Humana (HUM) Attacking 2008 Highs

Posted by Serge 22 Jun 2011, 5:54 am No Comments »

 

Although healthcare underperformed on a relative basis yesterday, Humana (HUM) and its peer such as UnitedHealth Group (UNH) started breaking out of some nice bases technically.

Humana as a company 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 cases to be investing in this sector as an aging population surely will increase the customer base.  Of course the medium-term risks are around the uncertainty of the heathl-care reform, which is to be taken into account for longer-term investors. 

Rating-wise, Fitch recently had some positive words to say about HUM and reaffirmed its BBB- rating on the company and raised the outlook from stable to positive.

Of course none of this matters a great deal for the shorter-term trade we are discussing here, but it is always nice to have some background on the sector and company.  

To the charts we go.

Some longer-term context first. 

After bottoming-out around $18.60 in March 2009, HUM like most stocks put in a huge move higher and closed 2010 at around $55, a solid 200% run.  So far in 2011 however HUM ran up another almost 50% in the first five months. 

 

The stock then took a pause and moved sideways for several weeks starting in early May and yesterday broke out of the consolidation phase, looking 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 17th.

 

What’s the trade?

Entry long at $82 or better, Stop at $78.75, Profit Target at $87.

The major headwinds this trade could face would be if the market sold-off because of a ‘weak’ vote in Greece.  As of the time of this writing the vote has not yet come. 

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