Investors in a number of healthcare companies like UnitedHealth Group (UNH) have done well in recent months as the industry has rallied despite weakness in the broad market averages. This period of outperformance may be coming to an end. Let's check out the charts of UNH.
In our February 3 examination of UNH we wrote that "I will assume that traders did book some or all of their profits in UNH at $500 or higher. Raise stops on any remaining longs to $460 from $425." Prices declined in February and hit our recommended stop so traders should be flat. Let's check what's going on now.
In this daily bar chart of UNH, below, we can see that prices have rallied again to retest the late December/early January high. Prices are trading above the rising 50-day and the rising 200-day moving average lines. The trading volume has not expanded to "breakout velocity" so I hesitate to become bullish.
The On-Balance-Volume (OBV) line shows a rise for the past 12 months but some slight hesitation in recent days. The 12-day price momentum study has been making lower highs since early November despite prices making higher highs. This is a bearish divergence and tells us that the pace of the rally has slowed and that sometimes foreshadows a pullback or correction.
In this weekly Japanese candlestick chart of UNH, below, we can see the uptrend of the past three years. We can see two small upper shadows around the large round number of $500. The trading volume has diminished the past two to three months instead of increasing.
The weekly OBV line is still pointed up while the 12-month momentum has slowed.
In this daily Point and Figure chart of UNH, below, we can see that prices made a slight new high in price and that the software is projecting the $595 area as a possible price target.
In this weekly Point and Figure chart of UNH, below, we can see a $589 price target - slightly lower than the daily price target.
Bottom line strategy: UNH has struggled to stay above $510 and with momentum waning and volume not expanding I tend to doubt the durability of the rally. Traders should be flat and I currently do not see the reasons to repurchase shares even with bullish price targets on the Point and Figure charts.
