the weekly chart for Cigna.
Courtesy of MetaStock Xenith
The weekly chart for Cigna ($137.74 close on Tuesday) is neutral, with the stock just below its key weekly moving average of $137.87 and well above its 200-week simple moving average of $96.02. The weekly momentum reading is projected to rise to 62.80 this week, up from 60.75 on April 29.
The horizontal lines in the upper right of the chart are the Fibonacci Retracement levels of the decline from the all-time high of $170.68, set on June 26, 2015, and the 2016 low of $123.54, set on Feb. 9. The stock is trading between its 23.6% retracement of $134.49 and its 50% retracement of $146.97 and is below its 38.2% retracement of $141.39.
Investors looking to buy Cigna should consider doing so on weakness to $134.30, which is a key level on technical charts until the end of May.
Investors looking to reduce holdings should consider doing so on strength to $150.70, which is a key level on technical charts until the end of June.
Here's the weekly chart for Centene.
Courtesy of MetaStock Xenith
The weekly chart for Centene ($62.64 close on Tuesday) is positive, with the stock above its key weekly moving average of $61.16 and above its 200-week simple moving average of $41.60. The weekly momentum reading is projected to rise to 74.02 this week, up from 72.90 on April 29.
The horizontal lines in the upper right of the chart are the Fibonacci Retracement levels of the decline from the all-time high of $83.00, set on July 2, 2015, and the 2016 low of $47.36, set on Feb. 9. The stock is trading between its 38.2% retracement of $60.92 and its 50% retracement of $65.11.
Investors looking to buy Centene should consider doing so on weakness to $58.68, which is a key level on technical charts until the end of May.
Investors looking to reduce holdings should consider doing so on strength to $63.59, which is a key level on technical charts until the end of this week.
Here's the weekly chart for UnitedHealth.
Courtesy of MetaStock Xenith
The weekly chart for UnitedHealth ($132.46 close on Tuesday) is positive but overbought, with the stock above its key weekly moving average of $128.52, and well above its 200-week simple moving average of $87.19. The weekly momentum reading is projected to rise to 88.39 this week, up from 87.34 on April 29, becoming more overbought above the 80.00 threshold.
Investors looking to buy UnitedHealth should consider doing so on weakness to $128.74 and $126.67, which are key levels on technical charts until the end of June and the end of May, respectively.
Investors looking to reduce holdings should consider doing so on strength to $136.16, which is a key level on technical charts until the end of this week.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
