Healthcare services company McKesson Corp (MCK) has delivered solid returns for buy and hold investors over the past three years but now is the time to make a change in strategy.
Let's check the charts and indicators.
In this daily bar chart of MCK, below, we can see a steady looking upward trend the past 12 months. The quick glance would say that everything looks good. Prices are trading above the rising 50-day moving average line and above the rising 200-day line. Trading volume has been more active the past five weeks yet prices have not been able to rally to new highs at a time when the broad market averages have been strong.
The daily On-Balance-Volume (OBV) line has been flat/stalled the past three months and thus has made a bearish divergence when compared to the price action into October. The Moving Average Convergence Divergence (MACD) oscillator shows us another bearish divergence as the indicator made equal highs in August and October even though prices made higher highs.
In this weekly Japanese candlestick chart of MCK, below, we see a mixed picture. Prices are in a longer-term uptrend and trade above the rising 40-week moving average line. In late October and early November we can see a top reversal pattern from the candles.
The weekly OBV line shows a long rise but the start of a flat trend in November. In the lower panel is the 12-week price momentum study which shows lower highs from April - this is a large bearish divergence telling us that the pace of the rally has been slowing for several months. Bearish divergences are "heads up" that something is different - they are imprecise timing tools but they should not be ignored.
In this daily Point and Figure chart of MCK, below, we can see a potential upside price target in the $453 area. A trade at $404.18 or higher is needed to refresh the uptrend. A trade at $348.14 could weaken the picture.
In this weekly Point and Figure chart of MCK, below, we can see that prices reached an upside price target in the $385 area.
Bottom line strategy: I have no idea what developments or circumstances could reverse a three-year uptrend but that is not my skill set. My value added is to be an observer of shifts in trends. I see the risk of a shift in trend for MCK. Traders and investors should raise sell stops to $355.
