Shares of healthcare company Humana (HUM) rallied nicely Tuesday after announcing a $2 billion share buyback program. The healthcare sector of the S&P 500 as a whole closed at a fresh high on Tuesday, and with the wind at its back, HUM stock could be setting up for its next 5% to 10% upswing.
A quick look at the details: Humana’s board of directors approved a new $2 billion share repurchase program with an expiration date of Dec. 31, 2016. This program will replace the old program worth $1 billion, of which about $120 million had been repurchased. Humana also priced a public offering of $1.75 billion in senior notes maturing in 2019, 2024 and 2044.
The healthcare sector of the S&P 500 has risen about 16% year-to-date, well outpacing the broader index’s returns of nearly 10%. On the below chart of the Health Care SPDR (XLV), note the steady pace higher and how well the 100-day simple moving average (blue line) has held as support along the way.
Humana Stock Charts
On the weekly chart of Humana, which is part of the aforementioned XLV, note that after a strong rally off the 2009 lows, HUM stock then retraced about 50% of the rally in 2012, which was the basis of the next, steep leg up that Humana continues to trade in.
There are many ways to measure medium- to longer-term upside targets for a stock that retraces/consolidates a rally by 50% and continues higher. For my part, particularly when a stock is trending higher in an orderly fashion and in a well-defined channel such as HUM stock is, the trend is simply my friend until it ends.
When would it end, or when would it be time to take partial profits? Any vertical rally or major overshooting to the upside of the channel would be a time to take some money off the table and wait for a dip to buy the stock lower again.
On the daily chart, note that courtesy of the sharp V-shaped reversal in August, HUM stock has since filled its post-earnings down-gap from July 30. Over the past couple of weeks, Humana consolidated along with the broader market before jumping 3.7% on increased volume Tuesday.
Tuesday’s rally also broke the stock past diagonal resistance from the late July top, which now looks to have the stock set up for a next leg higher.
Active investors and traders could consider buying Humana stock at $132 or higher for a move toward $140, which also would get the stock back to the upper end of the range on the multiyear weekly chart above.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
