McKesson (MCK) has corrected to the downside recently. Is it enough? What does the chart suggest is next?
In this daily chart of MCK, above, we can see that the rally from the January low ran out of steam in July and August. Prices broke down below the rising 50-day simple moving average line in the latter part of August and then the flat 200-day line in September.
The On-Balance-Volume (OBV) line peaked in August when prices made a slightly lower high. The OBV line has turned lower the past four weeks signaling increased selling pressure as the volume of trading has been heavier on days when MCK has closed lower on the day.
Price momentum displayed in the lower panel is not giving us a bullish divergence from the price action in the top panel. There is some chart support around $165 but it was only tested slightly on Thursday. More testing of support around $165 and a shift in the OBV line is needed to declare that the third quarter correction is over.
In this three-year weekly chart of MCK, above, we can see that prices closed below the flat to declining 40-week moving average line. The OBV line on this weekly timeframe has been edging down from a July 2015 peak and suggests that selling and liquidation of MCK has been going on for some time now and is not just a third quarter issue.
The trend-following Moving Average Convergence Divergence (MACD) oscillator has recently crossed above the zero line to give a "liquidate longs sell signal." A move below the zero line in the weeks ahead would be an outright sell signal on this timeframe.
Bottom line/Strategy: Reflecting on the sell signals from the daily and weekly charts of MCK it seems like the downside move that began in August is not over. Yes, prices could rebase in the $170-$160 area but that seems premature without seeing at least a bullish divergence on the daily chart between the price action and the momentum study. The weekly charts suggest MCK could try to make a double bottom in the $160-$150 area in the weeks ahead. Right now, I think the best strategy is to defer buying and see if MCK tries to make a double bottom. Keep your powder dry.