This Stock Looks Ready for a Breakout

January 5, 2018

Shares of healthcare stocks in the S&P 500, as represented by the Health Care SPDR (ETF) (NYSEARCA: XLV) along with the broader U.S. stock market, had a good start to 2018.

As a result, healthcare scored a breakout. Within this sector shares of UnitedHealth Group Inc (NYSE:UNH) have lagged the rally so far, but look increasingly giddy for a breakout.

Regular readers of this here column are aware that a key attribute of my research process is to analyze markets in multiple time frames.

As a result, I also distinguish between trading positions and intermediate to longer-term investment positions.

With UnitedHealth scheduled to report its next batch of earnings on Jan. 16, I don’t want to be exposed to any trading positions through this upcoming earnings report, but I have no issues holding any longer-term positions through it.

Swing trading positions can always be re-entered once the near-term uncertainty around the earnings report has passed.

In the lower part of the multi-year weekly chart, we can see the healthcare sector ETF (XLV) this week starting to break out of a base that took several months to form. This is important to UNH stock because if money is flowing into the sector as a whole then the odds of any given healthcare stock rising (stocks are a highly correlated asset class) dramatically increase.

In the top half of the chart I plotted UNH stock, and although the stock is trading in the upper quadrant of its up-sloping range, more upside remains.

Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

On the daily chart note that UNH stock since topping out in early December has spent the past few weeks in a tight and well-defined consolidation pattern we could label as a bull flag pattern. This type of pattern, as the name suggests, tends to have bullish implications once a breakout to the upside has occurred.

To wit, on January 4th UNH stock scored a marginal breakout of this pattern and while it could have been more pronounced may have been good enough for a next leg higher in the stock to start getting on its way.

Active investors and traders could look to buy UNH stock here for a next upside target in the mid $230s but respecting the aforementioned and upcoming earnings report on Jan. 16.

— Serge Berger

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Source: Investor Place