President-elect Donald Trump on Wednesday held his first press conference since July, and investors paid close attention. The biotechnology sector and some other parts of the healthcare sector suffered after Trump said that the drug bidding process must be improved. However, other sector stocks — including Humana Inc (NYSE:HUM) — held up, and Humana stock increasingly looks ready for a pop higher.
Markets always need time to adjust to how a new president communicates. With Trump’s direct approach, pockets of the broader stock market could see some choppy going and clamor to each word out of the soon-to-be president. To be clear, we have already seen plenty of such price action; yesterday was just another example.
From a trading perspective, this could provide plenty of opportunity in 2017. But it also means any sudden reversals due to a Trump statement must be respected through the lens of risk management.
So while I think 2017 ultimately could be a positive year for U.S. stocks, I think the best opportunities will be in specific industries and specific single-name stocks. An active investing approach with proper risk management should be well-rewarded.
In my discussions with smart-money investors in recent weeks, insurer Humana is a favorite in the space. Some argue about valuation, but more prominently the bull case focuses around a potential repeal of the Affordable Care Act under the incoming Trump administration.
To be clear, the bulls have already voted with their wallets on HUM stock since the election results last November. But looking at the charts, Humana could see another leg higher soon.
Humana Stock Charts
On the multiyear weekly chart, we see that much like the broader stock market, HUM shares topped out in the first half of 2015, then began to settle into a consolidation phase.
This allowed the stock to work off its intermediate-term overbought conditions. It also allowed the 50-week (yellow) and 100-week (blue) simple moving averages to catch up with price.
While lines on charts can be drawn in many ways, if we draw the two black parallels, we note that the 2015-16 consolidation phase has taken the shape of what we may label a bull flag pattern, which following the November election results has already begun to resolve higher.
On the daily chart, we see that the November 2016 rally cleanly broke Humana stock out past diagonal resistance and away from the intermediate-term moving averages (50-, 100- and 200-day), which were all intertwined until then.
This rally has begun to separate and tilt higher these moving averages, which could now become important reference areas of support.
Note that HUM stock has largely been stuck in a trading range since early this past December and that the 50-day (yellow) moving average is attempting to act as support. This wedge-like consolidation pattern increasingly looks ready to resume higher.
A break and hold above the $206 area on a daily closing basis could trigger a move that steers Humana stock toward $220 as a next upside target. Any strong bearish reversals should be respected as stop-loss signals.
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