The share price of Cardinal Health (CAH) gaped dramatically lower last month and prices are in limbo -- they haven't rebounded and they haven't plunged further. They are just holding in a $2 range right at support around $72. The $64,000 question is whether CAH can repair itself around current levels or will it need to weaken further to attract aggressive buyers?
Looking at the daily and the weekly charts (below) we are not getting much encouragement. Let's go over the charts and indicators and see if we can arrive at a useful strategy.
In this daily bar chart of CAH, above, we are only finding bearish signals and clues. In March, CAH tried several time to break out above the July/August highs in the $82-$86 area. There was one spike above $84 but most of the upside attempts stalled around $83. A golden cross of the 50-day moving average and the 200-day moving average in early March failed to generate much strength.
In early April, CAH was testing the rising 50-day moving average line and by mid-April the slope of the line tuned down. The 200-day moving average line only had a positive slope from mid-February to mid-April and it too turned down. The chart shows some support in December and January at $72 but it looks fragile and is likely to be tested further or broken. The volume of trading was heavy on the gap and subsequent days.
The On-Balance-Volume (OBV) line tuned lower as sellers of CAH were more aggressive with heavier volume being traded on days when the stock closed lower. The 12-day momentum study in the lower panel of this chart does not show a bullish divergence, so unfortunately this leading indicator is not telling us that the decline has slowed.
This weekly chart of CAH, above, doesn't show the price gap but it also doesn't show any bullish clues either. Prices are below the 40-week moving average line, which just turned lower. The weekly OBV line looks like it will weaken and the trend-following Moving Average Convergence Divergence (MACD) oscillator just crossed to a take profits on longs signal and is not far above the zero line for an outright sell signal.
On this chart there doesn't seem to be much chart support below $72 as prices quickly dipped to $63 and rebounded in late 2016.
In this Point and Figure chart, above, we plotted percentage swings up and down instead of a fixed dollar amount like $1. This chart shows that the $72.27 low or support was broken when prices touched $71.56. While there is some support in the $70-$68 area I am not convinced it will hold.
Bottom line: It looks like CAH will have a long road to recovery. The downside gap and subsequent weak price action suggests further declines. A bounce could occur but it would be "out of the blue," in my opinion. For CAH to rally it will take aggressive buying and a new pattern of higher lows and higher highs. New longs should be deferred.