The price of Community Health Systems (CYH) topped out at the end of June. In July, it started a sharp decline, which included a measuring gap on the way down. Now that Community Health was downgraded by TheStreet's Quant Ratings to Sell, there could be further declines in the near future.
There is nothing pretty about the decline, above, in Community Health. In September, it broke below its 200-day moving average and the selling accelerated. In October, there was a big gap to the downside after a $25 decline. This is often called a measuring gap, and sometimes a runaway gap, as it tends to come about halfway through the move (down or up).
The On-Balance-Volume (OBV) confirms the decline in price and indicates that sellers are more aggressive than buyers. The measuring gap suggests that prices could reach $5 in the future. Is that realistic?
The long-term chart of Community Health, above, includes the 2008-09 low. Community Health has broken the 2011 lows, so the 2008 and 2009 lows are the next logical price objective or target on the chart. The OBV line is pointed down on this time frame and confirms the decline.
We also do not see any bullish divergences to suggest that the rate of decline is slowing. Our suggestion is to leave any bottom picking to someone else.