How Healthy Are CVS and Walgreen After CVS Quit Tobacco Sales?

NEW YORK (TheStreet) -- Technicians say stock-specific events are priced into the performance of a company's stock price. That is the case with Walgreen (WAG) and CVS Caremark (CVS) , which today changed its corporate name to CVS Health.

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Investors knew that Walgreen was considering relocating to Switzerland after completing its acquisition of Alliance Boots. Then on Aug. 5, the world's largest drug store chain announced that would remain headquartered in the U.S. The stock subsequently declined from its 50-day simple moving average at $72.62 on Aug. 5 to as low as $57.75 on Aug. 6, gapping below its 200-day SMA (green line) at $62.27 as shown on the daily chart below. Note that the daily chart shows oversold 12x3x3 daily slow stochastics.

Courtesy of MetaStock Xenith


Investors knew that CVS would be suspending sales of tobacco products on Oct. 1. The world's second largest drug store chain thus surprised investors this morning with an early implementation of its ban on tobacco. I am sure that smokers who shop at CVS were surprised that they could not buy a pack of cigarettes this morning at all 7,700 drug stores. Investors awarded the stock with an all-time high of $80.42 as of noon today as show on the daily chart below. Note that the 12x3x3 daily slow stochastic is overbought.

Courtesy of MetaStock Xenith

Let's take a look at the weekly charts and set the technical trading profiles.

Courtesy of MetaStock Xenith

Walgreen ($60.32) traded back and forth around its 200-week SMA between October 2009 and December 2012. On the week of Dec. 7, 2012 the stock began a huge upward run to its all-time intraday high at $76.39 set on June 19, 2014. The 12x3x3 weekly slow stochastic began to wave a technical warning flag the week of July 18 when this reading fell below 80.00.

The weekly chart profile became negative on Aug. 8 with the close below its five-week modified moving average at $71.96. Semiannual and annual value levels are $48.96 and $39.51, respectively, with a semiannual pivot at $69.02 and monthly and quarterly risky levels at $75.14 and $79.75, respectively.

CVS Health ($80.07) traded back and forth around its 200-week simple moving average between November 2009 and October 2011. CVS began its momentum run before Walgreen when the stock popped above its 200-week simple moving average at $33.93 the week of Oct. 14, 2011. Fast forward to August 2014, the stock’s 12x3x3 weekly slow stochastic shifted higher the week of Aug. 22.

The weekly chart profile is now positive but overbought with its five-week modified moving average at $78.57. Semiannual and annual value levels are $66.14 and $61.13, respectively, with quarterly, semiannual and monthly pivots at $79.63, $79.91 and $79.92, respectively.

At the time of publication the author held no positions in any of the stocks mentioned.

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This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

This article was updated from 2:32 P.M. to add paragraphs No. 8 and No. 9.


TheStreet Ratings team rates CVS CAREMARK CORP as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation: 

"We rate CVS CAREMARK CORP (CVS) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, impressive record of earnings per share growth, increase in net income and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows low profit margins."

You can view the full analysis from the report here: CVS Ratings Report

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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