UnitedHealth Stock Is Consolidating a Bear Market Decline

UnitedHealth Group Incorporated (UNH) provides managed health care products and insurance services, and the company reported better-than-expected second quarter earnings before the opening bell on Thursday, July 18. The stock did not respond to the upside given uncertainty regarding potential changes to the health care system going into the 2020 election cycle.

UnitedHealth shares closed the first half of 2019 at $244.01 on June 28, which became a key input to my proprietary analytics. The only level left over from the first half is its annual pivot at $247.82, which has been a magnet since Jan. 14, and the stock last crossed above that level on July 11. The monthly value level for July is $239.33, with semiannual and quarterly risky levels at $279.61 and $287.04, respectively. The daily chart shows a trading range among these levels, and the weekly chart is positive but overbought.

Fundamentally, UnitedHealth is slightly overvalued with a P/E ratio of 19.66 and a dividend yield of 1.62%, according to Macrotrends. This health insurance giant is a component of the Dow Jones Industrial Average and extended its earnings per share winning streak to 23 consecutive quarters.

In the long term, UnitedHealth is consolidating a bear market decline of 27.7% from its all-time intraday high of $287.94 set on Dec. 4 to its April 17 low of $208.07. The stock is up just 4.6% year to date and up a bull market 25.3% since its April 17 low. The stock is also 9.5% below its all-time high.

Consumers looking for health insurance from UnitedHealth should be aware that individual coverage for those under 65 years old will likely be written on three-month intervals. Premiums are revised based upon claims history. A major focus is on providing supplemental insurance for patients covered by Medicare. This includes prescription drug coverage. Keep in mind that, to qualify for these plans, you must also be a member of AARP.

The daily chart for UnitedHealth

The daily chart shows the 27.7% decline from the all-time intraday high of $287.94 set on Dec. 4 down to its April 17 low of $208.07. Note how the annual pivot at $247.82 has been the center of a trading range, now between the value level for July at $239.33 and the semiannual and quarterly risky levels at $279.61 and $287.04, respectively.

The weekly chart for UnitedHealth

The weekly chart for UnitedHealth is positive but overbought, with the stock above its five-week modified moving average of $251.54 and well above its 200-week simple moving average, or "reversion to the mean", at $193.19. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 84.81, moving above the overbought threshold of 80.00.

Trading strategy: Buy UnitedHealth shares on weakness between the annual pivot at $247.82 and to its monthly value level at $239.33. Reduce holdings on strength to the semiannual and quarterly risky levels at $279.61 and $287.04, respectively.

How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on June 28. The quarterly level was also changed at the end of June.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.