Short Tenet Healthcare Until It Heals (THC)

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Shares of hospital operator Tenet Healthcare Corporation (THC) came under pressure Thursday, dropping from their recent multiyear highs along with many of the company’s peers (and the healthcare sector as a whole). Thursday’s price action also broke THC stock’s chart for the near-term, which could offer active investors an opportunity on the short side with defined risk.

beat the bell stock investing adviceIn terms of company-specific news, Tenet Healthcare did announce a new head of its Arizona health plan operations, but that alone is unlikely to have been the trigger for weakness in the stock, much less for the entire hospital operator group.

The selloff likely stemmed from news out of the U.S. Court of Appeals for the District of Columbia that it is willing to rehear the case for Obamacare to provide insurance subsidies in the 36 states, which the court ruled against in July.

More clarity on this issue will be needed in coming months, but for now, this is where price action and charts come in handy. Healthcare stocks were the second-weakest sector in the S&P 500 on Thursday, and after combing through many of the hospital operator stock charts, I found THC stock to be of particular interest on the short side.

THC Stock Charts

On the multiyear weekly chart below, note the visually obvious (and hence crucial) breakout that THC stock staged in the second half of July. The breakout move occurred after the stock spent the better part of the past 20 months gyrating back and forth in a well-defined sideways channel. During this time, THC stock consolidated its steep 2012 and early 2013 rally, and by so doing built a solid base to push higher from. By late August, Tenet had rallied about 25% in just one month’s time without so much of an attempt to retest the breakout area, which often is the case when a stock moves out of this type of consolidation phase.

Thursday’s 5.16% selloff (which came on a good spike in volume) now looks to have set the wheels in motion for THC stock to mean-revert lower and consolidate the steep July-August rally.

THC stock chart weekly
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On the daily chart, note that on July 25, THC stock had a bullish breakaway gap which, if it’s to hold, should not be fully retraced. Furthermore, with the 50-, 100- and 200-day simple moving averages curling up and slowly catching up with price, the stock has a good layer of support below.

Hence, the trade on the short side that is setting up here is not a big bet against the company’s business case, but rather a bet that the stock will do more mean-reverting lower toward one of the aforementioned moving averages.

THC stock chart daily
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Active investors can use the $60 area to lean against the stock on the short side with a first price target in the $52-$53 range, which also roughly coincides with the rising 50-day moving average.

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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.


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/tenet-healthcare-thc-stock-charts/.

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