The earnings parade continues and CVS Health (CVS) will release results later next week (Aug. 4). The CVS chart has set up well into earnings, but keep earnings in mind. This looks like one to get some exposure to into earnings, then buy on a pullback if it drops. The alternative is to take hedged exposure into earnings and remove the hedge if there is any pullback after the report.
Yesterday's breakout was very healthy, but came with a strong market. A retest will be in order here for some confirmation. It is possible the stock dips all the way back to $109 without any significant damage, although that's hardly going to instill confidence in the bulls. Rather, a pullback to $112 on a closing basis, and no more than $110.10 on an intraday basis, is where the focus should be.
The relative strength index (RSI) has peeked its head over 70, which happened last month before the stock pulled back. Staying over 70 would be a change of character for the stock and a very bullish development. The bullish crossover in the slow stochastics is what draws me most to this name, however. These crossovers have been good for solid rallies four times in a row now, so if it ain't broke...
Turning to the longer term, the weekly chart may look a bit overextended to some, but it appears to simply be repeating the same pattern. Note the history of sideways consolidation (solid blue lines) followed by bullish channels higher (dotted blue lines). Each of these pushes higher have lasted three to four months and currently we are only two months into a move. The downside support levels are the same as we see on the daily charts, so a clear stop is in play. A longer-term player does not appear to have to risk much more than a short-term player here.
The RSI over 70 is less a concern on the weekly chart as it has been necessary for the past rallies. A drop back below 70 has been the setup for a new sideways consolidation period, so that would be my trigger to hedge, with the preference being the sale of covered calls about three months in duration. The potential upside is $120 with a downside stop around $107.50, although $110 could absolutely be used. I'd prefer to give it a little more room, which still gives me a favorable risk vs. reward setup. Remember, though, that earnings are next week.