UnitedHealth Stock Trading Higher After Strong Quarter

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UnitedHealth Stock Trading Higher After Strong Quarter

UnitedHealth Group Incorporated (UNH) was up more than 5% at the start of Tuesday’s session after the health-care behemoth topped third-quarter profit projections by $0.12 and posted in-line sales. Following a month of lower pricing, the rebound has returned UnitedHealth shares to September resistance above $230. Despite the recent surge of excitement, the round trip has done nothing to alter the worsening technical picture.

The corporation increased its earnings per share (EPS) projection for 2019, closing off another prosperous year, but it confronts significant challenges in the next decade. Democratic presidential contenders have advocated for “Medicare for All” and other drastic reforms to the private health-care system, with plans that are expected to put the industry under pressure until the 2020 election. However, as President Obama realized during his first term, passing health-care reform is extremely hard when America’s wonderful senators and representatives rely largely on business money.

In July, company leaders waded into the reform discussion, saying that a single-payer system would “destabilize the health-care system.” This self-serving remark caused an immediate industry downdraft, compounding losses that sent UnitedHealth shares down to support levels around $200 in 2017. This morning’s bullish action extends a two-week rally, but massive purchasing power will be required to push the stock back into bull market territory.

UNH Long-Term Chart (1988 – 2019)


A multi-year slump stopped in 1988 at a split-adjusted $0.08, paving the way for a sustained increase that peaked at $8.50 in the first quarter of 1996. A failed rally effort in 1998 added to a trading range that eventually broke to the upside in 2000. The ensuing rally overlooked the dotcom crash, achieving robust gains into the first quarter of 2006 until peaking in the mid-$60s.

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That was the highest high in the following six years, before an orderly slide that was exacerbated by the 2008 economic meltdown. Price action remained above the 2000 breakout level at the time, laying the groundwork for a V-shaped rebound wave that finished a round trip into the 2006 high in 2012. The stock spent the following year completing the handle of a multi-year cup and handle pattern before bursting out in 2013 and initiating the century’s most prolific upswing.

The stock peaked at $288 in December 2018 before falling to $232 at the end of the year. It breached the low in April 2019, displaying the first hints of relative weakness in years, and then established a lower high in July, just ahead of second-quarter reports. Weak price movement since then has weakened the previously impregnable technical picture, increasing the likelihood that price activity is grinding through a long-term peak.

At the start of 2018, the monthly stochastics oscillator launched a sale cycle from the overbought zone, carving a five-wave pattern (shaded area) that has yet to reach the oversold zone. This is a very bearish setup, telling market participants that the drop that began in December 2018 is likely not over. As a result, the pattern shows that the downside is expected to find support around the 50-month exponential moving average (EMA), which is now rising from $200.

UNH Short-Term Chart (2017 – 2019)


When combined with horizontal support around $210, the series of highs since October 2017 completes a bearish head and shoulders pattern. A rebound over the mid-summer top of $269 is now required to break past this technical barrier, while a drop below the neckline would trigger severe sell signals, suggesting a trip below $150. The 50-month EMA well below support adds another element to this study, increasing the prospect of a collapse that becomes a bear trap.

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The accumulation-distribution indicator on-balance volume (OBV) peaked one month ahead of price in November 2018 and equaled that high in the first quarter rebound. Aggressive selling then grabbed over, lowering OBV to an 18-month low in April, where it is presently grinding downward. The significant upside on Tuesday might change this trend, but it is advised to avoid purchasing the stock at this time.

The Bottom Line

UnitedHealth Group stock is up following a great quarter and upbeat forecast, but substantial headwinds ahead of the 2020 presidential election advise potential purchasers to proceed with care.

Disclosure: At the time of publishing, the author had no investments in the aforementioned securities.

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