In his "No-Huddle Offense" segment of his very popular Mad Money program, Jim Cramer answered the question of what investors should be buying as we brace for both a prolonged trade war and a possible slowdown in our economy. He said the managed care providers might be just the group investors have been looking for.
The managed care stocks had been crushed after several Democratic presidential candidates began calling for a single-payer model that promises "Medicare for all." But Cramer noted then, and now, that these proposals simply don't have enough support in Washington to make them a reality. Let's see what the charts and indicators look like for UnitedHealth Group (UNH) , Centene (CNC) and CVS Health (CVS) .
In the daily bar chart of UNH, below, we can see a rally to a December zenith and a zig-zag decline to an April low. Prices were weak but notice the very heavy trading volume at the April nadir. Extremely heavy turnover at a sharp low and rebound can mark a reversal. From the April low prices have made higher lows and higher highs for a new uptrend and recently closed above the declining 50-day simple moving average line. The bearish 200-day moving average line is only about $10 above the market.
The daily On-Balance-Volume (OBV) line was in a downtrend from early February telling us that sellers were more aggressive but we can now see a higher low in May so that downtrend looks to be reversing. More aggressive buying from April seems to correlate with the broad market topping out around the same time. Rotation?
The trend-following Moving Average Convergence Divergence (MACD) oscillator is about to cross the zero line for an outright go long signal. The chart of UNH is the most bullish it has been in months.
Bottom-line strategy: Investors looking to rotate out of sectors or industries that are topping out should consider going long UNH here if they can risk below $220.
In this daily bar chart of CNC, below, we can see a similar but different pattern than UNH (above). Prices began their decline earlier in September but we can see the same low in April. Trading volume was light or normal during the long decline but notice the volume in the past two months -- weak longs are selling to others who have deeper pockets and are looking out a number of quarters. The rally in prices the past five weeks can only be explained that way.
The daily OBV line has been basing since early April and the MACD oscillator just gave us an outright buy signal as it crossed the zero line. Like UNH, CNC is above the 50-day line and not that far below the 200-day line.
Bottom-line strategy: Investors could go long CNC risking a close below $50. Add on strength.
Last, let's look at this daily bar chart of CVS, below. Like the other two charts CVS also suffered a deep decline but shows bottoming action since early March. Buyers have been nibbling at CVS around $52. The declining 50-day line has been tested and we should soon close above and stay above it.
The OBV line is stabilizing and the MACD oscillator should soon stay above the zero line.
Bottom-line strategy: Traders could go long here on a small position risking a close below $49. Get more aggressive on a close above $59 and then raise the sell stop to below $52.