For his final Executive Decision segment of "Mad Money" Tuesday, Jim Cramer checked back in with Scott Flanders, CEO of eHealth Inc. (EHTH) , an online insurance marketplace that has seen its shares fall 29% in the past month after the company's results came under scrutiny.
When pressed about eHealth's 42% churn rate, Flanders said it is critical to retain customers but that retention got out of control while the company was focused on growth. However, after auditing the situation, eHealth determined that 90% of the churn was of the company's own doing and that it has made significant changes to address the retention issue.Flanders said eHealth has hired more internal agents to assist customers, has incentivized agents to focus on retention and has a dedicated retention team that is continually improving its model to keep customers happy.
Cramer said it was important for Flanders to admit the problems and outline plans to fix them.
We have not looked at the charts of EHTH since last Dec. 3 and wrote at that time, "EHTH has made a rapid climb in recent weeks so some period of consolidation or sideways price action is probably due. Traders could use this anticipated sideways activity to go long, risking a close below $75 for now." We noted a potential $171 price target from our weekly Point and Figure chart but prices failed several times around $152.
Let's check out the latest charts.
In this updated daily bar chart of EHTH, below, we can see that prices have struggled since February. Prices made a large triangle-like pattern and finally gapped sharply lower in July. EHTH is trading below the declining 50-day moving average line and below the cresting 200-day moving average line. The On-Balance-Volume (OBV) line has lost a lot of ground since early April and tells me that sellers of EHTH have been more aggressive for months. The Moving Average Convergence Divergence (MACD) oscillator shows very uneven movement lower since December and suggests that sellers have dominated the price action for a long time now.
In this weekly bar chart of EHTH, below, we see a dramatic rise from late 2017 and an equally impressive top formation in 2020. Prices are trading below the cresting 40-week moving average line. The weekly OBV line has been weak since February and tells me that investors have been more aggressive sellers. The MACD oscillator crossed the zero line last month for a longer-term sell signal.
In this weekly Point and Figure chart of EHTH, below, we can see a major distribution pattern (selling) and a downside price target of $13 -- not pretty.
Bottom line strategy: The charts and indicators of EHTH are very bearish. Prices might have a big decline ahead of them and traders and investors should avoid the long side of EHTH.
