January ushered in the return of volatility for CVS Health (NYSE:CVS). Mix in a quick drop after last week’s earnings report and you have an uptrend that has turned tumultuous. Though the trend’s trajectory has shifted to neutral, bulls still deserve your backing. Here are the price levels to watch for trades in CVS stock moving forward.
The booming bull market for equities left CVS behind. Since peaking in 2015, the struggling drug store chain saw a thorough dismantling of its once glorious stock price. From $113.45 to last year’s lows of $51.72, CVS lost 54% of its value.
It’s bad enough when that large of a bite is taken during a bear market, let alone when it happens while the rest of the market is riding a rocket ship to record highs almost every single month.
CVS Stock Weekly Chart
But all is not lost. This is a story that has a happy ending. The past year has seen a strong comeback with CVS stock ripping from the aforementioned low of $51.72 to as high as $77.03. That’s almost a 50% gain. What’s more important than the magnitude, however, is how it changed the trend structure. This is the strongest rebound experienced in the past four years. It jammed the shares above the trend line that had previously kept a lid on all prior advances.
Additionally, the relative strength index (RSI) ramped to its highest level since 2015, officially pushing into overbought territory. That’s the kind of strength and change in character that the price needed to confirm its turned a corner. A rise above the 200-week moving average and horizontal resistance at $77 will clinch the reversal, so those are the zones to watch.
$77 Breakout Watch
With the return of volatility in 2020, distribution days are multiplying, and the stock has fallen back below its 50-day moving average. Rather than rescue CVS, last week’s earnings created a selloff that pushed it back into the center of its choppy range. While I still believe in the longer-term uptrend that took root last year, the daily slop is giving me pause as a would-be buyer.
What I seek in a situation like this is confirmation that buyers are returning — that CVS stock has the strength to power through resistance and rally anew. This adds further validity to the idea of waiting for a breach of $77 before deploying new trades. It’s about $5 away, so it will likely take some time to be tested. In the meantime, have patience. Let the setup develop, then pounce when the price takes out $77.
With implied volatility sitting at the lower-end of its one-year range, long calls or bull call spreads are my preferred strategy.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here!
