Trade of the Day: CVS Stock Could Offer Some Defensive Upside

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CVS Health Corp (CVS) — CVS stock jumped 2.4% on Tuesday after the pharmacy store operator reported better-than-expected quarterly revenue and earnings. Shares also attempted to break out of their recent trading range, giving bulls renewed hope of a resumption of the multimonth rally.

While it may not be the sexiest business for thrill-seeking traders, I’m cautious regarding the broader stock market in coming months. Therefore, I am on the lookout for defensive names with upside potential, and CVS stock fits the bill.

Starting with the weekly chart, despite a nearly 25% drop from the July highs to the February lows, CVS stock managed to hold its 100-week simple moving average (blue line) on a weekly closing basis.

CVS Stock Chart - Weekly
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The rally off the February lows has since pushed shares back above their 50-week moving average (yellow line) where they have been consolidating for the past few weeks.

On the daily chart below, we see that while CVS stock made a lower low in February, it still managed to hold the support line of the falling wedge pattern. Just a few trading sessions later, shares managed to overcome their 50-day moving average (yellow line) and break the falling wedge pattern to the upside.

CVS Stock Chart - Daily
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By mid-March, CVS stock also broke above its 200-day moving average (red line), where it has been consolidating since. This orderly move higher following the explosive rally off the February lows means CVS stock presents less downside risk than many other stocks with V-shaped rebounds.

Tuesday’s rally pushed shares back to the upper end of the trading range in place since early April. Although a breakout has not yet occurred, this could be an opportunity to jump on a stock showing relative strength.

My first upside price target is near $108. A sharp bearish reversal from Tuesday’s closing levels should be respected as a potential warning sign to exit the trade.

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As of this writing, Serge did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2016/05/cvs-health-corp-cvs-stock-trade-day/.

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