Editor’s note: Serge Berger, the head trader and investment strategist for The Steady Trader, will be providing the Trade of the Day until Sam Collins returns on June 27.
Humana (NYSE: HUM) – Although the health-care sector underperformed on a relative basis yesterday, Humana and UnitedHealth Group (NYSE: UNH) started breaking out of some nice bases technically.
Humana offers health insurance and is a provider of Medicare Advantage health plans for seniors. From a fundamental long-term point of view, there are plenty of reasons to invest in this sector, as an aging population will increase the customer base. However, the uncertainty surrounding heath-care reform should be taken into account for intermediate-term investors. Ratings-wise, Fitch recently had some positive things to say about HUM, reaffirmed its BBB- rating on the company, and raised its outlook from “stable” to “positive.”
Of course, none of this matters a great deal for the shorter-term trade we will discuss here, but it is always nice to have some background on the sector and company before you trade it. Now to the charts we go.
After bottoming out around $18.60 in March 2009, HUM (like most stocks) made a huge move higher and closed 2010 at around $55 — a solid 195% run. And so far in 2011, the stock has tacked on another 50%.
HUM then paused and moved sideways for several weeks starting in early May, but yesterday, broke out of the consolidation phase. The stock now looks like it wants to attempt a run at its 2008 highs.
The stochastics oscillator, too, is indicating more upside is possible. Also note the higher low of the stochastics around June 17.
The trade: Enter a long at $82 or better with a stop at $78.75 and a profit target of $87.
