CVS Health Has Been Surging -- Will the Gains Continue?

NEW YORK (TheStreet) -- CVS Health (CVS) has transformed its business model in recent years to give itself a more healthy image. Consumers can no longer buy tobacco products in its stores, and now, they can get health care services at the Minute Clinics in 860 of its locations. Investors have liked this strategy, and the stock has been on a momentum run-up since October 2011, including a 16.8% gain so far in 2015.

Analysts expect CVS Health to earn $1.20 a share when it reports quarterly results before the opening bell on Tuesday. The daily and weekly charts clear show that investors favor continued upward momentum. Some analysts indicate risk that earnings growth could be slowing. Investors should focus on company comments on its strategy to rebrand Target's pharmacies to CVS Minute Clinics.

Let's illustrate how investors can use must see daily and weekly and key trading levels to help make investment decisions for the stock both before and after earnings are recorded.

Here's the daily chart for CVS Health.


Courtesy of MetaStock Xenith

CVS Health had a close of $112.47 on Friday up 16.8% year to date with the stock above its 50-day and 200-day simple moving averages of $105.88 and $99.20, respectively, and in site of its all-time intraday high of $113.65 set on July 29.

The stock has been above its 200-day simple moving average since Oct. 4, 2013 when this average was $56.30.

Here's the weekly chart for CVS Health.


Courtesy of MetaStock Xenith

The weekly chart for CVS Health shows it to be positive but overbought, with the stock above its key weekly moving average of $107.72. The weekly momentum reading of 88.84 is rising further above the overbought threshold of 80.00 from a reading of 86.76 on July 24. The stock has been above its 200-week since the week of Oct. 14, 2011 when the average was $34.78. This moving average is now $65.83.

Investors looking to buy CVS Health should place a good till canceled limit order to buy the stock if it drops to $105.99, which will be a key level on technical charts until the end of 2015.

Investors looking to reduce holdings should place a good till canceled limit order to sell the stock if it rises to $113.36 and $115.98, which will be key levels on technical charts until the end of September and August, respectively.

Investors not familiar with technical analysis should begin with the notion that a price chart for a stock shows a road map of past 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. 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.

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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