McKesson: Bears Still Have the Upper Hand

 | May 01, 2017 | 10:47 AM EDT
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Stock quotes in this article:

mck

McKesson (MCK) topped out in early 2015 and unfortunately, the bear phase has not fully run its course. There have been a couple of tradable rebounds on the decline but they have been counter to the major trend lower. MCK was trading sideways for about five months from November until it gaped lower last month and probed its January low.

With both the 50-day moving average line and the 200-day moving average line pointed down, the MCK bears have the upper hand at this time. Let's take a look the daily and weekly charts to see if we can retest the late October low.

In this daily chart of MCK, above, we can see can see two periods of time when prices have rolled over to the downside. From last May to last September MCH rolled over in the $165-$200 area and broke to the downside in mid-September. Prices dove down to a late October nadir but have rolled over in the $135-$155 area from November to April. MCK looks poised to retest the October low at a minimum or start another "leg" to the downside.

In addition to our favorite moving averages pointing down, the On-Balance-Volume (OBV) line turned down again in March, telling us that sellers of MCK have been more aggressive (again) with heavier volume being transacted on days when the stock price has closed lower. More volume on down days is a sign that traders and investors want out.

The lower panel displays the 12-day momentum study and it has mirrored the price weakness -- the price decline has not slowed. A slower pace to the decline would be a positive sign that buyers were being attracted again.

In this weekly bar chart of MCK, above, going back three years we can see that the stock is below the declining 40-week moving average line as it has been for most of the time since mid-2015. The weekly OBV line peaked with prices in 2015 and worked lower to a low this past October. The OBV line improved sharply from the October low but it has rolled over in the past few weeks.

The Moving Average Convergence Divergence (MACD) oscillator gave a cover shorts buy signal in January but is currently crossing to the downside below the zero line. This fresh outright sell signal from the MACD oscillator suggests a move to the downside for MCK.

In this Point and Figure chart of MCK, above, we do not get to see price gaps but we do get to see a distribution pattern in the past few months. There are a number of rally failures in the $140-$152 area but they have all failed. This distribution pattern yields a potential downside price target of $116, which takes us to the previous low again.

Bottom line: A close below $135 is likely to precipitate further declines while strength above $150 is needed to improve the chart picture.

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