CVS Stock Needs to Refill Its Prescription

Charts are looking 'toppy' right now.

CVS Health  (CVS) was downgraded to "hold" from "buy" by sell-side financial institution Deutsche Bank on Tuesday. Let's check out the charts and indicators to see what's happening with the stock.

In our last review of CVS on Feb. 8 we wrote that "With our $108 price target reached, traders should nail down some profits ahead of the numbers Wednesday morning. Raise stops on any remaining long positions to $102. If prices continue to advance it is great but those two candlestick patterns (noted above) are one reason to play it cautious for now."

Let's look again.

In the daily bar chart of CVS, below, we can see that prices made a high in early February and pulled back to hit our sell stop at $102 before a minor recovery rally into the middle of March. Prices have stopped short of breaking the February highs and have begun to weaken.

The trading volume did not expand in March, which told us that traders were not enthusiastic about the rally. The On-Balance-Volume (OBV) line shows weakness from early February. The Moving Average Convergence Divergence (MACD) oscillator is above the zero line but has narrowed and could soon cross to the downside for a take profit sell signal. 

 

 

In the weekly Japanese candlestick chart of CVS, below, we can see some upper shadows around $110 telling us that some traders are rejecting the highs. The slope of the 40-week moving average line is positive.

 

Trading volume declined on the second peak around $110. The weekly OBV line shows a rise the past two months but the line did not make a new high that might foreshadow a new price high. The trend-following MACD oscillator has been weakening the past two months telling us that the strength of the uptrend is weakening. 

 

 

 

In this daily Point and Figure chart of CVS, below, we can see a potential downside price target in the $87 area. 

 

 

In this weekly Point and Figure chart of CVS, below, we see a potential upside price target of $152 but a trade at $98 will start to weaken this picture. 

 

 

 

Bottom-line strategy: Traders should avoid the long side of CVS as the charts have weakened and a fundamental downgrade won't help.

 

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