Think About Taking Some Profits on UnitedHealth

 | Sep 13, 2017 | 11:11 AM EDT
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UnitedHealth Group UNH has been a great stock to own over the past few years. We covered UNH in early August -- and we summarized our thoughts -- "Bottom line: One of the key points of logic behind technical analysis is that prices trend. There certainly has been an uptrend in the share price of UNH, and our next price target is $210. A sell stop below $184 is probably appropriate now."

With prices approaching our price target of $210 another update seems appropriate as some divergences have appeared. Let's see what's new.

In this daily bar chart of UNH, below, we can see how prices have stayed above the rising 50-day moving average line. The last test of the 50-day average line was back in May. The rising 200-day moving average line may be too far below the price action right now so a pullback may be in order. The On-Balance-Volume (OBV) line is an easier way of analyzing volume, in my opinion. A rising OBV line is a signal that buyers of UNH have been more aggressive with heavier volume being transacted on days when UNH has closed higher. The OBV line has been rising most of the past twelve months but it has leveled off in the past five weeks despite prices still going up. This difference is a bearish divergence but divergences are not good for timing. In the lower panel of this chart is the 12-day momentum study which shows a pattern of lower highs from early June while prices have made higher highs over the same time period. This difference is another bearish divergence and tells us that the pace of the advance has been slowing. This slower pace of advance could be foreshadowing a correction but there are no signs of distribution.

In this weekly bar chart of UNH, below, we can see that UNH is above the rising 40-week moving average line. Looking closer you may notice that UNH is at its widest point above the 40-week average -- this is not bearish in itself, but it does tell you that prices are extended. The weekly OBV line has not made a significant new high since the middle of 2016 and this is another bearish divergence. In the lower panel is the 12-week momentum study. Momentum has been weakening from the levels reached in December 2016 to July 2017. A bearish divergence on a weekly chart is more important than one on a daily chart.

In this long-term point and figure chart of UNH, below, we can see the whole bull move up from 2009. The chart indicates an upside price target of $214.

Bottom line -- the trend in UNH is still up but with volume and momentum divergences showing up on the charts I would suggest raising sell stop protection to $190 while thinking about booking some profits as prices near $210.

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