Triangles, Wedges and the Supreme Court
- Posted by Greg Harmon
- on June 20th, 2012
The Supreme Court is widely anticipated to give a ruling on the Affordable Care Act before the end of the month. There will be winners and losers and the market is betting on many of them now. Last night I highlighted several large cap pharmaceutical companies that are ready to move (link below). The picture is not so clear in the Health Insurers though. These stocks are running in triangles and wedges. Let me explain.
Aetna, $AET, has been in a rising wedge since at least May 2011. Bouncing from the top of the wedge to the bottom and then back again in the weekly chart. Lather, Rinse, Repeat. The trend is higher but any given move to the the other extreme could be a 20% haircut. Okay for a long term investor but riskier for a trader. Currently at the bottom of the wedge it has a Relative Strength Index (RSI) that held in bullish territory with a Moving Average Convergence Divergence (MACD) indicator that supports a bounce. Back to the top or crack? A crack suggests a move lower of $15.
Unitedhealth Group, $UNH
Unitedhealth Group, $UNH, is in a similar rising wedge. The weekly chart for this name shows it at the top of the wedge though with a tighter range, only a 12% range. As it reaches the top it has support from the MACD and and RSI but is showing topping tails. Again, breakout or fall back? A breakout here leads to a target $12 higher. Two wedges, one close to a $12 move higher and one near a $15 move lower. Hmmm, but I mentioned triangles too.
CIGNA, $CI, has been moving in a symmetrical triangle. It is now firmly in the middle moving around the Simple Moving Averages (SMA) which are also tracing out the center line. If it gets through the middle, the top is another $3 higher and the RSI and MACD support that. Falling back is another $3 to the bottom. A break out of the triangle either way triggers an expected move of $14. Impossible to tell which way this might break now. Maybe Justice Roberts knows.
Coventry Health Care, $CVH
Coventry Health Care, $CVH, is heading towards the top of its symmetrical triangle and has support from the RSI and MACD for more upside. A break above triggers a target of 47, $12 higher than the top rail. Failure at the rail and you know the story.
None of these stocks is either an easy set up for a buy or a sell. Uncertainty. Wait for a break of the patterns for a confirmed entry. The anticipated moves will be large as you have seem. And you already know the catalyst.
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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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