The Perfect Script for a 3-Way at Your Doctor’s Office

Everybody is interested in a 3-way whether they want to participate or talk about how wrong it is. So when two stocks involved in the automation of medical information are both setting up for major moves to create that opportunity you can’t help but notice. Express Scripts (ticker: $ESRX) is about to breakout to the upside and Allscripts (ticker: $MDRX) to the downside. This sets up three trade opportunities entering the week.

Trade 1

Long ESRX on a break and hold over 60.00

ESRX had a break of an Inverted Head and Shoulders neckline on May 6 and has been consolidating at 60.00 since then, a move of 2.25 higher. With volume increasing, a Relative Strength Index (RSI) still pointing higher and a positive Moving Average Convergence Divergence (MACD) indicator, it looks ready to head higher again. The first target would be 62.25 on a Measured Move (MM) similar to that from the neckline to consolidation and then a second target of at least 65.33 from the Inverse Head and Shoulders pattern.

Trade 2

Short MDRX on a break below 20.00

Allscripts is moving lower and printed a very bearish near Marubozu candle on Friday closing just above support at 20.00. If it breaks below that support and through 19.75 then there is support lower at 19 followed by 18.50 and then the area between 17.50 and 17.80. Also notice the series of tops at 21.50 almost creating a 1.5 point channel just below the 22.50 long term support/resistance area from the chart above. Moving out of the channel would target a move of at least that 1.5 points or to 18.50. The RSI is falling rapidly and the MACD growing more negative, both supporting a move lower. The short interest in this stock is negligible so it should not be subject to a short squeeze.

Trade 3

Long 100 ESRX and short 300 MDRX in a pairs trade

The ratio chart shows the strength of ESRX compared to MDRX. By entering this trade you can benefit from both breakout moves with little or no money put up to trade. Based on the targets of 65.33 and 18.5 this trade would yield $983 profit if they are both attained, with the ratio at 3.53. Use a ratio of 2.95 as as stop at which point you should take off the one side or both that are not performing as anticipated from the analysis above on the individual stocks. So for example if it hits 2.95 and ESRX is breaking higher but MDRX is also moving higher, close the short but leave the long to run. This risks about $100 for the trade, but retains the potential for that to be erased if the one profitable leg continues to perform.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

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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.

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