UnitedHealth Is Due for a Deep, Unhealthy Pullback

NEW YORK (TheStreet) -- A deep pullback could be in store for UnitedHealth  (UNH). The bullish channel that has been in place since the April low was clearly broken on Tuesday. The stock was the second-worst Dow 30 performer, losing 1.75%, right behind Intel  (INTC), which lost 1.85%. Volume ticked up in UnitedHealth to its heaviest negative level since late April.

UnitedHealth shares now look quite vulnerable and could be on the verge of a meaningful pullback. For UnitedHealth bulls, some patience may pay off with lower entry levels.

If the current June highs hold, UnitedHealth will have put in a third straight lower monthly high. Since its March peak, an all-time high, the stock has had difficulty with a very heavy resistance band in the $124 to $122 area. UnitedHealth has not backed away from this zone yet, but indications are that it has steadily lost its upside momentum since mid-March.

Considering the stock is the third-best Dow 30 performer for the year to date with a 16.5% gain and is up more than 45% from the Oct. 15 spike low, a healthy pullback is overdue.

On Tuesday, UNH held right at last week's low of $117.70. The stock's 50-day moving average, which held perfectly at the January low, rests in the same area. If shares begin to break below this level with increased volume, a pullback will be underway.

The first layer of support to come into play is an important one. Just below the $112 area are the March, April and May lows. Ideally, a deeper fade would provide a very low buying opportunity. A selloff all the way down to the $104 area would retest UnitedHealth's 2014 high as well as hit the 200-day moving average.

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At the time of publication, Morrow had no positions in the stocks mentioned.

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