Humana Inc. (HUM) reported quarterly results on May 1 and extended its winning streak to 13 consecutive quarters of beating earnings per share (EPS) estimates. Back on Nov. 7, when the health insurers beat analysts’ estimates, the stock set its all-time intraday high of $355.88, and this marked the time when the debate on health insurance peaked. Health insurers are in limbo relative to concerns as to what the health care environment will look like after the presidential election in November 2020. Some form of “Medical for All” is the cloud over Humana and other health insurers.
Humana stock closed Thursday, May 2, at $247.38, down 13.6% year to date and in bear market territory at 30.5% below the Nov. 7 at $355.88. The stock traded as low as $225.65 on April 17 and is up 9.6% since then. The stock is stuck between a weekly value level at $236.42 and its monthly risky level at $254.68.
The daily cart for Humana
The daily chart for Humana shows that a “death cross” was confirmed on Jan. 7, when the 50-day simple moving average fell below the 200-day simple moving average, indicating that lower prices lie ahead. Under this warning, the strategy is to sell strength to the 200-day simple moving average, and that was doable on Feb. 19, when the average was $311.07.
The close of $286.48 on Dec. 31 was input to my proprietary analytics and resulted in a semiannual risky level at $325.92 and an annual pivot at $302.30. The close on March 29 at $266.00 was an input that generated a quarterly risky level at $339.59. The close of $255.41 on April 30 resulted in a monthly risky level at $254.69. There is a weekly value level at $236.42.
The weekly chart for Humana
The weekly chart for Humana is neutral, with the stock below its five-week modified moving average of $262.92 and above its 200-week simple moving average, or “reversion to the mean,” at $233.65. This key moving average held at the low during the week of April 19. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 22.50 this week, up from 20.41 on April 26.
Trading strategy: Buy Humana shares on weakness to the 200-week simple moving average at $233.65 and reduce holdings on strength to the monthly and annual risky levels at $254.68 and $302.30, respectively.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, March and April. The quarterly level was changed at the end of March.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.