Laboratory Corp. of America Holdings (LH) — LH stock is up more than 4% this week following a better-than-expected earnings report. The clinical laboratory testing company said adjusted earnings per share jumped 14.8% year over year to $2.02, while revenue was up almost 30% to $2.3 billion. Management also raised their full-year earnings projections.
LH stock is up less than 3% in the past year but has seen plenty of gyrations. While shares are likely stretched in the short term, they look well-positioned to push higher in the medium to longer term.
In order to understand the bullish picture for LH stock, we must first get a grip on the weekly chart. Although shares have trended steadily higher since the early 2000s, they have seen several lengthy pauses, or consolidation phases, which I marked with diagonal resistance lines, that allowed them to reset along the way.
From June 2007 until late 2009, and from June 2011 until April 2013, LH stock consolidated a big advance. The latest big-picture consolidation phase took place from March 2015 through Monday. However, on a weekly closing basis, the stock has yet to confirm it can stay above the diagonal resistance line.
When looking at these patterns, it is important to keep in mind that while history doesn’t always repeat itself, it often rhymes. So, a move back toward the upper end of this long-term trading channel is not a far-fetched scenario.
On the daily chart below, we see this week’s rally pushed LH stock above the diagonal resistance line. But the move off the February lows has left shares very overbought from a momentum perspective.
Also note that Monday’s vertical leap left the stock stretched above its 8-day (blue line) and 21-day (yellow line) simple moving averages.
Traders could pounce on LH stock for a small upside momentum move if Monday’s high is overtaken. More risk-averse investors should look to buy on any pullback to the $115 to $120 area for a move back toward $140.
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As of this writing, Serge did not hold a position in any of the aforementioned securities.
