The large publicly traded company and a multi-line managed care enterprise that serves as a major intermediary for both government-sponsored and privately insured health care programs, Centene Corp (NYSE: CNC) seem to be poised for a price surge as per its latest charts.
#1 Downtrend Channel: As you can see from the daily chart, the stock has been trading within a downtrend channel during the past few months. This is marked in the daily chart in pink dotted lines. Currently, the stock is near the upper rail of the downtrend channel. Once the stock breaks out from this downtrend channel, it has the potential to move further up.
#2 Bullish Stoch: The %K line is above the %D line of the stochastic, indicating possible bullishness.
This typically indicates a bullish setup.
#4 Symmetrical Triangle Pattern: The daily chart shows that the stock has been forming a symmetrical triangle pattern.
This pattern is shown as blue lines.
A symmetrical triangle pattern represents a period of consolidation before the price breaks out.
This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper line occurs, it usually signifies the start of a new bullish trend. Currently, the stock is near the upper rail of the pattern.
#5 Bullish RSI: The RSI is currently above 50 and moving up, indicating possible bullishness.
#6 Fibonacci Support: Usually, after an up-move, stocks typically retraces to any of the key Fibonacci levels before surging back again. CNC had taken support at the 38.2% Fibonacci support level as seen in the weekly chart before moving higher again. So, this seems like a strong support area for the stock.
#7 MACD Crossed above Signal Line: The weekly chart of CNC shows that the MACD (light blue color) has currently crossed above the MACD signal line (orange color). This typically indicates a bullish setup.
#8 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for CNC is above the resistance level of $60.80. However, for those with a higher risk appetite, you can purchase half the intended quantity of shares of CNC at the current price of $53.73.
TP: Our target prices are $65 and $70 in the next 4-6 months.
SL: To limit risk, place stop-loss at $49.90 (for entry near $53.73) and $56 (for entry near $60.80). Note that the stop-loss is on a closing basis.
Our target potential upside is 15% to 30% in the next 4 to 6 months.
- Entry near $53.73: For a risk of $3.83, our target rewards are $11.27 and $16.27. This is a nearly 1:3 and 1:4 risk-reward trade.
- Entry near $60.80: For a risk of $4.80, our target reward (TP#2) is $9.20. This is a nearly 1:2 risk-reward trade.
In other words, this trade offers nearly 2x to 4x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the downtrend channel and symmetrical triangle pattern with a high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
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