McKesson Technical Charts Warn Investors to Reduce Holdings

NEW YORK (TheStreet) -- Shares of pharmaceutical and medical supplies company McKesson (MCK) have benefited from residual spending on health care products thanks to the Affordable Care Act. The weekly chart for McKesson shows a stock on a momentum run-up to an all-time intraday high of $232.69 on March 23. Since then, shares have been trading sideways, resulting in a potential negative weekly chart at the end of this week unless there's a positive reaction to earnings after the closing bell on Tuesday.

Analysts expect McKesson to earn $2.75 a share. This earnings report is important as the company has beaten earnings estimates for four consecutive quarters. Some analysts expect demand for branded drugs in North America, but others say that delays in generic drug products could be a drag.

Let's look at the daily and weekly charts for McKesson and provide the key technical levels at which to buy on weakness and the key technical levels at which to sell on strength.

Investors not familiar with technical analysis should begin with the notion that a price chart for a stock shows a road map of past price performance, which provides guidance for predicting future share price direction.

Here's how to read a daily chart. There are two moving averages to follow; the 50-day simple moving average is in blue while the 200-day simple moving average is in green.

Here's how to read a weekly chart. This chart shows weekly price bars going back to the beginning of 2007 and thus includes the crash of 2008, then the current bull market for stocks that began in March 2009. The red line tracks the ups and downs of the key weekly moving average. The green line is the 200-week simple moving average. The red line that oscillates along the bottom of the chart is the momentum reading on a scale of 00.00 to 100.00. A reading below 20.00 is oversold and a reading above 80.00 is overbought.

A technically positive weekly chart occurs when a stock ends a week above its key weekly moving average with the momentum reading rising above 20.00.

A technically negative weekly chart occurs when a stock ends a week below its key weekly moving average with the momentum reading declining below 80.00.

Here's the daily chart for McKesson.


Courtesy of MetaStock Xenith

McKesson had a close of $228.54 on Monday for a gain of 10% year to date, with the stock 11% above its 2015 low of $205.72, set on Jan. 2. The stock is just 1.8% below its all-time intraday high of $232.69, set on March 2.

The stock has been above its 200-day simple moving average since Oct. 16, when this average was $182.51. The stock is above its 50-day and 200-day simple moving averages of $226.30 and $209.75, respectively.

Here's the weekly chart for McKesson.


Courtesy of MetaStock Xenith

The weekly chart for McKesson will shift to negative given a close on Friday below its key weekly moving average of $226.73, as its projected momentum reading of 71.34 is declining below last week's level of 73.45.

Investors looking to buy McKesson should place a good till canceled limit order to purchase the stock if it drops to $211.26, which is a key level on technical charts until the end of June.

Investors looking to book profits should place a good till canceled limit order to sell the stock if it rises to $234.03, which is a key level on technical charts until the end of May.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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