NEW YORK (TheStreet) -- Health care-related stocks such as Aetna (AET), CNO Financial (CNO) and UnitedHealth (UNH) have become momentum trades. Today I'll provide you with information on how to trade them.
Share prices have moved higher for seven of the eight health care stocks in today's "Crunching the Numbers" table (see page 2). The table contains key moving averages, and all eight stocks are above all moving averages, which is a sign of technical momentum.
All eight also have either rising or overbought 12x3x3 weekly slow stochastics, another sign of technical momentum.
The rush to enroll in Obamacare is a factor for these stocks, as open enrollment on HealthCare.gov comes to an end on March 31.
If you already own any of these companies, you can use this information to adjust positions. If you are building positions, consider adding to longs using good 'til cancelled limit orders to buy weakness to a moving average or value levels shown in the table.
If you are reducing positions to book profits, consider doing so using GTC limit orders to sell strength to a moving average or to the risky levels shown in the table.
Aetna ($75.39 vs. $68.59 on Dec.31, up 9.9% year to date) is the nation's largest health benefits company. Shares traded as low as $64.68 on Feb. 13 then rallied to a new all-time intraday high at $76.38 on Thursday. The stock stayed just above its 200-day simple moving average at the 2014 low and tested my quarterly value level at $66.86, providing a buying opportunity. The weekly chart is positive, with its five-week modified moving average at $71.52. This month's value level is $71.03.
Centene (CNC) ($65.20 vs. $58.95 on Dec. 31, up 11% YTD) provides health care services to individuals. The stock traded as low as $56.88 on Feb. 4 staying above its 200-day SMA. The stock traded to a 2014 intraday high at $65.67 on Thursday. The stock began the year below my semiannual pivot, now a value level at $59.60 and tested my quarterly value level at $57.28 at the low. The weekly chart is positive but overbought with the five-week MMA at $62.60. This month's risky level is $67.40.
CNO Financial ($19.15 vs. $17.69 on Dec. 31, up 8.3% YTD) is the parent of insurance companies including Colonial Penn and Bankers Life. Agents of Bankers can sell health care plans offered by Humana. The stock traded as low as $16.07 on Feb. 5 and set a multiyear intraday high at $19.26 on Thursday. The stock began the year below a quarterly pivot at $17.86, which is now a value level. The weekly chart is positive but overbought with the five-week MMA at $18.26. A monthly risky level is $19.47.
Health Net (HNT) ($34.89 vs. $29.67 on Dec. 31, up 18% YTD) is a managed care provider. The stock moved above its 200-day SMA on Jan. 14 and traded to a 52-week intraday high at $35.70 on March 11. The weekly chart is positive but overbought with the five-week MMA at $33.22. My semiannual pivot at $33.12 is now a value level, and there are annual and semiannual risky levels at $36.55 and $39.45, respectively.
Humana (HUM) ($118.78 vs. $103.22 on Dec. 31, up 15% YTD) provides health care services networks. The stock traded as low as $91.00 on Feb. 5, holding its 200-day SMA and providing a buying opportunity. The stock set an all-time intraday high at $119.93 on Thursday. The weekly chart is positive with its five-week MMA at $107.63. We have a monthly pivot at $115.23 that was penetrated on Wednesday. Previous semiannual pivots at $112.88 and $111.32 are now value levels. The low was below an annual pivot at $99.27.
UnitedHealth ($81.53 vs. $75.30 on Dec. 31, up 8.3% YTD) is a health care provider and Dow component. It traded as low as $69.57 on Feb. 10, holding is 200-day SMA and providing a buying opportunity. The stock set an all-time intraday high at $81.59 on Thursday, which is higher than this month's risky level of $81.42. The weekly chart is positive with its five-week MMA at $76.11. A semiannual pivot is $79.65 with quarterly and semiannual value levels at $76.43 and $75.19, respectively. The latter two levels were pivots earlier in the year.
WellCare Health (WCG) ($66.95 vs. $70.42 on Dec. 31, down 4.9% YTD) is a provider of managed care services targeted to government-sponsored health care programs. It set a 2014 intraday high at $73.44 on Jan. 15 then traded as low as $55.16 on Feb. 12 before rebounding to as high as $67.53 on Thursday. The weekly chart is positive with its five-week MMA at $64.37. The high was above its quarterly risky level at $70.66. The low was below both annual value levels at $57.19 and $55.41, making both ends of this extremely volatile pattern tradable. Investors could have reduced holdings at $70.66 and rebuilt the position at $57.19 and $55.41 with GTC limit orders.
WellPoint (WLP) ($99.71 vs. $92.39 on Dec. 31, up 7.9% YTD) is a health benefits company with affiliations with some Blue Cross and Blue Shield associations. The stock traded as low as $81.84, giving investors the opportunity to buy at its 200-day SMA. The stock set an all-time intraday high at $100.59 on Wednesday. The weekly chart profile is positive with the five-week MMA at $91.75. Investors also could have bought this stock at the semiannual value level at $84.41.
Crunching the Numbers with Richard Suttmeier
There are five columns with moving average titles: Five-Week Modified Moving Average, 21-Day Simple Moving Average, 50-Day Simple Moving Average, 200-Day Simple Moving Average and the 200-Week Simple Moving Average.
The column labeled 12x3x3 Weekly Slow Stochastics shows the pattern on each weekly chart with readings from Oversold, Rising, Overbought, Declining or Flat.
Interpretations: (A red number in a moving-average column means the stock is below that moving average.)
Five-Week Modified Moving Average (MMA) is one of two indicators that define whether a weekly chart profile is positive, neutral or negative. The other is the status of the 12x3x3 weekly slow stochastic.
A stock with a positive technical rating is above its five-week MMA with rising or overbought stochastics.
A stock with a negative technical rating is below its five-week MMA with declining or oversold stochastics.
A stock with a neutral technical rating has a profile that is not positive or negative.
The 200-Week Simple Moving Average (SMA) is considered a long-term technical support or resistance and as a "reversion to the mean" over a rolling three- to five-year horizon. (Even Apple (AAPL) declined to its 200-week SMA in June 2013.)
The 21-Day Simple Moving Average is a short-term technical support or resistance used by many hedge fund traders to adjust positions. A stock above its 21-day SMA likely will move higher over a rolling three- to five-day horizon and vice versa.
The 50-Day Simple Moving Average is also a technical support or resistance used by many strategists and commentators on financial TV.
The 200-Day Simple Moving Average is another technical support or resistance, and I consider this level to be a shorter-term "reversion to the mean" over a rolling six- to 12-month horizon. (Even Apple tested or crossed its 200-day SMA in nine of the last 10 years.)
Value Levels, Pivots and Risky Levels are calculated based upon the last nine weekly closes (W), nine monthly closes (M), nine quarterly closes (Q), nine semiannual closes (S) and nine annual closes (A). I have one column for pivots, which is a magnet for the period shown. The columns to the left of the pivots are first and second value levels. The columns to the right of the pivots are first and second risky levels.
Investors who wish to buy a stock should use a GTC limit order to buy weakness to a value level. Investors who want to sell a stock should use a GTC limit order to sell strength to a risky level.
At the time of publication the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff