While the broader U.S. stock market has seen more swings than a playground of late, one sector in specific has held up relatively well and defended, thus far, a pattern it has displayed for several months now. That sector is healthcare stocks. Within this sector, shares of U.S. health insurance giant UnitedHealth Group (NYSE:UNH) continue to act well and, following their latest earnings report, look ripe for another break higher.
The highest probability and most steadily successful stock market strategy that I have found over my thus far 21-year career as a trader and investor is that of sector and group rotation. Not only does sector and group rotation happen every day, week and month of every year, but it is also the real basis of how the stock market works.
One key part of this strategy is understanding how much weight any given sector carries of the entire S&P 500 as well as what the weight of individual stocks in their respective sectors is.
UNH stock, for example, with currently about 7.1% is the third-largest holding of the healthcare sector. In other words, the stock’s movement has a relatively big effect on the the healthcare sector.
UNH Stock Charts
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
To start off the analysis, let’s note the strong multiyear performance of UNH stock and that this has been taking place within a well-defined up-trending channel. While the stock is now trading at the upper end of this channel, it has been up there in a consolidation phase since early September.
Through a multiweek/month lens it is entirely possible that the stock sees another leg higher from here soon.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see this aforementioned trading range since early September more close-up. The range is supported by the blue 100-day simple moving average on the lower end and has simple horizontal resistance at the top.
On Oct. 16, UNH stock gapped higher on the back of its latest earnings report and thus once again defending support although not yet breaking higher.
My call here is that the broader stock market will see a year-end rally manifest in the not-too-distant future, and healthcare stocks like UNH stock should participate well in that move.
I will be discussing the state of the market and the likely path of least resistance into year-end on a special panel this coming Monday, Oct. 22. You can register here for this free event.
Buy UNH at $273 or higher for a next upside profit target at $285, while any meaningful bearish reversal particularly on a weekly closing basis would be a stop-loss signal.
S&P 500 year-end targets and path of least resistance. Which sectors will outperform? Join Serge at the special expert panel by registering here.
